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(ARDEN REALTY, INC. LOGO)

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Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

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

For the quarter ended June 30, 2003

Commission file number 1-12193

ARDEN REALTY, INC.

(Exact name of registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Maryland
(State or other jurisdiction of incorporation
or organization) |  | 95-4578533
(I.R.S. Employer Identification No.)

11601 Wilshire Boulevard,
4th Floor
Los Angeles, California 90025-1740
(Address and zip code of principal executive offices)

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

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X]    No [   ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [X]    No [   ]

As of August 11, 2003 there were 63,422,180 shares of the registrants common
stock, $.01 par value, issued and outstanding.



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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|Part I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                 
|                              |                                                                                               | Consolidated Balance Sheets                         
|                              |                                                                                               | Consolidated Statements of Income                   
|                              |                                                                                               | Consolidated Statements of Cash Flows               
|                              |                                                                                               | Notes to Consolidated Condensed Financial Statements
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosure about Market Risk                            
|                              | Item 4. Controls and Procedures                                                              
|Part II OTHER INFORMATION    
|SIGNATURES                   
|EXHIBIT 31.1                 
|EXHIBIT 32.1                 



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##### Table of Contents



ARDEN REALTY, INC.
FORM 10-Q
TABLE OF CONTENTS

|         |  |                       |  |            |         |                                                                                                         |  |          |    | 
|-------- |  | --------------------- |  | ---------- | ------- | ------------------------------------------------------------------------------------------------------- |  | -------- | -- | 
|         |  |                       |  |            |         |                                                                                                         |  | PAGE NO.
|         |  |                       |  |            |         |                                                                                                         |  |         
|PART I.  |  | FINANCIAL INFORMATION |  |            |         |                                                                                                        
|         |  |                       |  |            | Item 1. | Financial Statements                                                                                    |  |          |    | 
|         |  |                       |  |            |         | Consolidated Balance Sheets as of June 30, 2003 (unaudited) and
December 31, 2002                       |  |          | 3  | 
|         |  |                       |  |            |         | Consolidated Statements of Income for the three and six months ended
June 30, 2003 and 2002 (unaudited) |  |          | 4  | 
|         |  |                       |  |            |         | Consolidated Statements of Cash Flows for the six months ended
June 30, 2003 and 2002 (unaudited)       |  |          | 5  | 
|         |  |                       |  |            |         | Notes to Consolidated Financial Statements                                                              |  |          | 6  | 
|         |  |                       |  |            | Item 2. | Managements Discussion and Analysis of Financial
Condition and Results of Operations                   |  |          | 10 | 
|         |  |                       |  |            | Item 3. | Quantitative and Qualitative Disclosures about Market Risk                                              |  |          | 26 | 
|         |  |                       |  |            | Item 4. | Controls and Procedures                                                                                 |  |          | 27 | 
|PART II. |  | OTHER INFORMATION     |  |            | 28      |                                                                                                        
|         |  |                       |  | SIGNATURES |         |                                                                                                         |  | 29       |   





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Part I. FINANCIAL INFORMATION




Item 1.   Financial Statements




Arden Realty, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)

|                                                                                                                                                                   |                                                 |                                            |           |             |           |              |           |           |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------- | ------------------------------------------ | --------- | ----------- | --------- | ------------ | --------- | --------- | --------- | 
|                                                                                                                                                                   |                                                 |                                            |           | June 30,    |           | December 31,
|                                                                                                                                                                   |                                                 |                                            |           | 2003        |           | 2002        
|                                                                                                                                                                   |                                                 |                                            |           |             |           |             
|                                                                                                                                                                   |                                                 |                                            |           | (unaudited) |           |              |           |          
|Assets                                                                                                                                                             |                                                 |                                            |           |             |           |              |           |          
|Investment in real estate:                                                                                                                                         |                                                 |                                            |           |             |           |              |           |          
|                                                                                                                                                                   | Land                                            |                                            | $         | 476,034     |           |              | $         | 476,034   |          
|                                                                                                                                                                   | Buildings and improvements                      |                                            |           | 2,167,730   |           |              |           | 2,164,449 |          
|                                                                                                                                                                   | Tenant improvements and leasing commissions     |                                            |           | 336,178     |           |              |           | 320,100   |          
|                                                                                                                                                                   |                                                 |                                            |           |             |           |              |           |           |          
|                                                                                                                                                                   |                                                 |                                            | 2,979,942 |             |           |              | 2,960,583 |          
|                                                                                                                                                                   | Less: accumulated depreciation and amortization |                                            |           | (424,670    | )         |              |           | (381,557  | )        
|                                                                                                                                                                   |                                                 |                                            |           |             |           |              |           |           |          
|                                                                                                                                                                   |                                                 |                                            | 2,555,272 |             |           |              | 2,579,026 |          
|                                                                                                                                                                   | Properties under development                    |                                            |           | 69,286      |           |              |           | 65,296    |          
|                                                                                                                                                                   | Land available for development                  |                                            |           | 23,789      |           |              |           | 23,731    |          
|                                                                                                                                                                   | Properties held for disposition, net            |                                            |           |            |           |              |           | 73,571    |          
|                                                                                                                                                                   |                                                 |                                            |           |             |           |              |           |           |          
|                                                                                                                                                                   |                                                 | Net investment in real estate              |           |             | 2,648,347 |              |           |           | 2,741,624 | 
|Cash and cash equivalents                                                                                                                                          |                                                 |                                            | 15,565    |             |           |              | 4,063     |          
|Restricted cash                                                                                                                                                    |                                                 |                                            | 20,709    |             |           |              | 20,498    |          
|Rent and other receivables, net of allowance of $4,824 and $4,001 at
June 30, 2003 and December 31, 2002, respectively                                             |                                                 |                                            | 2,004     |             |           |              | 2,917     |          
|Deferred rent                                                                                                                                                      |                                                 |                                            | 43,557    |             |           |              | 43,646    |          
|Prepaid financing costs, expenses and other assets, net of amortization                                                                                            |                                                 |                                            | 22,701    |             |           |              | 19,661    |          
|                                                                                                                                                                   |                                                 |                                            |           |             |           |              |           |           |          
|                                                                                                                                                                   |                                                 | Total assets                               |           | $           | 2,752,883 |              |           | $         | 2,832,409 | 
|                                                                                                                                                                   |                                                 |                                            |           |             |           |              |           |           |          
|Liabilities                                                                                                                                                        |                                                 |                                            |           |             |           |              |           |          
|Mortgage loans payable                                                                                                                                             |                                                 | $                                          | 568,564   |             |           | $            | 570,654   |          
|Unsecured lines of credit                                                                                                                                          |                                                 |                                            | 158,000   |             |           |              | 208,587   |          
|Unsecured term loan                                                                                                                                                |                                                 |                                            | 125,000   |             |           |              | 125,000   |          
|Unsecured senior notes, net of discount                                                                                                                            |                                                 |                                            | 498,255   |             |           |              | 498,063   |          
|Accounts payable and accrued expenses                                                                                                                              |                                                 |                                            | 54,951    |             |           |              | 55,705    |          
|Security deposits                                                                                                                                                  |                                                 |                                            | 21,157    |             |           |              | 20,645    |          
|Dividends payable                                                                                                                                                  |                                                 |                                            | 31,985    |             |           |              | 31,807    |          
|                                                                                                                                                                   |                                                 |                                            |           |             |           |              |           |           |          
|                                                                                                                                                                   |                                                 | Total liabilities                          |           |             | 1,457,912 |              |           |           | 1,510,461 | 
|Minority interest                                                                                                                                                  |                                                 |                                            | 73,387    |             |           |              | 74,571    |          
|Stockholders Equity                                                                                                                                               |                                                 |                                            |           |             |           |              |           |          
|Preferred stock, $.01 par value 20,000,000 shares authorized, none issued                                                                                          |                                                 |                                            |          |             |           |              |          |          
|Common stock, $.01 par value, 100,000,000 shares authorized,
63,335,752 and 62,984,217 issued and outstanding at June 30, 2003 and
December 31, 2002, respectively |                                                 |                                            | 635       |             |           |              | 631       |          
|Additional paid-in capital                                                                                                                                         |                                                 |                                            | 1,238,611 |             |           |              | 1,260,773 |          
|Deferred compensation                                                                                                                                              |                                                 |                                            | (11,985   | )           |           |              | (11,259   | )        
|Accumulated other comprehensive loss                                                                                                                               |                                                 |                                            | (5,677    | )           |           |              | (2,768    | )        
|                                                                                                                                                                   |                                                 |                                            |           |             |           |              |           |           |          
|                                                                                                                                                                   |                                                 | Total stockholders equity                 |           |             | 1,221,584 |              |           |           | 1,247,377 | 
|                                                                                                                                                                   |                                                 |                                            |           |             |           |              |           |           |          
|                                                                                                                                                                   |                                                 | Total liabilities and stockholders equity |           | $           | 2,752,883 |              |           | $         | 2,832,409 | 
|                                                                                                                                                                   |                                                 |                                            |           |             |           |              |           |           |          

See accompanying notes to consolidated financial statements.

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Arden Realty, Inc.
Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)

|                                                                                          |                                     |   |                    |      |                  |   |        |      |      |   |         |      |  |   |         |      | 
|----------------------------------------------------------------------------------------- | ----------------------------------- | - | ------------------ | ---- | ---------------- | - | ------ | ---- | ---- | - | ------- | ---- |  | - | ------- | ---- | 
|                                                                                          |                                     |   | Three Months Ended |      | Six Months Ended
|                                                                                          |                                     |   | June 30,           |      | June 30,        
|                                                                                          |                                     |   |                    |      |                 
|                                                                                          |                                     |   | 2003               |      | 2002             |   | 2003   |      | 2002
|                                                                                          |                                     |   |                    |      |                  |   |        |      |     
|Property revenues                                                                         |                                     | $ | 105,171            |      |                  | $ | 99,927 |      |      | $ | 209,447 |      |  | $ | 199,628 |     
|Property operating expenses                                                               |                                     |   | 33,614             |      |                  |   | 29,945 |      |      |   | 65,881  |      |  |   | 59,228  |     
|                                                                                          |                                     |   |                    |      |                  |   |        |      |      |   |         |      |  |   |         |     
|                                                                                          |                                     |   | 71,557             |      |                  |   | 69,982 |      |      |   | 143,566 |      |  |   | 140,400 |     
|General and administrative expenses                                                       |                                     |   | 4,225              |      |                  |   | 2,951  |      |      |   | 7,877   |      |  |   | 5,911   |     
|Interest expense                                                                          |                                     |   | 23,254             |      |                  |   | 21,584 |      |      |   | 46,289  |      |  |   | 42,981  |     
|Depreciation and amortization                                                             |                                     |   | 30,049             |      |                  |   | 28,028 |      |      |   | 59,010  |      |  |   | 53,608  |     
|Interest and other income                                                                 |                                     |   | (378               | )    |                  |   | (512   | )    |      |   | (510    | )    |  |   | (1,052  | )   
|                                                                                          |                                     |   |                    |      |                  |   |        |      |      |   |         |      |  |   |         |     
|Income from continuing operations before
gain on sale of properties and minority interest |                                     |   | 14,407             |      |                  |   | 17,931 |      |      |   | 30,900  |      |  |   | 38,952  |     
|Gain on sale of operating properties                                                      |                                     |   |                   |      |                  |   | 81     |      |      |   |        |      |  |   | 1,273   |     
|                                                                                          |                                     |   |                    |      |                  |   |        |      |      |   |         |      |  |   |         |     
|Income from continuing operations before minority interest                                |                                     |   | 14,407             |      |                  |   | 18,012 |      |      |   | 30,900  |      |  |   | 40,225  |     
|Minority interest                                                                         |                                     |   | (1,440             | )    |                  |   | (1,521 | )    |      |   | (2,926  | )    |  |   | (3,176  | )   
|                                                                                          |                                     |   |                    |      |                  |   |        |      |      |   |         |      |  |   |         |     
|Income from continuing operations                                                         |                                     |   | 12,967             |      |                  |   | 16,491 |      |      |   | 27,974  |      |  |   | 37,049  |     
|Discontinued operations, net of minority interest                                         |                                     |   | (85                | )    |                  |   | 916    |      |      |   | 985     |      |  |   | 1,711   |     
|Gain on sale of discontinued properties                                                   |                                     |   | 6,021              |      |                  |   |       |      |      |   | 5,382   |      |  |   |        |     
|                                                                                          |                                     |   |                    |      |                  |   |        |      |      |   |         |      |  |   |         |     
|Net income                                                                                |                                     | $ | 18,903             |      |                  | $ | 17,407 |      |      | $ | 34,341  |      |  | $ | 38,760  |     
|                                                                                          |                                     |   |                    |      |                  |   |        |      |      |   |         |      |  |   |         |     
|Basic net income per common share:                                                        |                                     |   |                    |      |                  |   |        |      |      |   |         |      |  |   |         |     
|                                                                                          | Income from continuing operations   |   | $                  | 0.21 |                  |   | $      | 0.26 |      |   | $       | 0.44 |  |   | $       | 0.57 | 
|                                                                                          | Income from discontinued operations |   |                    | 0.09 |                  |   |        | 0.01 |      |   |         | 0.10 |  |   |         | 0.03 | 
|                                                                                          |                                     |   |                    |      |                  |   |        |      |      |   |         |      |  |   |         |     
|Net income per common share  basic                                                       |                                     | $ | 0.30               |      |                  | $ | 0.27   |      |      | $ | 0.54    |      |  | $ | 0.60    |     
|                                                                                          |                                     |   |                    |      |                  |   |        |      |      |   |         |      |  |   |         |     
|Weighted average number of common shares  basic                                          |                                     |   | 63,207             |      |                  |   | 64,529 |      |      |   | 63,124  |      |  |   | 64,366  |     
|                                                                                          |                                     |   |                    |      |                  |   |        |      |      |   |         |      |  |   |         |     
|Diluted net income per common share:                                                      |                                     |   |                    |      |                  |   |        |      |      |   |         |      |  |   |         |     
|                                                                                          | Income from continuing operations   |   | $                  | 0.21 |                  |   | $      | 0.26 |      |   | $       | 0.44 |  |   | $       | 0.57 | 
|                                                                                          | Income from discontinued operations |   |                    | 0.09 |                  |   |        | 0.01 |      |   |         | 0.10 |  |   |         | 0.03 | 
|                                                                                          |                                     |   |                    |      |                  |   |        |      |      |   |         |      |  |   |         |     
|Net income per common share  diluted                                                     |                                     | $ | 0.30               |      |                  | $ | 0.27   |      |      | $ | 0.54    |      |  | $ | 0.60    |     
|                                                                                          |                                     |   |                    |      |                  |   |        |      |      |   |         |      |  |   |         |     
|Weighted average number of common shares  diluted                                        |                                     |   | 63,436             |      |                  |   | 65,106 |      |      |   | 63,268  |      |  |   | 64,836  |     
|                                                                                          |                                     |   |                    |      |                  |   |        |      |      |   |         |      |  |   |         |     

See accompanying notes to consolidated financial statements.

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Arden Realty, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

|                                                     |                                                                                   |                                                                      |                                                    |          |                  |        |         |          |        |        |  
|---------------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------- | -------- | ---------------- | ------ | ------- | -------- | ------ | ------ | -
|                                                     |                                                                                   |                                                                      |                                                    |          | Six Months Ended
|                                                     |                                                                                   |                                                                      |                                                    |          | June 30,        
|                                                     |                                                                                   |                                                                      |                                                    |          |                 
|                                                     |                                                                                   |                                                                      |                                                    |          | 2003             |        | 2002   
|                                                     |                                                                                   |                                                                      |                                                    |          |                  |        |        
|Operating Activities:                                |                                                                                   |                                                                      |                                                    |          |                  |        |         |         
|                                                     | Net income                                                                        |                                                                      | $                                                  | 34,341   |                  |        | $       | 38,760   |       
|                                                     | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                                      |                                                    |          |                  |        |         |          |       
|                                                     |                                                                                   | Minority interest, including discontinued operations                 |                                                    |          | 3,086            |        |         |          | 3,223  |       
|                                                     |                                                                                   | Gain on sale of operating properties                                 |                                                    |          |                 |        |         |          | (1,273 | )     
|                                                     |                                                                                   | Gain on sale of discontinued properties                              |                                                    |          | (5,382           | )      |         |          |       |       
|                                                     |                                                                                   | Depreciation and amortization, including discontinued operations     |                                                    |          | 59,575           |        |         |          | 55,205 |       
|                                                     |                                                                                   | Amortization of loan costs                                           |                                                    |          | 1,924            |        |         |          | 1,901  |       
|                                                     |                                                                                   | Non-cash compensation expense                                        |                                                    |          | 837              |        |         |          | 560    |       
|                                                     |                                                                                   | Changes in operating assets and liabilities:                         |                                                    |          |                  |        |         |          |        |       
|                                                     |                                                                                   |                                                                      | Rent and other receivables                         |          |                  | 913    |         |          |        | 5,537  |  
|                                                     |                                                                                   |                                                                      | Deferred rent                                      |          |                  | 89     |         |          |        | (3,020 | )
|                                                     |                                                                                   |                                                                      | Prepaid financing costs, expenses and other assets |          |                  | (3,662 | )       |          |        | (599   | )
|                                                     |                                                                                   |                                                                      | Accounts payable and accrued expenses              |          |                  | (3,682 | )       |          |        | (5,425 | )
|                                                     |                                                                                   |                                                                      | Security deposits                                  |          |                  | 512    |         |          |        | (995   | )
|                                                     |                                                                                   |                                                                      |                                                    |          |                  |        |         |          |       
|                                                     | Net cash provided by operating activities                                         |                                                                      |                                                    | 88,551   |                  |        |         | 93,874   |       
|                                                     |                                                                                   |                                                                      |                                                    |          |                  |        |         |          |       
|Investing Activities:                                |                                                                                   |                                                                      |                                                    |          |                  |        |         |         
|                                                     | Improvements to commercial properties                                             |                                                                      |                                                    | (40,634  | )                |        |         | (58,412  | )     
|                                                     | Proceeds from sale of properties                                                  |                                                                      |                                                    | 78,719   |                  |        |         | 21,919   |       
|                                                     |                                                                                   |                                                                      |                                                    |          |                  |        |         |          |       
|                                                     | Net cash provided by (used in) investing activities                               |                                                                      |                                                    | 38,085   |                  |        |         | (36,493  | )     
|                                                     |                                                                                   |                                                                      |                                                    |          |                  |        |         |          |       
|Financing Activities:                                |                                                                                   |                                                                      |                                                    |          |                  |        |         |         
|                                                     | Proceeds from term loan                                                           |                                                                      |                                                    |         |                  |        |         | 75,000   |       
|                                                     | Repayments of mortgage loans                                                      |                                                                      |                                                    | (2,090   | )                |        |         | (1,370   | )     
|                                                     | Proceeds from unsecured lines of credit                                           |                                                                      |                                                    | 41,500   |                  |        |         | 30,500   |       
|                                                     | Repayments of unsecured lines of credit                                           |                                                                      |                                                    | (92,087  | )                |        |         | (122,500 | )     
|                                                     | Proceeds from issuance of common stock                                            |                                                                      |                                                    | 5,298    |                  |        |         | 6,351    |       
|                                                     | Distributions to preferred operating partnership unit holders                     |                                                                      |                                                    | (2,156   | )                |        |         | (2,156   | )     
|                                                     | Increase in restricted cash                                                       |                                                                      |                                                    | (211     | )                |        |         | (180     | )     
|                                                     | Distributions to minority interests                                               |                                                                      |                                                    | (1,734   | )                |        |         | (1,784   | )     
|                                                     | Dividends paid                                                                    |                                                                      |                                                    | (63,654  | )                |        |         | (63,932  | )     
|                                                     |                                                                                   |                                                                      |                                                    |          |                  |        |         |          |       
|                                                     | Net cash used in financing activities                                             |                                                                      |                                                    | (115,134 | )                |        |         | (80,071  | )     
|                                                     |                                                                                   |                                                                      |                                                    |          |                  |        |         |          |       
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                                      | 11,502                                             |          |                  |        | (22,690 | )       
|Cash and cash equivalents at beginning of period     |                                                                                   |                                                                      | 4,063                                              |          |                  |        | 37,041  |         
|                                                     |                                                                                   |                                                                      |                                                    |          |                  |        |         |          |       
|Cash and cash equivalents at end of period           |                                                                                   | $                                                                    | 15,565                                             |          |                  | $      | 14,351  |         
|                                                     |                                                                                   |                                                                      |                                                    |          |                  |        |         |          |       
|Supplemental Disclosure of Cash Flow Information:    |                                                                                   |                                                                      |                                                    |          |                  |        |         |         
|                                                     |                                                                                   | Cash paid during the period for interest, net of amounts capitalized |                                                    | $        | 47,214           |        |         | $        | 44,961 |       
|                                                     |                                                                                   |                                                                      |                                                    |          |                  |        |         |          |       

See accompanying notes to consolidated financial statements.

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Arden Realty, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2003
(unaudited)

1.   Description of Business

The terms Arden Realty, us, we and our as used in this report
refer to Arden Realty, Inc. Through our controlling interest in Arden Realty
Limited Partnership, or the Operating Partnership, and our other subsidiaries,
we own, manage, lease, develop, renovate and acquire commercial office
properties located in Southern California. As of June 30, 2003, our portfolio
was comprised of 131 primarily suburban office properties, consisting of 217
buildings with approximately 18.9 million net rentable square feet including
one development project with approximately 283,000 net rentable square feet
currently under lease-up. As of June 30, 2003, excluding the development
project, our portfolio was 89.5% occupied.

The accompanying consolidated condensed financial statements include our
accounts, the accounts of the Operating Partnership and our other subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation.

The minority interests at June 30, 2003 consist of limited partnership
interests in the Operating Partnership of approximately 2.6%, exclusive of
ownership interests of the Operating Partnerships preferred unit holders.

2.   Summary of Significant Accounting Policies

Basis of Presentation

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

We consolidate all entities for which we have controlling financial
interest as measured by a majority of the voting interest. For entities in
which the controlling financial interest is not clearly indicated by ownership
of a majority of the voting interest, we would consolidate those entities that
we control by agreement. We also consolidate all variable interest entities
for which we are the primary beneficiary.

Except for minority interests in the Operating Partnership, Arden Realty
and the Operating Partnership currently own 100% of all of our consolidated
subsidiaries and do not have any unconsolidated investments other than an
investment in the securities of a non-publicly traded company. This investment
represents approximately 5.6% of the total equity outstanding for this
particular company. Because we do not control this company contractually nor
exert significant influence over its operating and financial policies, we
account for this investment under the cost method of accounting.

Interim Financial Data

The accompanying consolidated condensed financial statements should be
read in conjunction with our 2002 Annual Report on Form 10-K as filed with the
Securities and Exchange Commission. The accompanying financial information
reflects all adjustments, which are, in our opinion, of a normal recurring
nature and necessary for a fair presentation of our financial position, results
of operations and cash flows for the interim periods. Interim results of
operations are not necessarily indicative of the results to be expected for the
full year.

Reclassifications

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

3.   New Accounting Standards

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

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

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##### Table of Contents



In May 2003, the FASB issued FASB Statement No. 150 (SFAS 150),
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. SFAS 150 affects the issuers accounting for certain
types of freestanding financial instruments. In addition to its requirements
for the classification and measurement of financial instruments in its scope,
SFAS 150 also requires disclosures about alternative ways of settling the
instruments and capital structure of entities, all of whose shares are
mandatorily redeemable. Most of the guidance in SFAS 150 is effective for all
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. We will adopt SFAS 150 in the third quarter of 2003 and
do not expect its adoption to significantly impact our consolidated financial
statements.

4.   Property Dispositions

On March 11, 2003, we sold an approximate 140,000 square foot office
property located in West Hollywood, California for a gross sales price of
approximately $32.5 million.

On April 11, 2003, we sold four properties totaling approximately 343,000
square feet located in Riverside and San Bernardino counties for a gross sales
price of approximately $43.4 million.

On May 22, 2003, we sold an approximate 33,000 square foot office property
located in Orange County for a gross sales price of approximately $5.0 million.

The net proceeds from these dispositions were used to reduce the
outstanding balance on our Wells Fargo unsecured line of credit.

5.   Outstanding Indebtedness

A summary of our outstanding indebtedness as of June 30, 2003 and December
31, 2002 is as follows:

|                             |            |             |                |           |              |             |               |                |                  |               |               |          |  |                           |           |         |    |  |  |      |       |  |  |  | 
|---------------------------- | ---------- | ----------- | -------------- | --------- | ------------ | ----------- | ------------- | -------------- | ---------------- | ------------- | ------------- | -------- |  | ------------------------- | --------- | ------- | -- |  |  | ---- | ----- |  |  |  | 
|                             |            |             |                |           |              |             |               |                |                  |               | Stated Annual |          |  |                           |           |         |    |  |  |      |       |  | 
|                             |            |             | June 30,       |           |              |             |               |                | Interest Rate at |               |               |          |  |                           | Number of |         |    |  | 
|                             |            |             | 2003           |           | December 31, |             | June 30, 2003 |                | Rate             |               | Properties    |          |  |                           |          
|Type of Debt                 |            | (unaudited) |                | 2002      |              | (unaudited) |               | Fixed/Floating |                  | Securing Loan |               | Maturity
|                             |            |             |                |           |              |             |               |                |                  |               |               |         
|                             |            |             | (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)    |            |             | 135,758        |           |              |             | 136,100       |                |                  |               | 6.74          | %        |  | Fixed                     |           |         | 22 |  |  |      | 4/08  | 
|Mortgage Financing IV(2)     |            |             | 110,928        |           |              |             | 111,200       |                |                  |               | 6.61          | %        |  | Fixed                     |           |         | 12 |  |  |      | 4/08  | 
|Mortgage Financing V(2)      |            |             | 107,035        |           |              |             | 108,153       |                |                  |               | 6.94          | %        |  | Fixed                     |           |         | 12 |  |  |      | 4/09  | 
|Mortgage Financing VI(2)     |            |             | 21,714         |           |              |             | 21,816        |                |                  |               | 7.54          | %        |  | Fixed                     |           |         | 3  |  |  |      | 4/09  | 
|Activity Business Center(2)  |            |             | 7,497          |           |              |             | 7,580         |                |                  |               | 8.85          | %        |  | Fixed                     |           |         | 1  |  |  |      | 5/06  | 
|145 South Fairfax(2)         |            |             | 3,931          |           |              |             | 3,952         |                |                  |               | 8.93          | %        |  | Fixed                     |           |         | 1  |  |  |      | 1/27  | 
|Marin Corporate Center(2)    |            |             | 2,788          |           |              |             | 2,850         |                |                  |               | 9.00          | %        |  | Fixed                     |           |         | 1  |  |  |      | 7/15  | 
|Conejo Business Center(2)    |            |             | 2,734          |           |              |             | 2,795         |                |                  |               | 8.75          | %        |  | Fixed                     |           | (Note 3 | )  |  |  | 7/15 |      
|Conejo Business Center(2)    |            |             | 1,179          |           |              |             | 1,208         |                |                  |               | 7.88          | %        |  | Fixed                     |           | (Note 3 | )  |  |  | 7/15 |      
|                             |            |             |                |           |              |             |               |                |                  |               |               |          |  |                           |           |         |    |  |  |      |       |  |  | 
|                             |            |             | 568,564        |           |              |             | 570,654       |                |                  |               |               |          |  |                           |           |         |    |  |  |      |       |  |  | 
|Unsecured Lines of Credit:   |            |             |                |           |              |             |               |                |                  |               |               |          |  |                           |           |         |    |  |  |      |       |  |  | 
|Floating Rate                |            |             |                |           |              |             |               |                |                  |               |               |          |  |                           |           |         |    |  |  |      |       |  |  | 
|Wells Fargo-$310 mm(1)       |            |             | 158,000        |           |              |             | 208,587       |                |                  |               | 2.91          | %        |  | LIBOR + 1.00% (Notes 4,5) |           |         |   |  |  |      | 4/06  | 
|City National Bank-$10 mm(1) |            |             |               |           |              |             |              |                |                  |               |              |          |  | Prime Rate  0.875%       |           |         |   |  |  |      | 8/03  | 
|                             |            |             |                |           |              |             |               |                |                  |               |               |          |  |                           |           |         |    |  |  |      |       |  |  | 
|                             |            |             | 158,000        |           |              |             | 208,587       |                |                  |               |               |          |  |                           |           |         |    |  |  |      |       |  |  | 
|Unsecured Term Loan:         |            |             |                |           |              |             |               |                |                  |               |               |          |  |                           |           |         |    |  |  |      |       |  |  | 
|Floating Rate                |            |             |                |           |              |             |               |                |                  |               |               |          |  |                           |           |         |    |  |  |      |       |  |  | 
|Wells Fargo-$125 mm(1),(6)   |            |             | 125,000        |           |              |             | 125,000       |                |                  |               | 3.64          | %        |  | Fixed (Note 7)            |           |         |   |  |  |      | 6/04  | 
|Unsecured Senior Notes:      |            |             |                |           |              |             |               |                |                  |               |               |          |  |                           |           |         |    |  |  |      |       |  |  | 
|Fixed Rate                   |            |             |                |           |              |             |               |                |                  |               |               |          |  |                           |           |         |    |  |  |      |       |  |  | 
|2005 Notes(8)                |            |             | 199,821        |           |              |             | 199,769       |                |                  |               | 8.88          | %        |  | Fixed                     |           |         |   |  |  |      | 3/05  | 
|2007 Notes(8)                |            |             | 149,323        |           |              |             | 149,245       |                |                  |               | 7.00          | %        |  | Fixed                     |           |         |   |  |  |      | 11/07 | 
|2010 Notes(8)                |            |             | 49,724         |           |              |             | 49,704        |                |                  |               | 9.15          | %        |  | Fixed                     |           |         |   |  |  |      | 3/10  | 
|2010 Notes(8)                |            |             | 99,387         |           |              |             | 99,345        |                |                  |               | 8.50          | %        |  | Fixed                     |           |         |   |  |  |      | 11/10 | 
|                             |            |             |                |           |              |             |               |                |                  |               |               |          |  |                           |           |         |    |  |  |      |       |  |  | 
|                             |            |             | 498,255        |           |              |             | 498,063       |                |                  |               |               |          |  |                           |           |         |    |  |  |      |       |  |  | 
|                             |            |             |                |           |              |             |               |                |                  |               |               |          |  |                           |           |         |    |  |  |      |       |  |  | 
|                             | Total Debt |             | $              | 1,349,819 |              |             | $             | 1,402,304      |                  |               |               |          |  |                           |           |         |    |  |  |      |       |  |  |  | 
|                             |            |             |                |           |              |             |               |                |                  |               |               |          |  |                           |           |         |    |  |  |      |       |  |  | 



---

|(1) |  | Requires monthly payments of interest only, with outstanding principal
balance due upon maturity.                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Requires monthly payments of principal and interest.                                                                                                                                    
|   
|(3) |  | Both mortgage loans are secured by the Conejo Business Center property.                                                                                                                 
|   
|(4) |  | This line of credit also has an annual 20 basis points facility fee on
the entire $310 million commitment amount.                                                                       
|   
|(5) |  | In 2002, we entered into interest rate swap agreements that fixed the
interest rate on $50 million of the outstanding balance on this line of
credit at 4.06% through April 2006.       
|   
|(6) |  | This loan has a two-year extension option.                                                                                                                                              
|   
|(7) |  | In 2002, we entered into interest rate swap agreements that fixed the
interest rate on the entire balance of this loan at 3.64% in 2003, 4.18%
in 2004, 4.75% in 2005 and 4.90% in 2006.
|   
|(8) |  | Requires semi-annual interest payments only, with principal balance due
upon maturity.                                                                                                  

6.   Interest Rate Swap Agreements

We have interest rate swap agreements to effectively convert floating rate
debt into fixed rate debt. Net amounts received or paid under these agreements
are recognized as an adjustment to interest expense when such amounts are
incurred or earned. Our objective in

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using interest rate swap agreements is to limit our exposure to interest rate
movements. During 2002, such agreements were used to fix the floating interest
rate associated with $50 million of the Wells Fargo unsecured line of credit
and the entire $125 million balance of the unsecured term loan.

In June and July of 2003, we also entered into $100 million of
forward-starting swaps that effectively fixed the 10-year Treasury rate at an
average rate of approximately 3.9% for borrowings that are anticipated to occur
in 2004 to refinance some of our scheduled debt maturities. The
forward-starting interest rate swaps were entered into at current market rates
and, therefore, had no initial cost. The market value of these
forward-starting swaps that have a combined notional amount of $50 million at
June 30, 2003 was an asset of approximately $400,000 which is netted against
accounts payable and accrued liabilities and included in other comprehensive
loss.

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

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

Under SFAS 133 our interest rate swap agreements are classified as cash
flow hedges with their fair value as of June 30, 2003 of approximately $5.7
million reported in accumulated other comprehensive loss on our balance sheet.
The estimated fair value of these interest rate swap agreements are dependent
on changes in market interest rates and other market factors that affect the
value of such agreements. Consequently, the estimated current fair value may
significantly change during the term of the agreements. Any estimated gain or
loss from these agreements will be amortized into earnings as we recognize the
interest expense for the underlying floating-rate loans at the fixed interest
rate provided under our agreements. If the underlying floating rate loans were
to be repaid prior to maturity, we would recognize into interest expense any
unamortized gain or loss at the time of such early repayment.

As of June 30, 2003, we did not have any derivatives that could be
designated as fair value hedges.

7.   Stockholders Equity and Minority Interests

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

Our minority interest balance includes $50 million of 85/8% Series B
Cumulative Redeemable Preferred Operating Partnership Units, or Preferred OP
Units. These Preferred OP Units were issued in September of 1999, are callable
by us after five years and are exchangeable after ten years by the holder into
our 85/8% Series B Cumulative Redeemable Preferred Stock, on a one-for-one
basis. The Preferred OP Units have no stated maturity or mandatory redemption
and are subordinate to all debt.

On June 12, 2003, we declared a quarterly dividend of $0.505 per share to
stockholders of record on June 30, 2003.

8.   Revenue from Rental Operations and Property Expenses

Revenue from rental operations and property expenses are summarized as
follows (in thousands):

|                                |                          |   |                |        |                |   |        |        |      |   |         |         |  |   |         |         | 
|------------------------------- | ------------------------ | - | -------------- | ------ | -------------- | - | ------ | ------ | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                |                          |   | Three Months   |        | Six Months    
|                                |                          |   | Ended June 30, |        | Ended June 30,
|                                |                          |   |                |        |               
|                                |                          |   | 2003           |        | 2002           |   | 2003   |        | 2002
|                                |                          |   |                |        |                |   |        |        |     
|                                |                          |   | (unaudited)   
|Revenue from Rental Operations: |                          |   |                |        |                |   |        |        |      |   |         |         |  |   |         |        
|                                | Scheduled cash rents     |   | $              | 90,528 |                |   | $      | 84,635 |      |   | $       | 180,754 |  |   | $       | 169,677 | 
|                                | Straight-line rents      |   |                | 337    |                |   |        | 2,098  |      |   |         | 948     |  |   |         | 3,693   | 
|                                | Tenant reimbursements    |   |                | 5,999  |                |   |        | 6,300  |      |   |         | 13,034  |  |   |         | 13,185  | 
|                                | Parking, net of expenses |   |                | 5,525  |                |   |        | 5,186  |      |   |         | 10,644  |  |   |         | 10,150  | 
|                                | Other rental operations  |   |                | 2,782  |                |   |        | 1,708  |      |   |         | 4,067   |  |   |         | 2,923   | 
|                                |                          |   |                |        |                |   |        |        |      |   |         |         |  |   |         |         | 
|                                |                          |   | 105,171        |        |                |   | 99,927 |        |      |   | 209,447 |         |  |   | 199,628 |        
|                                |                          |   |                |        |                |   |        |        |      |   |         |         |  |   |         |         | 
|Property Expenses:              |                          |   |                |        |                |   |        |        |      |   |         |         |  |   |         |        
|                                | Repairs and maintenance  |   |                | 11,098 |                |   |        | 9,273  |      |   |         | 21,519  |  |   |         | 18,401  | 
|                                | Utilities                |   |                | 8,093  |                |   |        | 7,731  |      |   |         | 16,126  |  |   |         | 15,306  | 
|                                | Real estate taxes        |   |                | 7,261  |                |   |        | 7,056  |      |   |         | 14,769  |  |   |         | 14,257  | 
|                                | Insurance                |   |                | 2,080  |                |   |        | 2,045  |      |   |         | 4,205   |  |   |         | 3,659   | 
|                                | Ground rent              |   |                | 322    |                |   |        | 270    |      |   |         | 364     |  |   |         | 338     | 
|                                | Administrative           |   |                | 4,760  |                |   |        | 3,570  |      |   |         | 8,898   |  |   |         | 7,267   | 
|                                |                          |   |                |        |                |   |        |        |      |   |         |         |  |   |         |         | 
|                                |                          |   | 33,614         |        |                |   | 29,945 |        |      |   | 65,881  |         |  |   | 59,228  |        
|                                |                          |   |                |        |                |   |        |        |      |   |         |         |  |   |         |         | 
|                                |                          | $ | 71,557         |        |                | $ | 69,982 |        |      | $ | 143,566 |         |  | $ | 140,400 |        
|                                |                          |   |                |        |                |   |        |        |      |   |         |         |  |   |         |         | 

8



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9.   Stock Option Plan

Beginning on January 1, 2003, we adopted the provisions of SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure under
which we began expensing the costs of new stock options granted to employees in
2003 in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation. We used the Black-Scholes option valuation model to estimate the
fair value of the stock options granted in 2003. During the three and six
months ended June 30, 2003, we expensed approximately $8,000 and $16,000,
respectively, of stock option based employee compensation costs.

The following table reflects pro forma net income and earnings per share
had we elected to expense all options granted prior to 2003 assuming the fair
value method and using the Black-Scholes option valuation model (in thousands,
except per share amounts):

|                                                                                                     |                     |   |                             |      |                           |   |        |      |      |   |        |      |  |   |        |      | 
|---------------------------------------------------------------------------------------------------- | ------------------- | - | --------------------------- | ---- | ------------------------- | - | ------ | ---- | ---- | - | ------ | ---- |  | - | ------ | ---- | 
|                                                                                                     |                     |   | Three Months Ended June 30, |      | Six Months Ended June 30,
|                                                                                                     |                     |   |                             |      |                          
|                                                                                                     |                     |   | 2003                        |      | 2002                      |   | 2003   |      | 2002
|                                                                                                     |                     |   |                             |      |                           |   |        |      |     
|Net income available to common stockholders, as reported                                             |                     | $ | 18,903                      |      |                           | $ | 17,407 |      |      | $ | 34,341 |      |  | $ | 38,760 |     
|Stock based employee compensation costs for options
granted prior to 2003 assuming fair value method |                     |   | 259                         |      |                           |   | 394    |      |      |   | 523    |      |  |   | 681    |     
|                                                                                                     |                     |   |                             |      |                           |   |        |      |      |   |        |      |  |   |        |     
|Net income available to common stockholders, as adjusted                                             |                     | $ | 18,644                      |      |                           | $ | 17,013 |      |      | $ | 33,818 |      |  | $ | 38,079 |     
|                                                                                                     |                     |   |                             |      |                           |   |        |      |      |   |        |      |  |   |        |     
|Earnings per share:                                                                                  |                     |   |                             |      |                           |   |        |      |      |   |        |      |  |   |        |     
|                                                                                                     | Basic as reported   |   | $                           | 0.30 |                           |   | $      | 0.27 |      |   | $      | 0.54 |  |   | $      | 0.60 | 
|                                                                                                     |                     |   |                             |      |                           |   |        |      |      |   |        |      |  |   |        |     
|                                                                                                     | Basic as adjusted   |   | $                           | 0.30 |                           |   | $      | 0.26 |      |   | $      | 0.54 |  |   | $      | 0.59 | 
|                                                                                                     |                     |   |                             |      |                           |   |        |      |      |   |        |      |  |   |        |     
|                                                                                                     | Diluted as reported |   | $                           | 0.30 |                           |   | $      | 0.27 |      |   | $      | 0.54 |  |   | $      | 0.60 | 
|                                                                                                     |                     |   |                             |      |                           |   |        |      |      |   |        |      |  |   |        |     
|                                                                                                     | Diluted as adjusted |   | $                           | 0.29 |                           |   | $      | 0.26 |      |   | $      | 0.53 |  |   | $      | 0.59 | 
|                                                                                                     |                     |   |                             |      |                           |   |        |      |      |   |        |      |  |   |        |     

10.  Commitments and Contingencies

We are presently subject to various lawsuits, claims and proceedings
arising in the ordinary course of business none of which if determined
unfavorably to us is expected to have a material adverse effect on our cash
flows, financial condition or results of operations. There were no material
changes in our legal proceedings during the three months ended June 30, 2003.

9



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##### Table of Contents






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

Overview

The following discussion relates to our unaudited consolidated financial
statements included herein, which should be read in conjunction with the
financial statements and related notes thereto included elsewhere in this Form
10-Q and in our 2002 Annual Report on Form 10-K.

We are a self-administered and self-managed real estate investment trust
that owns, manages, leases, develops, renovates and acquires commercial
properties located in Southern California. We are managed by 7 senior executive
officers who have experience in the real estate industry ranging from 12 to 34
years and who collectively have an average of 18 years experience. We perform
all property and development management, accounting, finance and
acquisition/disposition activities and a majority of our leasing transactions
with our staff of approximately 300 employees.

As of June 30, 2003, we were Southern Californias largest publicly traded
office landlord as measured by total net rentable square feet owned. As of that
date, our portfolio was comprised of 131 primarily suburban office properties,
consisting of 217 buildings with approximately 18.9 million net rentable square
feet, including one development project with approximately 283,000 net rentable
square feet currently under lease-up. As of June 30, 2003, excluding the
development project, our portfolio was 89.5% occupied.

Business Strategy

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

We continue to seek to build a tenant base of smaller, diverse companies
that limits our exposure to any single tenant or industry. Smaller tenants
typically translate into shorter-term leases. Shorter-term leases provide
greater opportunity for renewing a substantial portion of our portfolio at
higher rental rates each year during strong markets, but create challenges to
maintain occupancy and rates when markets weaken. The average term of our
leases is 4 to 5 years, resulting in approximately 15% to 20% of our leases
turning over annually.

We closely monitor our operating expenses and capital expenditures to
sustain or improve operating margins and dividend coverage. We may defer
discretionary capital expenditures until market conditions improve.

Current Economic Climate

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



| |  |  | Job growth in Southern California, which we believe to be a
leading indicator of office demand in the region, was negative in
2002 as well as in the first six months of 2003 and is largely
dependent on improved economic activity;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Occupancy and rental rates have decreased in recent months and
are expected to decrease further in the coming months due to the
state of the local economy and competition from other office
landlords;                              
|
| |  |  | Tenant concessions for new and renewal deals have increased in some submarkets in recent months;                                                                                                                                     
|
| |  |  | Some tenants are under-utilizing their existing space and can therefore expand internally before they need new space;                                                                                                                
|
| |  |  | Sublease space is impacting vacancy and rental rates in some submarkets; and                                                                                                                                                         
|
| |  |  | Over-building has increased vacancy rates in some submarkets.                                                                                                                                                                        

These factors have contributed to a decrease in the occupancy of our portfolio
from 90.1% as of December 31, 2002 to 89.5% as of June 30, 2003.

According to published reports, overall market rental rates in Southern
California declined 3.5to4.0% during the three months ended June 30, 2003.
Given the current trends, including the expected continued occupancy pressures
and more aggressive pricing for sublease space, we expect market rates will
decline by an additional 1to2% in the second half of 2003. Concessions also
rose during the three months ended June 30, 2003. As occupancy pressures
continue, we expect concessions in either free or reduced initial rents or
higher tenant improvement allowances to rise.

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

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our operating results in the future, making it more difficult for us to lease
and renew available space, to increase or maintain rental rates as leases
expire and to collect amounts due from our tenants. For additional
information, see Risk Factors  Further declines in the economic activity of
Southern California will adversely affect our operating results,  The
financial condition and solvency of our tenants may reduce our cash flow, and
 Rising energy costs and power outages in California may have an adverse
effect on our operations and revenue, in our 2002 Annual Report on Form 10-K.

Critical Accounting Policies

Refer to our 2002 Annual Report on form 10-K for a discussion of our
critical accounting policies which include, among other things, revenue
recognition, allowance for doubtful accounts and depreciation. There have been
no material changes to these policies in 2003.

11



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RESULTS OF OPERATIONS

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

Comparison of the three months ended June 30, 2003 to the three months ended June 30, 2002             (in thousands, except number of properties and percentages):

|                          |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |    |      |    |    | 
|------------------------- | ------------------------------- | ---------------------------------------------------------- | ------ | ------------------------------------ | ------ | ------------------ | ------- | ---- | ------ | ------ | ------ | ------- | ------ | - | ----- | -- | ---- | -- | -- | 
|                          |                                 |                                                            |        |                                      |        | Three Months Ended |         |      |        |        |        |         |        |  
|                          |                                 |                                                            |        |                                      |        | June 30,           |         |      |        |        |        |         |        |  
|                          |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        | Percent
|                          |                                 |                                                            |        |                                      |        | 2003               |         | 2002 |        | Change |        | Change 
|                          |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        |        
|                          |                                 |                                                            |        |                                      |        | (unaudited)        |         |      |        |        |        |         |        |  
|Total Portfolio:          |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |   
|                          | Revenue from rental operations: |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |    |     
|                          |                                 | Scheduled cash rents                                       |        | $                                    | 90,528 |                    |         | $    | 84,635 |        |        | $       | 5,893  |   |       |    | 7    | % 
|                          |                                 | Straight-line rents                                        |        |                                      | 337    |                    |         |      | 2,098  |        |        |         | (1,761 | ) |       |    | (84  | ) 
|                          |                                 | Tenant reimbursements                                      |        |                                      | 5,999  |                    |         |      | 6,300  |        |        |         | (301   | ) |       |    | (5   | ) 
|                          |                                 | Parking, net of expense                                    |        |                                      | 5,525  |                    |         |      | 5,186  |        |        |         | 339    |   |       |    | 7    |   
|                          |                                 | Other rental operations                                    |        |                                      | 2,782  |                    |         |      | 1,708  |        |        |         | 1,074  |   |       |    | 63   |   
|                          |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |    |      |   
|                          |                                 |                                                            |        | Total revenue from rental operations |        |                    | 105,171 |      |        |        | 99,927 |         |        |   | 5,244 |    |      |    | 5  | 
|                          | Property expenses:              |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |    |     
|                          |                                 | Repairs and maintenance                                    |        |                                      | 11,098 |                    |         |      | 9,273  |        |        |         | 1,825  |   |       |    | 20   | % 
|                          |                                 | Utilities                                                  |        |                                      | 8,093  |                    |         |      | 7,731  |        |        |         | 362    |   |       |    | 5    |   
|                          |                                 | Real estate taxes                                          |        |                                      | 7,261  |                    |         |      | 7,056  |        |        |         | 205    |   |       |    | 3    |   
|                          |                                 | Insurance                                                  |        |                                      | 2,080  |                    |         |      | 2,045  |        |        |         | 35     |   |       |    | 2    |   
|                          |                                 | Ground rent                                                |        |                                      | 322    |                    |         |      | 270    |        |        |         | 52     |   |       |    | 19   |   
|                          |                                 | Administrative                                             |        |                                      | 4,760  |                    |         |      | 3,570  |        |        |         | 1,190  |   |       |    | 33   |   
|                          |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |    |      |   
|                          |                                 |                                                            |        | Total property expenses              |        |                    | 33,614  |      |        |        | 29,945 |         |        |   | 3,669 |    |      |    | 12 | 
|                          |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |    |      |   
|                          |                                 |                                                            |        | Property Operating Results(1)        |        |                    | 71,557  |      |        |        | 69,982 |         |        |   | 1,575 |    |      |    | 2  | 
|                          |                                 | General and administrative                                 |        |                                      | 4,225  |                    |         |      | 2,951  |        |        |         | 1,274  |   |       |    | 43   |   
|                          |                                 | Interest                                                   |        |                                      | 23,254 |                    |         |      | 21,584 |        |        |         | 1,670  |   |       |    | 8    |   
|                          |                                 | Depreciation and amortization                              |        |                                      | 30,049 |                    |         |      | 28,028 |        |        |         | 2,021  |   |       |    | 7    |   
|                          |                                 | Interest and other income                                  |        |                                      | (378   | )                  |         |      | (512   | )      |        |         | (134   | ) |       |    | (26  | ) 
|                          |                                 | Gain on sale of operating properties                       |        |                                      |       |                    |         |      | (81    | )      |        |         | (81    | ) |       |    | (100 | ) 
|                          |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |    |      |   
|                          |                                 | Income from continuing operations
before minority interest |        | $                                    | 14,407 |                    |         | $    | 18,012 |        |        | $       | (3,605 | ) |       |    | (20  | )%
|                          |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |    |      |   
|                          |                                 | Discontinued operations, net of
minority interest          |        | $                                    | (85    | )                  |         | $    | 916    |        |        | $       | (1,001 | ) |       |    | (109 | )%
|                          |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |    |      |   
|                          |                                 | Gain on sale of discontinued
properties                    |        | $                                    | 6,021  |                    |         | $    |       |        |        | $       | 6,021  |   |       |    |      |   
|                          |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |   
|Number of Properties:     |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |   
|                          |                                 | Disposed of during period                                  |        |                                      | (5     | )                  |         |      | (2     | )      |        |         |        |   |       |    |      |   
|                          |                                 | In service at end of period                                |        |                                      | 130    |                    |         |      | 130    |        |        |         |        |   |       |    |      |   
|Net Rentable Square Feet: |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |   
|                          |                                 | Disposed of during period                                  |        |                                      | (376   | )                  |         |      | (141   | )      |        |         |        |   |       |    |      |   
|                          |                                 | In service at end of period                                |        |                                      | 18,617 |                    |         |      | 18,042 |        |        |         |        |   |       |    |      |   
|Same Store Portfolio(2):  |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |   
|                          |                                 | Revenue from rental operations                             |        | $                                    | 96,692 |                    |         | $    | 95,704 |        |        | $       | 988    |   |       |    | 1    | % 
|                          |                                 | Property expenses                                          |        |                                      | 31,106 |                    |         |      | 29,218 |        |        |         | 1,888  |   |       |    | 6    | % 
|                          |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |    |      |   
|                          |                                 | $                                                          | 65,586 |                                      |        | $                  | 66,486  |      |        | $      | (900   | )       |        |   | (1    | )%
|                          |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |    |      |   
|                          |                                 | Straight-line rents                                        |        | $                                    | 113    |                    |         | $    | 1,661  |        |        | $       | (1,548 | ) |       |    |      |   
|                          |                                 |                                                            |        |                                      |        |                    |         |      |        |        |        |         |        |   |       |   
|                          |                                 | Number of non-development properties                       |        |                                      | 124    |                    |         |      | 124    |        |        |         |        |   |       |    |      |   
|                          |                                 | Average occupancy                                          |        |                                      | 89.4   | %                  |         |      | 90.5   | %      |        |         |        |   |       |    |      |   
|                          |                                 | Net rentable square feet                                   |        |                                      | 17,526 |                    |         |      | 17,526 |        |        |         |        |   |       |    |      |   



---

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

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| |  | Property Operating Results captures trends in occupancy rates,
rental rates and operating costs. However, Property Operating
Results excludes general and administrative costs, interest
expense, interest income, depreciation and amortization expense and
gains or losses from the sale of properties, changes in value in
our real estate properties that result from use or permanent
impairment to carrying costs as stipulated by GAAP, the level of
capital expenditures and leasing costs necessary to maintain the
operating performance of our properties, all of which are
significant economic costs. Therefore, Property Operating Results
may fail to capture significant trends which limits its usefulness.        
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Property Operating Results is a non-GAAP measure of performance.
Property Operating Results is not a substitute for net income as
computed in accordance with GAAP. It excludes significant expense
components such as depreciation and amortization expense and
financing costs. This measure should be analyzed in conjunction
with net income and cash flow from operating activities as computed
in accordance with GAAP. Other companies may use different methods
for calculating Property Operating Results or similarly entitled
measures and, accordingly, our Property Operating Results may not
be comparable to similarly entitled measures reported by other
companies that do not define the measure exactly as we do.
|
| |  | The following is a reconciliation of income from continuing
operations before gain on sale of properties and minority interest
to Property Operating Results (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|                                                                                          |                                    |   |                             |        |      |   |        |        |  
|----------------------------------------------------------------------------------------- | ---------------------------------- | - | --------------------------- | ------ | ---- | - | ------ | ------ | -
|                                                                                          |                                    |   | Three Months Ended June 30,
|                                                                                          |                                    |   |                            
|                                                                                          |                                    |   | 2003                        |        | 2002
|                                                                                          |                                    |   |                             |        |     
|Income from continuing operations
before gain on sale of properties
and minority interest |                                    | $ | 14,407                      |        |      | $ | 17,931 |       
|Add:                                                                                      |                                    |   |                             |        |      |   |        |       
|                                                                                          | General and administrative expense |   |                             | 4,225  |      |   |        | 2,951  |  
|                                                                                          | Interest expense                   |   |                             | 23,254 |      |   |        | 21,584 |  
|                                                                                          | Depreciation and amortization      |   |                             | 30,049 |      |   |        | 28,028 |  
|Less:                                                                                     |                                    |   |                             |        |      |   |        |       
|                                                                                          | Interest and other income          |   |                             | (378   | )    |   |        | (512   | )
|                                                                                          |                                    |   |                             |        |      |   |        |       
|Property Operating Results                                                                |                                    | $ | 71,557                      |        |      | $ | 69,982 |       
|                                                                                          |                                    |   |                             |        |      |   |        |       



|(2) |  | Consists of non-development properties classified as part of continuing
operations and owned for the entirety of the periods presented.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------

VARIANCES FOR RESULTS OF OPERATIONS

Our results of operations for the three months ended June 30, 2003
compared to the same period in 2002 were primarily affected by our
acquisitions, dispositions and development activities since April 1, 2002. In
addition, our Property Operating Results from period to period were affected by
our implementation of SFAS No. 144 Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS 144), which resulted in the classification of the
operating results of some of the properties sold since April 1, 2002 into
discontinued operations.

As a result of these changes within our portfolio of properties since the
beginning of 2002, we do not believe the Property Operating Results presented
above are comparable from period to period. Therefore, above we also present
the Property Operating Results for our same store portfolio.

Revenue from Rental Operations

The increase in revenue from rental operations for the total portfolio was
primarily due to the 800,000 square feet in acquisitions we made in August of
2002, consisting of four properties in San Diego County and one property in Los
Angeles County and the placement in service of the 6080 Center Drive
development project at the Howard Hughes Center in the fourth quarter of 2002.
The revenue from rental operations for the acquisitions and development project
were partially offset by a change in our method of estimating tenant
reimbursements in 2003 to adjust for quarterly seasonality variations
associated with recoverable operating expenses and by the sale of a 61,000
square foot property in April 2002 and an 80,000 square foot property in May
2002, both of which were located in Los Angeles County and which, during the
transition into SFAS 144, were not classified as discontinued operations.

The increase in revenue from rental operations for the same store
portfolio was primarily due to an approximate $1.2 million increase in cash
rents, a $565,000 million increase in other rental operations and a $522,000
million increase in tenant reimbursements, which were partially offset by a
$1.5 million decrease in straight-line rents. The increase in cash rents was
primarily related to scheduled rent increases in existing leases that were
partially offset by the 1.1% decrease in average occupancy for these
properties. The increase in tenant reimbursements was primarily due to
increases in operating expenses, as discussed below, partially offset by the
timing of prior year reimbursement reconciliations. Straight-line rents
decreased primarily due to the decline in occupancy and the turning over of
older leases in the same store portfolio.

Property Expenses

The increase in property expenses for the total portfolio was primarily
due to the five properties acquired, the three properties sold that were not
classified as discontinued operations and the one property placed in service
subsequent to January 1, 2002 described above.

The increase in property expenses for the same store portfolio was
primarily due to an approximate $1.1 million increase in repairs and
maintenance and a $1.0 million increase in property administrative expenses.
Repairs and maintenance costs increased primarily due to higher contractual
costs for janitorial and other contract services as well as the timing of
certain projects. Property administrative expense increased primarily due to
higher personnel costs, conclusion of the capitalization period for our 6100
Center Drive development project in the second quarter of 2003 and costs
associated with training programs implemented in 2003.

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General and Administrative

General and administrative expenses as a percentage of total revenues were
approximately 4.0% for the three months ended June 30, 2003, as compared to
approximately 3.0% for the same period in 2002. The $1.3 million increase in
general and administrative expenses was primarily related to industry-wide
increases in directors & officers insurance rates, higher external accounting
and professional fees as well as higher personnel costs as a result of annual
merit increases in 2003.

Interest Expense

Interest expense increased approximately $1.7 million, or 8%, during the
three months ended June 30, 2003, as compared to the same period in 2002. This
increase was primarily due to increases in borrowings in 2002 for property
acquisitions and lower interest capitalized in 2003. Capitalized interest was
lower in 2003 as we ceased capitalizing interest on our 6080 Center Drive
development property in May 2002 and our 6100 Center Drive development in May
2003. The increases in interest expense were partially offset by lower
effective interest rates in 2003.

Depreciation and Amortization

Depreciation and amortization expense increased by approximately $2.0
million, or 7%, during the three months ended June 30, 2003, as compared to the
same period in 2002, primarily due to depreciation related to five properties
totaling $135.0 million acquired in August 2002, the placement in service of
our 6080 Center Drive development property in the fourth quarter of 2002 and
depreciation related to capital expenditures, tenant improvements and leasing
commissions placed in service subsequent to the second quarter of 2002.

Interest and Other Income

Interest and other income decreased by approximately $134,000 for the
three months ended June 30, 2003 as compared to the same period in 2002,
primarily due to the repayment by the borrower of a $13.7 million mortgage note
receivable in the fourth quarter of 2002.

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Comparison of the six months ended June 30, 2003 to the six months ended June 30, 2002             (in thousands, except number of properties and percentages):

|                          |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |    |      |    |    | 
|------------------------- | ------------------------------- | ---------------------------------------------------------- | ------- | ------------------------------------ | ------- | ---------------- | ------- | ---- | ------- | ------ | ------- | ------- | ------ | - | ----- | -- | ---- | -- | -- | 
|                          |                                 |                                                            |         |                                      |         | Six Months Ended |         |      |         |        |         |         |        |  
|                          |                                 |                                                            |         |                                      |         | June 30,         |         |      |         |        |         |         |        |  
|                          |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         | Percent
|                          |                                 |                                                            |         |                                      |         | 2003             |         | 2002 |         | Change |         | Change 
|                          |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         |        
|                          |                                 |                                                            |         |                                      |         | (unaudited)      |         |      |         |        |         |         |        |  
|Total Portfolio:          |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |   
|                          | Revenue from rental operations: |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |    |     
|                          |                                 | Scheduled cash rents                                       |         | $                                    | 180,754 |                  |         | $    | 169,677 |        |         | $       | 11,077 |   |       |    | 7    | % 
|                          |                                 | Straight-line rents                                        |         |                                      | 948     |                  |         |      | 3,693   |        |         |         | (2,745 | ) |       |    | (74  | ) 
|                          |                                 | Tenant reimbursements                                      |         |                                      | 13,034  |                  |         |      | 13,185  |        |         |         | (151   | ) |       |    | (1   | ) 
|                          |                                 | Parking, net of expense                                    |         |                                      | 10,644  |                  |         |      | 10,150  |        |         |         | 494    |   |       |    | 5    |   
|                          |                                 | Other rental operations                                    |         |                                      | 4,067   |                  |         |      | 2,923   |        |         |         | 1,144  |   |       |    | 39   |   
|                          |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |    |      |   
|                          |                                 |                                                            |         | Total revenue from rental operations |         |                  | 209,447 |      |         |        | 199,628 |         |        |   | 9,819 |    |      |    | 5  | 
|                          | Property expenses:              |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |    |     
|                          |                                 | Repairs and maintenance                                    |         |                                      | 21,519  |                  |         |      | 18,401  |        |         |         | 3,118  |   |       |    | 17   | % 
|                          |                                 | Utilities                                                  |         |                                      | 16,126  |                  |         |      | 15,306  |        |         |         | 820    |   |       |    | 5    |   
|                          |                                 | Real estate taxes                                          |         |                                      | 14,769  |                  |         |      | 14,257  |        |         |         | 512    |   |       |    | 4    |   
|                          |                                 | Insurance                                                  |         |                                      | 4,205   |                  |         |      | 3,659   |        |         |         | 546    |   |       |    | 15   |   
|                          |                                 | Ground rent                                                |         |                                      | 364     |                  |         |      | 338     |        |         |         | 26     |   |       |    | 8    |   
|                          |                                 | Administrative                                             |         |                                      | 8,898   |                  |         |      | 7,267   |        |         |         | 1,631  |   |       |    | 22   |   
|                          |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |    |      |   
|                          |                                 |                                                            |         | Total property expenses              |         |                  | 65,881  |      |         |        | 59,228  |         |        |   | 6,653 |    |      |    | 11 | 
|                          |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |    |      |   
|                          |                                 |                                                            |         | Property Operating Results(1)        |         |                  | 143,566 |      |         |        | 140,400 |         |        |   | 3,166 |    |      |    | 2  | 
|                          |                                 | General and administrative                                 |         |                                      | 7,877   |                  |         |      | 5,911   |        |         |         | 1,966  |   |       |    | 33   |   
|                          |                                 | Interest                                                   |         |                                      | 46,289  |                  |         |      | 42,981  |        |         |         | 3,308  |   |       |    | 8    |   
|                          |                                 | Depreciation and amortization                              |         |                                      | 59,010  |                  |         |      | 53,608  |        |         |         | 5,402  |   |       |    | 10   |   
|                          |                                 | Interest and other income                                  |         |                                      | (510    | )                |         |      | (1,052  | )      |         |         | (542   | ) |       |    | (52  | ) 
|                          |                                 | Gain on sale of operating properties                       |         |                                      |        |                  |         |      | (1,273  | )      |         |         | (1,273 | ) |       |    | (100 | ) 
|                          |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |    |      |   
|                          |                                 | Income from continuing operations
before minority interest |         | $                                    | 30,900  |                  |         | $    | 40,225  |        |         | $       | (9,325 | ) |       |    | (23  | )%
|                          |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |    |      |   
|                          |                                 | Discontinued operations, net of
minority interest          |         | $                                    | 985     |                  |         | $    | 1,711   |        |         | $       | (726   | ) |       |    | (42  | )%
|                          |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |    |      |   
|                          |                                 | Gain on sale of discontinued
properties                    |         | $                                    | 5,382   |                  |         | $    |        |        |         | $       | 5,382  |   |       |    |      |   
|                          |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |   
|Number of Properties:     |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |   
|                          |                                 | Disposed of during period                                  |         |                                      | (6      | )                |         |      | (3      | )      |         |         |        |   |       |    |      |   
|                          |                                 | In service at end of period                                |         |                                      | 130     |                  |         |      | 130     |        |         |         |        |   |       |    |      |   
|Net Rentable Square Feet: |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |   
|                          |                                 | Disposed of during period                                  |         |                                      | (515    | )                |         |      | (205    | )      |         |         |        |   |       |    |      |   
|                          |                                 | In service at end of period                                |         |                                      | 18,617  |                  |         |      | 18,042  |        |         |         |        |   |       |    |      |   
|Same Store Portfolio(2):  |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |   
|                          |                                 | Revenue from rental operations                             |         | $                                    | 193,582 |                  |         | $    | 191,168 |        |         | $       | 2,414  |   |       |    | 1    | % 
|                          |                                 | Property expenses                                          |         |                                      | 60,981  |                  |         |      | 57,689  |        |         |         | 3,292  |   |       |    | 6    | % 
|                          |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |    |      |   
|                          |                                 | $                                                          | 132,601 |                                      |         | $                | 133,479 |      |         | $      | (878    | )       |        |   | (1    | )%
|                          |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |    |      |   
|                          |                                 | Straight-line rents                                        |         | $                                    | 427     |                  |         | $    | 3,021   |        |         | $       | (2,594 | ) |       |    |      |   
|                          |                                 |                                                            |         |                                      |         |                  |         |      |         |        |         |         |        |   |       |   
|                          |                                 | Number of non-development properties                       |         |                                      | 124     |                  |         |      | 124     |        |         |         |        |   |       |    |      |   
|                          |                                 | Average occupancy                                          |         |                                      | 89.8    | %                |         |      | 91.2    | %      |         |         |        |   |       |    |      |   
|                          |                                 | Net rentable square feet                                   |         |                                      | 17,526  |                  |         |      | 17,526  |        |         |         |        |   |       |    |      |   



---

|(1) |  | Property Operating Results is commonly used by investors to
evaluate the performance of REITs, to determine trends in
earnings and to compute the fair value of properties as it is
not affected by (1) the cost of funds of the property owner or
(2) the impact of depreciation and amortization expenses as well
as gains or losses from the sale of operating real estate assets
that are included in net income computed in accordance with
Generally Accepted Accounting Principles, or GAAP. The first
factor is commonly eliminated from net income because it is
specific to the particular financing capabilities and
constraints of the owner. The second factor is commonly
eliminated because it may not accurately represent the actual
change in value in real estate properties that results from use
or changes in market conditions. We believe that eliminating
these costs from net income gives investors an additional
measure of operating performance that, when used as an adjunct
to net income computed in accordance with GAAP, can be a useful
measure of our operating results.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Property Operating Results captures trends in occupancy rates,
rental rates and operating costs. However, Property Operating
Results excludes general and administrative costs, interest
expense, interest income, depreciation and amortization expense and
gains or losses from the sale of properties, changes in value in
our real estate properties that result from use or permanent
impairment to carrying costs as stipulated by GAAP, the level of
capital expenditures and leasing costs necessary to maintain the
operating performance of our properties, all of which are
significant economic costs. Therefore, Property Operating Results
may fail to capture significant trends which limits its usefulness.                                                                                                                                                                                                                                                                                                                                                                                 

15



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##### Table of Contents





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

|                                                                                          |                                    |   |                           |        |      |   |         |        |  
|----------------------------------------------------------------------------------------- | ---------------------------------- | - | ------------------------- | ------ | ---- | - | ------- | ------ | -
|                                                                                          |                                    |   | Six Months Ended June 30,
|                                                                                          |                                    |   |                          
|                                                                                          |                                    |   | 2003                      |        | 2002
|                                                                                          |                                    |   |                           |        |     
|Income from continuing operations
before gain on sale of properties
and minority interest |                                    | $ | 30,900                    |        |      | $ | 38,952  |       
|Add:                                                                                      |                                    |   |                           |        |      |   |         |       
|                                                                                          | General and administrative expense |   |                           | 7,877  |      |   |         | 5,911  |  
|                                                                                          | Interest expense                   |   |                           | 46,289 |      |   |         | 42,981 |  
|                                                                                          | Depreciation and amortization      |   |                           | 59,010 |      |   |         | 53,608 |  
|Less:                                                                                     |                                    |   |                           |        |      |   |         |       
|                                                                                          | Interest and other income          |   |                           | (510   | )    |   |         | (1,052 | )
|                                                                                          |                                    |   |                           |        |      |   |         |       
|Property Operating Results                                                                |                                    | $ | 143,566                   |        |      | $ | 140,400 |       
|                                                                                          |                                    |   |                           |        |      |   |         |       



|(2) |  | Consists of non-development properties classified as part of
continuing operations and owned for the entirety of the periods
presented.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------

VARIANCES FOR RESULTS OF OPERATIONS

Our results of operations for the six months ended June 30, 2003 compared
to the same period in 2002 were primarily affected by our acquisitions,
dispositions and development activities since January 1, 2002. In addition, our
Property Operating Results from period to period were affected by our
implementation of SFAS No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144), which resulted in the classification of the
operating results of some of the properties sold since January 1, 2002 into
discontinued operations.

As a result of these changes within our portfolio of properties since the
beginning of 2002, we do not believe the Property Operating Results presented
above are comparable from period to period. Therefore, above we also present
the Property Operating Results for our same store portfolio.

Revenue from Rental Operations

The increase in revenue from rental operations for the total portfolio was
primarily due to the 800,000 square feet in acquisitions we made in August of
2002, consisting of four properties in San Diego County and one property in Los
Angeles County and the placement in service of the 6080 Center Drive
development project at the Howard Hughes Center in the fourth quarter of 2002.
The revenue from rental operations for the acquisitions and development project
were partially offset by a change in our method of estimating tenant
reimbursements in 2003 to adjust for quarterly seasonality variations
associated with recoverable operating expenses and by the sale of a 64,000
square foot property in March 2002, a 61,000 square foot property in April 2002
and an 80,000 square foot property in May 2002, all of which were located in
Los Angeles County and which, during the transition into SFAS 144, were not
classified as discontinued operations.

The increase in revenue from rental operations for the same store
portfolio was primarily due to an approximate $3.4 million increase in cash
rents and a $1.9 million increase in tenant reimbursements, which were
partially offset by a $2.6 million decrease in straight-line rents. The
increase in cash rents was primarily related to scheduled rent increases in
existing leases that were partially offset by the 1.4% decrease in average
occupancy for these properties. The increase in tenant reimbursements was
primarily due to increases in operating expenses, as discussed below, and the
timing of prior year reimbursement reconciliations. Straight-line rents
decreased primarily to the decline in occupancy and the turning over of older
leases in the same store portfolio.

Property Expenses

The increase in property expenses for the total portfolio was primarily
due to the five properties acquired, the three properties sold that were not
classified as discontinued operations and the one property placed in service
subsequent to January 1, 2002 described above.

The increase in property expenses for the same store portfolio was
primarily due to an approximate $1.8 million increase in repairs and
maintenance, a $1.3 million increase in property administrative expenses and a
$361,000 increase in insurance costs. Repairs and maintenance costs increased
primarily due to higher contractual costs for janitorial and other contract
services as well as the timing of certain projects. Property administrative
expenses increased primarily due to higher personnel costs, conclusion of the
capitalization period for our 6100 Center Drive development project in the
second quarter of 2003 and costs associated with training programs implemented
in 2003. Insurance costs increased due to increases in industry-wide rates and
premiums related to a $100 million terrorism insurance policy entered into in
the second quarter of 2002.

16



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##### Table of Contents



General and Administrative

General and administrative expenses as a percentage of total revenues were
approximately 3.8% for the six months ended June 30, 2003, as compared to
approximately 3.0% for the same period in 2002. The approximate $2.0 million
increase in general and administrative expenses was primarily related to
industry-wide increases in directors & officers insurance rates, higher
external accounting and professional fees as well as higher personnel costs as
a result of annual merit increases in 2003.

Interest Expense

Interest expense increased approximately $3.3 million, or 8%, during the
six months ended June 30, 2003, as compared to the same period in 2002. This
increase was primarily due to increases in borrowings in 2002 for property
acquisitions and lower interest capitalized in 2003. Capitalized interest was
lower in 2003 as we ceased capitalizing interest on our 6080 Center Drive
development property in May 2002 and our 6100 Center Drive Development in May
2003. The increases in interest expense were partially offset by lower
effective interest rates in 2003.

Depreciation and Amortization

Depreciation and amortization expense increased by approximately $5.4
million, or 10%, during the six months ended June 30, 2003, as compared to the
same period in 2002, primarily due to depreciation related to five properties
totaling $135.0 million acquired in August 2002, the placement in service of
our 6080 Center Drive development property in the fourth quarter of 2002 and
depreciation related to capital expenditures, tenant improvements and leasing
commissions placed in service subsequent to June 30, 2002.

Interest and Other Income

Interest and other income decreased by approximately $542,000 for the six
months ended June 30, 2003 as compared to the same period in 2002, primarily
due to the repayment by the borrower of a $13.7 million mortgage note
receivable in the fourth quarter of 2002 and lower effective interest rates in
2003.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Cash provided by operating activities decreased by approximately $5.3
million to $88.6 million for the six months ended June 30, 2003, as compared to
$93.9 million for the same period in 2002. This decrease was primarily due to
a $5.5 million reduction in our outstanding trade receivable balance during the
first six months of 2002 as a result of collection efforts instituted in 2002.

Cash provided by investing activities increased by approximately $74.6
million to an inflow of $38.1 million for the six months ended June 30, 2003,
as compared to an outflow of $36.5 million for the same period in 2002. This
increase was primarily from the proceeds of one property sold in the first
quarter of 2003, five properties sold in the second quarter of 2003 and from
lower development costs in 2003.

Cash used in financing activities increased by approximately $35.0 million
to $115.1 million for the six months ended June 30, 2003, as compared to $80.1
million for the same period in 2002. This increase was primarily due to higher
net repayments in 2003 on our unsecured lines of credit.

Available Borrowings, Cash Balance and Capital Resources

Our Operating Partnership has an unsecured line of credit with a total
commitment of $10 million from City National Bank. This line of credit accrues
interest at the City National Bank Prime Rate less 0.875% and is scheduled to
mature on August 1, 2003. Proceeds from this line of credit are used, among
other things, to provide funds for tenant improvements and capital expenditures
and provide for working capital and other corporate purposes. As of June 30,
2003, there was no outstanding balance on this line of credit and $10 million
was available for additional borrowings.

Our Operating Partnership also has an unsecured line of credit with a
group of banks led by Wells Fargo. This line of credit provides for borrowings
up to $310 million with an option to increase the amount to $350 million and
bears interest at a rate ranging between LIBOR + 0.80% and LIBOR + 1.25%
(including an annual facility fee ranging from 0.15% to 0.40% based on the
aggregate amount of the line of credit) depending on the Operating
Partnerships unsecured debt rating. This line of credit matures in April 2006.
In addition, as long as the Operating Partnership maintains an unsecured debt
rating of BBB-/Baa3 or better, the agreement contains a competitive bid option,
whereby the lenders may bid on the interest rate to be charged for up to $150
million of the unsecured line of credit. The Operating Partnership also has
the option to convert the interest rate on this line of credit to the higher of
Wells Fargos prime rate or the Federal Funds rate plus 0.5%. As of June 30,
2003, $158.0 million was outstanding on this line of credit and $152.0 million
was available for additional borrowings.

As of June 30, 2003, we had $36.3 million in cash and cash equivalents,
including $20.7 million in restricted cash. Restricted cash consisted of $13.7
million in interest bearing cash deposits required by five of our mortgage
loans payable and $7.0 million in cash impound accounts for real estate taxes
and insurance as required by several of our mortgage loans payable.

We have entered into $100 million of forward-starting swaps during 2003 to
effectively fix the 10-year Treasury rate at an average rate of approximately
3.9% for borrowings that are anticipated to occur in 2004 to refinance some of
our scheduled debt maturities. The forward-starting interest rate swaps were
entered into at current market rates and, therefore, had no initial cost.

17



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##### Table of Contents



We expect to continue meeting our short-term liquidity and capital
requirements generally through net cash provided by operating activities and
proceeds from our unsecured lines of credit. We believe the foregoing sources
of liquidity will be sufficient to fund our short-term liquidity needs over the
next twelve months, including recurring non-revenue enhancing capital
expenditures, tenant improvements and leasing commissions.

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

Capital Recycling Program

On March 11, 2003, we sold an approximate 140,000 square foot office
property located in West Hollywood, California for a gross sales price of
approximately $32.5 million.

On April 11, 2003, we sold four properties totaling approximately 343,000
square feet located in Riverside and San Bernardino counties for a gross sales
price of approximately $43.4 million.

On May 22, 2003, we sold an approximate 33,000 square foot office property
located in Orange County for a gross sales price of approximately $5.0 million.

The net proceeds from these dispositions were used to reduce the
outstanding balance on our Wells Fargo unsecured line of credit.

Debt Summary

Following is a summary of scheduled principal payments for our total debt
outstanding as of June 30, 2003 (in thousands):

|           |       |        |         |           | 
|---------- | ----- | ------ | ------- | --------- | 
|Year       |       | Amount
|           |       |       
|2003       |       | $      | 3,562   |          
|2004       |       |        | 307,062 | (1)      
|2005       |       |        | 207,678 |          
|2006       |       |        | 173,063 | (2)      
|2007       |       |        | 158,681 |          
|2008       |       |        | 230,305 |          
|2009       |       |        | 111,980 |          
|2010       |       |        | 150,565 |          
|2011       |       |        | 710     |          
|2012       |       |        | 768     |          
|Thereafter |       |        | 5,445   |          
|           |       |        |         |          
|           | Total |        | $       | 1,349,819 | 
|           |       |        |         |          



---

|(1) |  | Includes $125 million outstanding on the Wells Fargo term loan which has a two-year extension option.
|--- |  | -----------------------------------------------------------------------------------------------------
|   
|(2) |  | Consists primarily of $158 million outstanding on the Wells Fargo line of credit.                    

Following is certain other information related to our outstanding
indebtedness as of June 30, 2003:

Unsecured and Secured Debt:

|               |  |         |           |         |  |                  |     |                     |  |          |      |                  |  |  |     | 
|-------------- |  | ------- | --------- | ------- |  | ---------------- | --- | ------------------- |  | -------- | ---- | ---------------- |  |  | --- | 
|               |  |         |           |         |  |                  |     |                     |  | Weighted |      |                  |  | 
|               |  |         |           |         |  |                  |     |                     |  | Average  |      | Weighted Average
|               |  | Balance |           | Percent |  | Interest Rate(1) |     | Maturity (in years)
|               |  |         |           |         |  |                  |     |                    
|               |  | (000's) |           |         |  |                  |     |                     |  |          |      |                  |  | 
|Unsecured Debt |  | $       | 781,255   |         |  |                  | 58  | %                   |  |          | 6.84 | %                |  |  | 3.3 | 
|Secured Debt   |  |         | 568,564   |         |  |                  | 42  | %                   |  |          | 7.37 | %                |  |  | 5.2 | 
|               |  |         |           |         |  |                  |     |                     |  |          |      |                  |  |  |     | 
|Total Debt     |  | $       | 1,349,819 |         |  |                  | 100 | %                   |  |          | 7.06 | %                |  |  | 4.1 | 
|               |  |         |           |         |  |                  |     |                     |  |          |      |                  |  |  |     | 

18



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Floating and Fixed Rate Debt:

|                   |  |         |           |         |  |                  |     |                     |  |          |      |                  |  |  |     | 
|------------------ |  | ------- | --------- | ------- |  | ---------------- | --- | ------------------- |  | -------- | ---- | ---------------- |  |  | --- | 
|                   |  |         |           |         |  |                  |     |                     |  | Weighted |      |                  |  | 
|                   |  |         |           |         |  |                  |     |                     |  | Average  |      | Weighted Average
|                   |  | Balance |           | Percent |  | Interest Rate(1) |     | Maturity (in years)
|                   |  |         |           |         |  |                  |     |                    
|                   |  | (000's) |           |         |  |                  |     |                     |  |          |      |                  |  | 
|Floating Rate Debt |  | $       | 108,000   |         |  |                  | 8   | %                   |  |          | 3.68 | %                |  |  | 2.8 | 
|Fixed Rate Debt(2) |  |         | 1,241,819 |         |  |                  | 92  | %                   |  |          | 7.35 | %                |  |  | 4.3 | 
|                   |  |         |           |         |  |                  |     |                     |  |          |      |                  |  |  |     | 
|Total Debt         |  | $       | 1,349,819 |         |  |                  | 100 | %                   |  |          | 7.06 | %                |  |  | 4.1 | 
|                   |  |         |           |         |  |                  |     |                     |  |          |      |                  |  |  |     | 



---

|(1) |  | Includes amortization of prepaid financing costs.                                                     
|--- |  | ------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes $175 million of floating rate debt that has been fixed
through interest rate swap agreements.

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

|                        |  |                                     |        |                                   |  |      |        |      |  |   |        |   |  |   |        |  
|----------------------- |  | ----------------------------------- | ------ | --------------------------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                        |  | For the Three Months Ended June 30, |        | For the Six Months Ended June 30,
|                        |  |                                     |        |                                  
|                        |  | 2003                                |        | 2002                              |  | 2003 |        | 2002
|                        |  |                                     |        |                                   |  |      |        |     
|Total interest incurred |  | $                                   | 24,169 |                                   |  | $    | 23,114 |      |  | $ | 48,439 |   |  | $ | 46,098 |  
|Amount capitalized      |  |                                     | (915   | )                                 |  |      | (1,530 | )    |  |   | (2,150 | ) |  |   | (3,117 | )
|                        |  |                                     |        |                                   |  |      |        |      |  |   |        |   |  |   |        |  
|Amount expensed         |  | $                                   | 23,254 |                                   |  | $    | 21,584 |      |  | $ | 46,289 |   |  | $ | 42,981 |  
|                        |  |                                     |        |                                   |  |      |        |      |  |   |        |   |  |   |        |  

Senior Unsecured Notes Covenant Compliance Ratios

The following table summarizes our senior unsecured notes covenant
compliance ratios as of June 30, 2003 (in thousands, except percentage and
covenant ratio data):

|                                          |                        |   |           |           | 
|----------------------------------------- | ---------------------- | - | --------- | --------- | 
|Net investment in real estate             |                        | $ | 2,648,347 |          
|Cash and cash equivalents                 |                        |   | 15,565    |          
|Restricted Cash                           |                        |   | 20,709    |          
|Accumulated depreciation and amortization |                        |   | 424,670   |          
|                                          |                        |   |           |          
|                                          | Total Assets           |   | $         | 3,109,291 | 
|                                          |                        |   |           |          
|Total unencumbered assets                 |                        | $ | 1,767,219 |          
|                                          |                        |   |           |          
|Mortgage loans payable                    |                        | $ | 568,564   |          
|Unsecured lines of credit                 |                        |   | 158,000   |          
|Unsecured term loan                       |                        |   | 125,000   |          
|Unsecured senior notes, net of discount   |                        |   | 498,255   |          
|                                          |                        |   |           |          
|                                          | Total Outstanding Debt |   | $         | 1,349,819 | 
|                                          |                        |   |           |          
|Consolidated EBITDA(1),(2)                |                        | $ | 273,486   |          
|                                          |                        |   |           |          
|Interest incurred(2)                      |                        | $ | 96,503    |          
|Loan fee amortization(2)                  |                        |   | 3,830     |          
|                                          |                        |   |           |          
|Debt Service(2)                           |                        | $ | 100,333   |          
|                                          |                        |   |           |          

|                                    |  |                   |  |        |     |  
|----------------------------------- |  | ----------------- |  | ------ | --- | -
|Covenant Ratios                     |  | Test              |  | Actual
|                                    |  |                   |  |       
|Total Outstanding Debt/Total Assets |  | Less than 60%     |  |        | 43  | %
|Secured Debt/Total Assets           |  | Less than 40%     |  |        | 18  | %
|EBITDA to Debt Service              |  | Greater than 1.5  |  |        | 2.7 |  
|Unencumbered Assets/Unsecured Debt  |  | Greater than 150% |  |        | 226 | %



---

|(1) |  | Earnings before interest, taxes, depreciation and amortization, or
EBITDA, is a non-GAAP measurement. EBITDA is presented because we use
this data and we believe this data is also used by investors as an
indication of our ability to meet our debt service requirements. We
consider that EBITDA, when combined with other measures, can be a useful
measure to determine our ability to service debt and fund future capital
expenditure requirements. However, due to the significance
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19



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| |  | of the net income components excluded from EBITDA, it should not be
considered an alternative to net income, cash flow from operations, or any
other operating or liquidity performance measure prescribed by GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Because interest expense, taxes, gains or losses on sales of property,
losses on valuations of derivatives, asset impairment losses, cumulative
effect of a change in accounting principle, extraordinary items as defined
by GAAP and depreciation and amortization costs, which are not reflected in
EBITDA, have been, will be or may be incurred by us, investors are
cautioned to reflect our ability to finance our investments at competitive
borrowing costs, successfully maintain our REIT status, acquire and dispose
of real estate properties at favorable prices to us and also reflect
changes in value in our properties that result from use or changes in
market conditions and the level of capital expenditures and leasing costs
necessary to maintain the operating performance of our properties.
|
| |  | We present the ratio of EBITDA to interest expense and the ratio of EBITDA
to fixed charges because these ratios are used in several financial
covenants contained in our principal loan agreements. We are required to
satisfy these financial covenants each fiscal quarter. We believe this
information is useful to investors because investors can use this data to
(1) confirm that we are in compliance with the ratio covenants of our
principal loan agreements, (2) evaluate our ability to service our debt,
(3) evaluate our ability to fund future capital expenditures, and (4)
compare our ratios to other real estate companies that present similar
ratios, including other REITs. These ratios should not be considered as
alternatives to the ratio of earnings to fixed charges.                    
|
| |  | The reader is cautioned that EBITDA, as calculated by us, may not be
comparable to EBITDA as reported by other companies that do not define
EBITDA exactly the same as we do.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | We calculate EBITDA as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|                                                                                          |  |                                                   |        |                    |        |         |        |          |        |         |        |         |        |   |        |  |        |   |        |  |        | 
|----------------------------------------------------------------------------------------- |  | ------------------------------------------------- | ------ | ------------------ | ------ | ------- | ------ | -------- | ------ | ------- | ------ | ------- | ------ | - | ------ |  | ------ | - | ------ |  | ------ | 
|                                                                                          |  |                                                   |        | Three Months Ended
|                                                                                          |  |                                                   |        |                   
|                                                                                          |  |                                                   |        | 6/30/03            |        | 3/31/03 |        | 12/31/02 |        | 9/30/02 |        | 6/30/02
|                                                                                          |  |                                                   |        |                    |        |         |        |          |        |         |        |        
|Income from continuing operations before gain on
sale of properties and minority interest |  | $                                                 | 14,407 |                    |        | $       | 16,493 |          |        | $       | 16,258 |         |        | $ | 15,770 |  |        | $ | 17,931 | 
|Add:                                                                                      |  |                                                   |        |                    |        |         |        |          |        |         |        |         |        |   |        |  |        |   |        | 
|                                                                                          |  | Interest expense                                  |        |                    | 23,254 |         |        |          | 23,035 |         |        |         | 23,132 |   |        |  | 22,403 |   |        |  | 21,584 | 
|                                                                                          |  | Depreciation and amortization                     |        |                    | 30,049 |         |        |          | 28,961 |         |        |         | 27,591 |   |        |  | 26,829 |   |        |  | 28,028 | 
|                                                                                          |  | Discontinued operations, net of minority interest |        |                    | (85    | )       |        |          | 1,070  |         |        |         | 861    |   |        |  | 800    |   |        |  | 916    | 
|                                                                                          |  | Minority interest from discontinued operations    |        |                    | 149    |         |        |          | 12     |         |        |         | 24     |   |        |  | 21     |   |        |  | 25     | 
|                                                                                          |  | Depreciation from discontinued operations         |        |                    | (1     | )       |        |          | 661    |         |        |         | 971    |   |        |  | 821    |   |        |  | 794    | 
|                                                                                          |  |                                                   |        |                    |        |         |        |          |        |         |        |         |        |   |        |  |        |   |        | 
|EBITDA                                                                                    |  | $                                                 | 67,773 |                    |        | $       | 70,232 |          |        | $       | 68,837 |         |        | $ | 66,644 |  |        | $ | 69,278 | 
|                                                                                          |  |                                                   |        |                    |        |         |        |          |        |         |        |         |        |   |        |  |        |   |        | 



| |  | (2) Represent amounts for the most recent four consecutive quarters.
| |  | --------------------------------------------------------------------

Funds from Operations

The following table reflects the calculation of our funds from operations
for the three months ended June 30, 2003 and 2002 (in thousands):

|                                                                                     |                                                                 |   |                             |        |                           |   |        |        |      |   |        |        |   |   |        |        |  
|------------------------------------------------------------------------------------ | --------------------------------------------------------------- | - | --------------------------- | ------ | ------------------------- | - | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                                     |                                                                 |   | For the                     |        | For the                  
|                                                                                     |                                                                 |   | Three Months Ended June 30, |        | Six Months Ended June 30,
|                                                                                     |                                                                 |   |                             |        |                          
|                                                                                     |                                                                 |   | 2003                        |        | 2002                      |   | 2003   |        | 2002
|                                                                                     |                                                                 |   |                             |        |                           |   |        |        |     
|Funds From Operations:(1)                                                            |                                                                 |   |                             |        |                           |   |        |        |      |   |        |        |   |   |        |       
|                                                                                     | Net income                                                      |   | $                           | 18,903 |                           |   | $      | 17,407 |      |   | $      | 34,341 |   |   | $      | 38,760 |  
|                                                                                     | Depreciation and minority interest
from discontinued operations |   |                             | 148    |                           |   |        | 819    |      |   |        | 821    |   |   |        | 1,644  |  
|                                                                                     | Gain on sale of discontinued properties                         |   |                             | (6,021 | )                         |   |        |       |      |   |        | (5,382 | ) |   |        |       |  
|                                                                                     | Depreciation and amortization                                   |   |                             | 30,049 |                           |   |        | 28,028 |      |   |        | 59,010 |   |   |        | 53,608 |  
|                                                                                     | Minority interest                                               |   |                             | 1,440  |                           |   |        | 1,521  |      |   |        | 2,926  |   |   |        | 3,176  |  
|                                                                                     | Gain on sale of operating properties                            |   |                             |       |                           |   |        | (81    | )    |   |        |       |   |   |        | (1,273 | )
|                                                                                     | Distribution on Preferred Operating
Partnership Units           |   |                             | (1,078 | )                         |   |        | (1,078 | )    |   |        | (2,156 | ) |   |        | (2,156 | )
|                                                                                     |                                                                 |   |                             |        |                           |   |        |        |      |   |        |        |   |   |        |        |  
|Funds From Operations(2)                                                             |                                                                 | $ | 43,441                      |        |                           | $ | 46,616 |        |      | $ | 89,560 |        |   | $ | 93,759 |       
|                                                                                     |                                                                 |   |                             |        |                           |   |        |        |      |   |        |        |   |   |        |        |  
|Weighted average common shares and
Operating Partnership units outstanding
 Diluted |                                                                 |   | 65,132                      |        |                           |   | 66,850 |        |      |   | 64,982 |        |   |   | 66,610 |       
|                                                                                     |                                                                 |   |                             |        |                           |   |        |        |      |   |        |        |   |   |        |        |  



| |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (1) |  | We believe that funds from operations, or FFO, is a useful
supplemental measure of our operating performance. We compute FFO
in accordance with standards established by the White Paper on FFO
approved by the Board of Governors of the National Association of
Real Estate Investment Trusts, or NAREIT, in April 2002. The White
Paper defines FFO as net income or loss computed in accordance with
generally accepted accounting principles, or

20



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| |     |  | GAAP, excluding extraordinary items, as defined by GAAP, and gains and
losses from sales of depreciable operating property plus real
estate-related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures.                                                                                                                                                                                                                                                                                    
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | We believe that FFO, by excluding depreciation costs, the gains or
losses from the sale of operating real estate properties and the
extraordinary items as defined by GAAP, provides an additional
perspective on our operating results. However, because these excluded
items have a real economic effect, FFO is a limited measure of
performance.                                                                                                                                                                                           
|
| |     |  | FFO captures trends in occupancy rates, rental rates and operating
costs. FFO excludes depreciation and amortization costs and it does
not capture the changes in value in our properties that result from
use or changes in market conditions or the level of capital
expenditures and leasing costs necessary to maintain the operating
performance of our properties, all of which are significant economic
costs. Therefore, its ability to measure performance is limited.                                                                
|
| |     |  | Because FFO excludes significant economic components of net income
determined in accordance with GAAP, FFO should be used as an adjunct
to net income and not as an alternative to net income. FFO should
also not be used as an indicator of our financial performance, or as a
substitute for cash flow from operating activities determined in
accordance with GAAP or as a measure of our liquidity. FFO is not by
itself indicative of funds available to fund our cash needs, including
our ability to pay dividends or service our debt.
|
| |     |  | FFO is used by investors to compare our performance with other REITs.
Other REITs may use different methods for calculating FFO and,
accordingly, our FFO may not be comparable to other REITs.                                                                                                                                                                                                                                                                                                                                                
|
| | (2) |  | Includes $448,000 and $315,000 in non-cash compensation expense
for the three months ended June 30, 2003, and 2002, respectively
and $837,000 and $560,000 in non-cash compensation expense for the
six months ended June 30, 2003 and June 30, 2002, respectively.                                                                                                                                                                                                                                                                            

21



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##### Table of Contents



Portfolio and Lease Information

The following tables set forth certain information regarding our
properties as of June 30, 2003.

PORTFOLIO SUMMARY
As of June 30, 2003



|                      |       |            |       |           |        |                        |        |    |                 |     |       |    |       |     |       |    |    |     |           |           |            |            |     |    |    |     |  
|--------------------- | ----- | ---------- | ----- | --------- | ------ | ---------------------- | ------ | -- | --------------- | --- | ----- | -- | ----- | --- | ----- | -- | -- | --- | --------- | --------- | ---------- | ---------- | --- | -- | -- | --- | -
|                      |       |            |       |           | Number |                        | Number |    |                 |     |       |    |       |     |      
|                      |       |            |       |           | of     |                        | of     |    | Approximate Net
|Location              |       | Properties |       | Buildings |        | Rentable (Square Feet)
|                      |       |            |       |           |        |                       
|                      |       |            |       |           |        |                        |        |    | % of            |     |       |    |       |     | % of  |    |    |     |           |           | % of      
|                      |       |            |       |           | Total  |                        | Total  |    | Total           |     | Total |    | Total |     | Total
|                      |       |            |       |           |        |                        |        |    |                 |     |       |    |       |     |      
|Los Angeles County    |       |            |       |           |        |                        |        |    |                 |     |       |    |       |     |       |    |    |     |           |           |            |            |     |   
|                      | West  |            |       | 30        |        |                        |        | 23 | %               |     |       | 32 |       |     |       | 15 | %  |     |           | 4,882,004 |            |            |     | 26 | % 
|                      | North |            |       | 29        |        |                        |        | 22 | %               |     |       | 46 |       |     |       | 21 | %  |     |           | 3,231,591 |            |            |     | 17 | % 
|                      | South |            |       | 16        |        |                        |        | 12 | %               |     |       | 21 |       |     |       | 10 | %  |     |           | 3,057,925 |            |            |     | 17 | % 
|                      |       |            |       |           |        |                        |        |    |                 |     |       |    |       |     |       |    |    |     |           |           |            |            |     |   
|                      |       | Subtotal   |       |           | 75     |                        |        |    | 57              | %   |       |    | 99    |     |       |    | 46 | %   |           |           | 11,171,520 |            |     |    | 60 | %  
|Orange County         |       |            | 23    |           |        |                        | 18     | %  |                 |     | 56    |    |       |     | 26    | %  |    |     | 3,676,119 |           |            |            | 20  | % 
|San Diego County      |       |            | 25    |           |        |                        | 19     | %  |                 |     | 40    |    |       |     | 18    | %  |    |     | 2,857,195 |           |            |            | 15  | % 
|Ventura/Kern Counties |       |            | 6     |           |        |                        | 5      | %  |                 |     | 17    |    |       |     | 8     | %  |    |     | 778,363   |           |            |            | 4   | % 
|Riverside County(3)   |       |            | 1     |           |        |                        | 1      | %  |                 |     | 4     |    |       |     | 2     | %  |    |     | 133,481   |           |            |            | 1   | % 
|                      |       |            |       |           |        |                        |        |    |                 |     |       |    |       |     |       |    |    |     |           |           |            |            |     |   
|                      |       |            | Total |           |        | 130                    | (4)    |    |                 | 100 | %     |    |       | 216 | (4)   |    |    | 100 | %         |           |            | 18,616,678 | (4) |    |    | 100 | %
|                      |       |            |       |           |        |                        |        |    |                 |     |       |    |       |     |       |    |    |     |           |           |            |            |     |   

[Additional columns below]

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

|                      |       |               |        |               |                               |        |                    |    |       |     |        |        |        |         |      |    |    |     |  
|--------------------- | ----- | ------------- | ------ | ------------- | ----------------------------- | ------ | ------------------ | -- | ----- | --- | ------ | ------ | ------ | ------- | ---- | -- | -- | --- | -
|                      |       |               |        |               | Property Operating Results(1)
|                      |       |               |        |               |                              
|                      |       |               |        |               | For the Three Months          |        | For the Six Months
|                      |       |               |        |               | Ended                         |        | Ended             
|Location              |       | June 30, 2003 |        | June 30, 2003
|                      |       |               |        |              
|                      |       |               |        |               | (in thousands and unaudited) 
|                      |       |               |        |               |                               |        |                    |    | % of  |     |        |        |        |         | % of
|                      |       |               |        |               | Total                         |        | Total              |    | Total |     | Total 
|                      |       |               |        |               |                               |        |                    |    |       |     |       
|Los Angeles County    |       |               |        |               |                               |        |                    |    |       |     |        |        |        |         |      |   
|                      | West  |               | $      | 27,235        |                               |        |                    | 38 | %     |     | $      | 54,886 |        |         |      | 38 | % 
|                      | North |               |        | 11,476        |                               |        |                    | 16 | %     |     |        | 22,670 |        |         |      | 16 | % 
|                      | South |               |        | 9,821         |                               |        |                    | 14 | %     |     |        | 19,616 |        |         |      | 14 | % 
|                      |       |               |        |               |                               |        |                    |    |       |     |        |        |        |         |      |   
|                      |       | Subtotal      |        |               | 48,532                        |        |                    |    | 68    | %   |        |        | 97,172 |         |      |    | 68 | %  
|Orange County         |       |               | 11,620 |               |                               |        | 16                 | %  |       |     | 23,203 |        |        |         | 16   | % 
|San Diego County      |       |               | 8,690  |               |                               |        | 12                 | %  |       |     | 17,793 |        |        |         | 12   | % 
|Ventura/Kern Counties |       |               | 2,399  |               |                               |        | 3                  | %  |       |     | 4,792  |        |        |         | 3    | % 
|Riverside County(3)   |       |               | 316    |               |                               |        | 1                  | %  |       |     | 606    |        |        |         | 1    | % 
|                      |       |               |        |               |                               |        |                    |    |       |     |        |        |        |         |      |   
|                      |       |               | Total  |               | $                             | 71,557 |                    |    |       | 100 | %      |        | $      | 143,566 |      |    |    | 100 | %
|                      |       |               |        |               |                               |        |                    |    |       |     |        |        |        |         |      |   



---

|(1) |  | Excludes the operating results of one property sold during the
first quarter of 2003 and five properties sold during the second
quarter of 2003. The operating results for these properties are
reported as part of discontinued operations in our quarterly
operating results.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes a retail property with approximately 37,000 net rentable square
feet.                                                                                                                                                                                                 
|   
|(3) |  | Consists of a retail property with approximately 133,000 net rentable
square feet.                                                                                                                                                                                             
|   
|(4) |  | Including one development property currently under lease-up, our total
portfolio consists of 131 properties with 217 buildings and approximately
18.9 million rentable square feet.                                                                                            

PORTFOLIO OCCUPANCY AND IN-PLACE RENTS
As of June 30, 2003

|                       |       |                  |      |                |      |                           |      |      |      |   |                      |       |                 |   |              |       | 
|---------------------- | ----- | ---------------- | ---- | -------------- | ---- | ------------------------- | ---- | ---- | ---- | - | -------------------- | ----- | --------------- | - | ------------ | ----- | 
|                       |       |                  |      |                |      |                           |      |      |      |   | Annualized Base Rent
|Location               |       | Percent Occupied |      | Percent Leased |      | Per Leased Square Foot(1)
|                       |       |                  |      |                |      |                          
|                       |       |                  |      |                |      |                           |      |      |      |   |                      |       |                 |   | Full Service
|                       |       |                  |      |                |      |                           |      |      |      |   | Portfolio Total      |       | Gross Leases(2)
|                       |       |                  |      |                |      |                           |      |      |      |   |                      |       |                
|Los Angeles County     |       |                  |      |                |      |                           |      |      |      |   |                      |       |                 |   |              |      
|                       | West  |                  |      | 91.5           | %(3) |                           |      | 94.5 | %(3) |   | $                    | 28.02 |                 |   | $            | 28.14 | 
|                       | North |                  |      | 89.6           | %    |                           |      | 90.7 | %    |   |                      | 21.65 |                 |   |              | 22.57 | 
|                       | South |                  |      | 86.4           | %    |                           |      | 87.1 | %    |   |                      | 19.43 |                 |   |              | 20.57 | 
|Orange County          |       |                  | 92.5 | %              |      |                           | 93.5 | %    |      |   | 18.36                |       |                 |   | 21.80        |      
|San Diego County       |       |                  | 83.5 | %              |      |                           | 84.0 | %    |      |   | 18.88                |       |                 |   | 23.53        |      
|Ventura/Kern Counties  |       |                  | 97.0 | %              |      |                           | 98.2 | %    |      |   | 18.42                |       |                 |   | 18.83        |      
|Riverside County       |       |                  | 93.0 | %              |      |                           | 98.6 | %    |      |   | 12.37                |       |                 |   |             |      
|                       |       |                  |      |                |      |                           |      |      |      |   |                      |       |                 |   |              |      
|Total/Weighted Average |       |                  | 89.5 | %              |      |                           | 91.0 | %    |      | $ | 21.76                |       |                 | $ | 23.85        |      
|                       |       |                  |      |                |      |                           |      |      |      |   |                      |       |                 |   |              |      



---

|(1) |  | Based on monthly contractual base rent under existing leases as of June
30, 2003, multiplied by 12 and divided by leased net rentable square feet;
for those leases where
rent has not yet commenced or which are in a free rent period, the first
month in which rent is to be received is used to determine annualized base
rent.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Excludes 36 properties and approximately 3.9 million square feet under
triple net and modified gross leases.                                                                                                                                                                                                                       
|   
|(3) |  | Excludes a 283,000 net rentable square foot development property under
lease-up that is currently 55% leased and 0% occupied.                                                                                                                                                                                                      

22



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##### Table of Contents



TEN LARGEST TENANTS
As of June 30, 2003

|                                  |  |           |    |            |  |             |     |              |  |               |       |                |  |  |       |            |  |  |           |  |  |   |        | 
|--------------------------------- |  | --------- | -- | ---------- |  | ----------- | --- | ------------ |  | ------------- | ----- | -------------- |  |  | ----- | ---------- |  |  | --------- |  |  | - | ------ | 
|                                  |  |           |    |            |  | Weighted    |     | Percentage   |  | Percentage of |       |                |  |  |       |            |  | 
|                                  |  |           |    |            |  | Average     |     | of Aggregate |  | Aggregate     |       |                |  |  |       |            |  | 
|                                  |  |           |    |            |  | Remaining   |     | Portfolio    |  | Portfolio     |       |                |  |  |       | Annualized
|                                  |  | Number of |    | Lease Term |  | Leased      |     | Annualized   |  | Net Rentable  |       | Base Rent     
|Tenant                            |  | Locations |    | In Months  |  | Square Feet |     | Base Rent(1) |  | Square Feet   |       | (in thousands)
|                                  |  |           |    |            |  |             |     |              |  |               |       |               
|State of California               |  |           | 24 |            |  |             | 48  |              |  |               | 2.27  | %              |  |  | 2.24  | %          |  |  | 385,732   |  |  | $ | 8,256  | 
|Vivendi Universal                 |  |           | 2  |            |  |             | 82  |              |  |               | 1.37  |                |  |  | 2.20  |            |  |  | 231,681   |  |  |   | 8,111  | 
|University of Phoenix             |  |           | 6  |            |  |             | 17  |              |  |               | 1.51  |                |  |  | 1.38  |            |  |  | 255,168   |  |  |   | 5,090  | 
|Univision Television Group        |  |           | 1  |            |  |             | 220 |              |  |               | 0.98  |                |  |  | 1.15  |            |  |  | 166,363   |  |  |   | 4,247  | 
|Ceridian Corporation              |  |           | 3  |            |  |             | 75  |              |  |               | 0.95  |                |  |  | 0.97  |            |  |  | 160,805   |  |  |   | 3,580  | 
|SBC Communications, Inc.          |  |           | 4  |            |  |             | 23  |              |  |               | 0.86  |                |  |  | 0.88  |            |  |  | 145,663   |  |  |   | 3,239  | 
|Atlantic Richfield                |  |           | 1  |            |  |             | 39  |              |  |               | 0.79  |                |  |  | 0.78  |            |  |  | 133,581   |  |  |   | 2,862  | 
|State Compensation Insurance Fund |  |           | 1  |            |  |             | 57  |              |  |               | 0.67  |                |  |  | 0.72  |            |  |  | 113,513   |  |  |   | 2,656  | 
|U.S. Government                   |  |           | 15 |            |  |             | 38  |              |  |               | 0.67  |                |  |  | 0.71  |            |  |  | 113,837   |  |  |   | 2,634  | 
|Haight, Brown & Bonesteel, LLP    |  |           | 1  |            |  |             | 97  |              |  |               | 0.36  |                |  |  | 0.70  |            |  |  | 61,399    |  |  |   | 2,579  | 
|                                  |  |           |    |            |  |             |     |              |  |               |       |                |  |  |       |            |  |  |           |  |  |   |        | 
|Total/Weighted Average(2)         |  |           | 58 |            |  |             | 65  |              |  |               | 10.43 | %              |  |  | 11.73 | %          |  |  | 1,767,742 |  |  | $ | 43,254 | 
|                                  |  |           |    |            |  |             |     |              |  |               |       |                |  |  |       |            |  |  |           |  |  |   |        | 



---

|(1) |  | Annualized base rent is calculated as monthly contractual base rent under existing leases as of June 30, 2003, multiplied by 12; for those leases where rent has not yet commenced or which are
in a free rent period, the first month in which rent is to be received is used to determine annualized base rent.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The weighted average calculation is based on net rentable square footage leased by each tenant.                                                                                                                                                                                                                  

LEASING ACTIVITY

|                                                       |                    |  |                    |       |                  |  |          |       |    
|------------------------------------------------------ | ------------------ |  | ------------------ | ----- | ---------------- |  | -------- | ----- | ---
|                                                       |                    |  | For the            |       | For the         
|                                                       |                    |  | Three Months Ended |       | Six Months Ended
|                                                       |                    |  | June 30, 2003      |       | June 30, 2003   
|                                                       |                    |  |                    |       |                 
|Net Absorption (square feet)                           |                    |  | (2,442             | )     |                  |  | (104,075 | )    
|                                                       |                    |  |                    |       |                  |  |          |      
|Gross New Leasing Activity (square feet)               |                    |  | 568,781            |       |                  |  | 998,203  |      
|                                                       |                    |  |                    |       |                  |  |          |      
|Retention Rate                                         |                    |  | 64.4               | %     |                  |  | 62.0     | %    
|                                                       |                    |  |                    |       |                  |  |          |      
|Cash Rent Growth(1):                                   |                    |  |                    |       |                  |  |          |      
|                                                       | Expiring Rate      |  | $                  | 20.35 |                  |  | $        | 20.20 |    
|                                                       |                    |  |                    |       |                  |  |          |      
|                                                       | New / Renewed Rate |  | $                  | 19.27 |                  |  | $        | 20.20 |    
|                                                       |                    |  |                    |       |                  |  |          |      
|                                                       | Increase           |  |                    | (5    | %)               |  |          |      | %  
|                                                       |                    |  |                    |       |                  |  |          |      
|GAAP Rent Growth(2):                                   |                    |  |                    |       |                  |  |          |      
|                                                       | Expiring Rate      |  | $                  | 19.58 |                  |  | $        | 19.43 |    
|                                                       |                    |  |                    |       |                  |  |          |      
|                                                       | New / Renewed Rate |  | $                  | 20.64 |                  |  | $        | 21.24 |    
|                                                       |                    |  |                    |       |                  |  |          |      
|                                                       | Increase           |  |                    | 5     | %                |  |          | 9     | %  
|                                                       |                    |  |                    |       |                  |  |          |      
|Weighted Average Lease Term in Months                  |                    |  | 54                 |       |                  |  | 53       |      
|                                                       |                    |  |                    |       |                  |  |          |      
|Tenant Improvements and Commissions (per square foot): |                    |  |                    |       |                  |  |          |      
|                                                       | New(3)             |  | $                  | 22.28 |                  |  | $        | 21.28 |    
|                                                       |                    |  |                    |       |                  |  |          |      
|                                                       | Renewal            |  | $                  | 10.67 |                  |  | $        | 12.78 | (4)
|                                                       |                    |  |                    |       |                  |  |          |      
|Capital Expenditures (per square foot):                |                    |  |                    |       |                  |  |          |      
|                                                       | Recurring          |  | $                  | 0.02  |                  |  | $        | 0.07  |    
|                                                       |                    |  |                    |       |                  |  |          |      
|                                                       | Non-recurring      |  | $                  | 0.01  |                  |  | $        | 0.03  |    
|                                                       |                    |  |                    |       |                  |  |          |      



|(1) |  | Represents the difference between initial market rents on new and renewed leases as compared to the expiring cash rents on the same space.                                                                                                                                                                                                                                                       
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Represents estimated cash rent growth adjusted for straight-line rents.                                                                                                                                                                                                                                                                                                                          
|   
|(3) |  | Excludes all newly developed or renovated square footage or square footage vacant at acquisition.                                                                                                                                                                                                                                                                                                
|   
|(4) |  | Includes two tenants with approximately 140,000 net rentable square feet that extended their leases early in the first quarter of 2003 for an average
of eight years that will not use their tenant improvement allowance until 2004. Excluding these two renewals, tenant improvements and commissions
for renewal leases for the six months ended June 30, 2003 averaged $9.72 per square foot.

23



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##### Table of Contents



PORTFOLIO DIVERSIFICATION
As of June 30, 2003

|                                                                         |                            |      |         |      |        |           |                |            |               |  |       |        |  
|------------------------------------------------------------------------ | -------------------------- | ---- | ------- | ---- | ------ | --------- | -------------- | ---------- | ------------- |  | ----- | ------ | -
|                                                                         |                            |      |         |      |        |           | Occupied       |            | Percentage of
|                                                                         |                            |      | NAICS   |      | Square |           | Total Occupied
|North American Industrial Classification System Description              |                            | Code |         | Feet |        | Portfolio
|                                                                         |                            |      |         |      |        |          
|Professional, Scientific, and Technical Services                         |                            |      | 541     |      |        |           | 4,496,939      |            |               |  | 26.98 | %     
|Finance and Insurance                                                    |                            |      | 521-525 |      |        |           | 2,593,370      |            |               |  | 15.56 |       
|Information                                                              |                            |      | 511-519 |      |        |           | 2,014,672      |            |               |  | 12.08 |       
|Manufacturing                                                            |                            |      | 311-339 |      |        |           | 1,323,116      |            |               |  | 7.94  |       
|Health Care and Social Assistance                                        |                            |      | 621-624 |      |        |           | 1,125,885      |            |               |  | 6.75  |       
|Administrative and Support and Waste Management and Remediation Services |                            |      | 561-562 |      |        |           | 662,599        |            |               |  | 3.97  |       
|Public Administration                                                    |                            |      | 921-928 |      |        |           | 769,414        |            |               |  | 4.62  |       
|Educational Services                                                     |                            |      | 611     |      |        |           | 723,895        |            |               |  | 4.34  |       
|Real Estate, Rental and Leasing                                          |                            |      | 531-533 |      |        |           | 733,291        |            |               |  | 4.40  |       
|Wholesale Trade                                                          |                            |      | 423-425 |      |        |           | 561,056        |            |               |  | 3.37  |       
|Transportation and Warehousing                                           |                            |      | 481-493 |      |        |           | 388,768        |            |               |  | 2.33  |       
|Arts, Entertainment, and Recreation                                      |                            |      | 711-713 |      |        |           | 329,045        |            |               |  | 1.97  |       
|Construction                                                             |                            |      | 236-238 |      |        |           | 247,621        |            |               |  | 1.49  |       
|Accommodation and Food Services                                          |                            |      | 721-722 |      |        |           | 182,433        |            |               |  | 1.09  |       
|Other Services (except Public Administration)                            |                            |      | 811-814 |      |        |           | 200,375        |            |               |  | 1.20  |       
|Retail Trade                                                             |                            |      | 441-454 |      |        |           | 128,075        |            |               |  | 0.77  |       
|Mining                                                                   |                            |      | 211-213 |      |        |           | 84,823         |            |               |  | 0.51  |       
|Management of Companies and Enterprises                                  |                            |      | 551     |      |        |           | 21,970         |            |               |  | 0.13  |       
|Utilities                                                                |                            |      | 221     |      |        |           | 8,795          |            |               |  | 0.05  |       
|Agriculture, Forestry, Fishing and Hunting                               |                            |      | 111-115 |      |        |           | 6,065          |            |               |  | 0.04  |       
|Other - Uncategorized                                                    |                            |      |         |      |        |           | 68,211         |            |               |  | 0.41  |       
|                                                                         |                            |      |         |      |        |           |                |            |               |  |       |       
|                                                                         | Total Square Feet Occupied |      |         |      |        |           |                | 16,670,418 |               |  |       | 100.00 | %
|                                                                         |                            |      |         |      |        |           |                |            |               |  |       |       

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##### Table of Contents



LEASE EXPIRATIONS
As of June 30, 2003

|                    |  |                |  |                   |           |      |       |      |           |      |       |      |           |      |       |            |           |   |       |   |           |   |       |   |           |          |       |  
|------------------- |  | -------------- |  | ----------------- | --------- | ---- | ----- | ---- | --------- | ---- | ----- | ---- | --------- | ---- | ----- | ---------- | --------- | - | ----- | - | --------- | - | ----- | - | --------- | -------- | ----- | -
|                    |  |                |  |                   |           |      |       |      |           |      |       |      |           |      |       |            |           |   |       |   |           |   |       |   |           | 2008 and
|                    |  |                |  |                   |           | 2003 |       | 2004 |           | 2005 |       | 2006 |           | 2007 |       | Thereafter
|                    |  |                |  |                   |           |      |       |      |           |      |       |      |           |      |       |           
|Los Angeles County:
|West                |  | Expiring SF(1) |  |                   | 333,757   |      |       |      | 703,454   |      |       |      | 776,203   |      |       |            | 499,330   |   |       |   | 551,639   |   |       |   | 1,720,065 |         
|                    |  |                |  | % of Leased SF(2) |           |      | 1.97  | %    |           |      | 4.15  | %    |           |      | 4.59  | %          |           |   | 2.95  | % |           |   | 3.26  | % |           |          | 10.15 | %
|                    |  |                |  | Rent per SF(3)    |           | $    | 27.69 |      |           | $    | 27.22 |      |           | $    | 27.47 |            |           | $ | 29.39 |   |           | $ | 29.19 |   |           | $        | 35.03 |  
|North               |  | Expiring SF(1) |  |                   | 182,601   |      |       |      | 647,573   |      |       |      | 417,211   |      |       |            | 366,793   |   |       |   | 436,856   |   |       |   | 829,659   |         
|                    |  |                |  | % of Leased SF(2) |           |      | 1.07  | %    |           |      | 3.82  | %    |           |      | 2.46  | %          |           |   | 2.16  | % |           |   | 2.58  | % |           |          | 4.90  | %
|                    |  |                |  | Rent per SF(3)    |           | $    | 23.51 |      |           | $    | 21.36 |      |           | $    | 23.14 |            |           | $ | 24.41 |   |           | $ | 22.67 |   |           | $        | 23.40 |  
|South               |  | Expiring SF(1) |  |                   | 184,176   |      |       |      | 522,970   |      |       |      | 712,098   |      |       |            | 299,673   |   |       |   | 214,053   |   |       |   | 682,856   |         
|                    |  |                |  | % of Leased SF(2) |           |      | 1.09  | %    |           |      | 3.09  | %    |           |      | 4.20  | %          |           |   | 1.77  | % |           |   | 1.26  | % |           |          | 4.03  | %
|                    |  |                |  | Rent per SF(3)    |           | $    | 18.68 |      |           | $    | 20.41 |      |           | $    | 15.93 |            |           | $ | 22.73 |   |           | $ | 23.29 |   |           | $        | 23.28 |  
|                    |  |                |  |                   |           |      |       |      |           |      |       |      |           |      |       |            |           |   |       |   |           |   |       |   |           |          |       |  
|Subtotal -         
|Los Angeles County  |  | Expiring SF(1) |  |                   | 700,534   |      |       |      | 1,873,997 |      |       |      | 1,905,512 |      |       |            | 1,165,796 |   |       |   | 1,202,548 |   |       |   | 3,232,580 |         
|                    |  |                |  | % of Leased SF(2) |           |      | 4.13  | %    |           |      | 11.06 | %    |           |      | 11.25 | %          |           |   | 6.88  | % |           |   | 7.10  | % |           |          | 19.08 | %
|                    |  |                |  | Rent per SF(3)    |           | $    | 24.23 |      |           | $    | 23.30 |      |           | $    | 22.21 |            |           | $ | 26.11 |   |           | $ | 25.77 |   |           | $        | 29.56 |  
|Orange County       |  | Expiring SF(1) |  |                   | 406,082   |      |       |      | 744,842   |      |       |      | 589,040   |      |       |            | 785,933   |   |       |   | 397,784   |   |       |   | 493,792   |         
|                    |  |                |  | % of Leased SF(2) |           |      | 2.40  | %    |           |      | 4.39  | %    |           |      | 3.48  | %          |           |   | 4.63  | % |           |   | 2.34  | % |           |          | 2.91  | %
|                    |  |                |  | Rent per SF(3)    |           | $    | 17.91 |      |           | $    | 16.20 |      |           | $    | 21.20 |            |           | $ | 19.68 |   |           | $ | 20.54 |   |           | $        | 23.32 |  
|San Diego County    |  | Expiring SF(1) |  |                   | 171,837   |      |       |      | 456,696   |      |       |      | 535,555   |      |       |            | 330,046   |   |       |   | 159,161   |   |       |   | 709,787   |         
|                    |  |                |  | % of Leased SF(2) |           |      | 1.01  | %    |           |      | 2.70  | %    |           |      | 3.16  | %          |           |   | 1.95  | % |           |   | 0.94  | % |           |          | 4.19  | %
|                    |  |                |  | Rent per SF(3)    |           | $    | 19.77 |      |           | $    | 20.37 |      |           | $    | 18.60 |            |           | $ | 22.43 |   |           | $ | 24.03 |   |           | $        | 22.53 |  
|All Others          |  | Expiring SF(1) |  |                   | 31,488    |      |       |      | 247,732   |      |       |      | 122,847   |      |       |            | 195,872   |   |       |   | 92,827    |   |       |   | 175,599   |         
|                    |  |                |  | % of Leased SF(2) |           |      | 0.19  | %    |           |      | 1.46  | %    |           |      | 0.72  | %          |           |   | 1.16  | % |           |   | 0.55  | % |           |          | 1.04  | %
|                    |  |                |  | Rent per SF(3)    |           | $    | 19.71 |      |           | $    | 17.84 |      |           | $    | 20.32 |            |           | $ | 19.66 |   |           | $ | 17.01 |   |           | $        | 18.68 |  
|                    |  |                |  |                   |           |      |       |      |           |      |       |      |           |      |       |            |           |   |       |   |           |   |       |   |           |          |       |  
|Total Portfolio     |  | Expiring SF(1) |  |                   | 1,309,941 |      |       |      | 3,323,267 |      |       |      | 3,152,954 |      |       |            | 2,477,647 |   |       |   | 1,852,320 |   |       |   | 4,611,758 |         
|                    |  |                |  |                   |           |      |       |      |           |      |       |      |           |      |       |            |           |   |       |   |           |   |       |   |           |          |       |  
|                    |  |                |  | % of Leased SF(2) |           |      | 7.73  | %    |           |      | 19.61 | %    |           |      | 18.61 | %          |           |   | 14.62 | % |           |   | 10.93 | % |           |          | 27.22 | %
|                    |  |                |  |                   |           |      |       |      |           |      |       |      |           |      |       |            |           |   |       |   |           |   |       |   |           |          |       |  
|                    |  |                |  | Rent per SF(3)    |           | $    | 21.58 |      |           | $    | 20.90 |      |           | $    | 21.34 |            |           | $ | 23.07 |   |           | $ | 24.06 |   |           | $        | 27.40 |  
|                    |  |                |  |                   |           |      |       |      |           |      |       |      |           |      |       |            |           |   |       |   |           |   |       |   |           |          |       |  



---

|(1) |  | Represents the rentable square footage of expiring leases. For 2003, represents expirations from July 1, 2003 through December 31, 2003, not including month-to-month tenants.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Percentage of total rentable square footage expiring during the period.                                                                                                       
|   
|(3) |  | Represents annualized ending cash rents of expiring leases.                                                                                                                   

LEASE EXPIRATIONS FOR THE NEXT FOUR QUARTERS
As of June 30, 2003

|                    |  |                |  |                   |         |       |       |       |         |       |       |       |         |   |       |   |         |   |       |  
|------------------- |  | -------------- |  | ----------------- | ------- | ----- | ----- | ----- | ------- | ----- | ----- | ----- | ------- | - | ----- | - | ------- | - | ----- | -
|                    |  |                |  |                   |         | Q3-03 |       | Q4-03 |         | Q1-04 |       | Q2-04
|                    |  |                |  |                   |         |       |       |       |         |       |       |      
|Los Angeles County:
|West                |  | Expiring SF(1) |  |                   | 116,587 |       |       |       | 217,170 |       |       |       | 123,006 |   |       |   | 214,156 |  
|                    |  |                |  | % of Leased SF(2) |         |       | 0.69  | %     |         |       | 1.28  | %     |         |   | 0.73  | % |         |   | 1.27  | %
|                    |  |                |  | Rent per SF(3)    |         | $     | 22.84 |       |         | $     | 30.29 |       |         | $ | 25.66 |   |         | $ | 25.11 |  
|North               |  | Expiring SF(1) |  |                   | 63,321  |       |       |       | 119,280 |       |       |       | 84,872  |   |       |   | 91,377  |  
|                    |  |                |  | % of Leased SF(2) |         |       | 0.37  | %     |         |       | 0.70  | %     |         |   | 0.50  | % |         |   | 0.54  | %
|                    |  |                |  | Rent per SF(3)    |         | $     | 23.44 |       |         | $     | 23.54 |       |         | $ | 20.88 |   |         | $ | 23.59 |  
|South               |  | Expiring SF(1) |  |                   | 126,958 |       |       |       | 57,218  |       |       |       | 120,960 |   |       |   | 109,103 |  
|                    |  |                |  | % of Leased SF(2) |         |       | 0.75  | %     |         |       | 0.34  | %     |         |   | 0.71  | % |         |   | 0.64  | %
|                    |  |                |  | Rent per SF(3)    |         | $     | 17.31 |       |         | $     | 21.73 |       |         | $ | 23.74 |   |         | $ | 20.43 |  
|                    |  |                |  |                   |         |       |       |       |         |       |       |       |         |   |       |   |         |   |       |  
|Subtotal -         
|Los Angeles County  |  | Expiring SF(1) |  |                   | 306,866 |       |       |       | 393,668 |       |       |       | 328,838 |   |       |   | 414,636 |  
|                    |  |                |  | % of Leased SF(2) |         |       | 1.81  | %     |         |       | 2.32  | %     |         |   | 1.94  | % |         |   | 2.45  | %
|                    |  |                |  | Rent per SF(3)    |         | $     | 20.68 |       |         | $     | 27.00 |       |         | $ | 23.72 |   |         | $ | 23.54 |  
|Orange County       |  | Expiring SF(1) |  |                   | 180,661 |       |       |       | 225,421 |       |       |       | 222,121 |   |       |   | 159,520 |  
|                    |  |                |  | % of Leased SF(2) |         |       | 1.07  | %     |         |       | 1.33  | %     |         |   | 1.31  | % |         |   | 0.94  | %
|                    |  |                |  | Rent per SF(3)    |         | $     | 19.78 |       |         | $     | 16.42 |       |         | $ | 14.28 |   |         | $ | 19.91 |  
|San Diego County    |  | Expiring SF(1) |  |                   | 66,110  |       |       |       | 105,727 |       |       |       | 179,319 |   |       |   | 70,020  |  
|                    |  |                |  | % of Leased SF(2) |         |       | 0.39  | %     |         |       | 0.62  | %     |         |   | 1.06  | % |         |   | 0.41  | %
|                    |  |                |  | Rent per SF(3)    |         | $     | 19.44 |       |         | $     | 19.98 |       |         | $ | 20.59 |   |         | $ | 20.39 |  
|All Others          |  | Expiring SF(1) |  |                   | 5,876   |       |       |       | 25,612  |       |       |       | 36,612  |   |       |   | 12,841  |  
|                    |  |                |  | % of Leased SF(2) |         |       | 0.03  | %     |         |       | 0.16  | %     |         |   | 0.22  | % |         |   | 0.08  | %
|                    |  |                |  | Rent per SF(3)    |         | $     | 19.24 |       |         | $     | 19.82 |       |         | $ | 20.31 |   |         | $ | 18.69 |  
|                    |  |                |  |                   |         |       |       |       |         |       |       |       |         |   |       |   |         |   |       |  
|Total Portfolio     |  | Expiring SF(1) |  |                   | 559,513 |       |       |       | 750,428 |       |       |       | 766,890 |   |       |   | 657,017 |  
|                    |  |                |  |                   |         |       |       |       |         |       |       |       |         |   |       |   |         |   |       |  
|                    |  |                |  | % of Leased SF(2) |         |       | 3.30  | %     |         |       | 4.43  | %     |         |   | 4.53  | % |         |   | 3.88  | %
|                    |  |                |  |                   |         |       |       |       |         |       |       |       |         |   |       |   |         |   |       |  
|                    |  |                |  | Rent per SF(3)    |         | $     | 20.23 |       |         | $     | 22.59 |       |         | $ | 20.09 |   |         | $ | 22.23 |  
|                    |  |                |  |                   |         |       |       |       |         |       |       |       |         |   |       |   |         |   |       |  



---

|(1) |  | Represents the square footage of expiring leases, not including month-to-month tenants.
|--- |  | ---------------------------------------------------------------------------------------
|   
|(2) |  | Percentage of total rentable space expiring during the period.                         
|   
|(3) |  | Represents annualized ending cash rents of expiring leases.                            

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DEVELOPMENT SUMMARY
As of June 30, 2003

|                      |  |      |         |                |         |                |                |         |           |      |            |          |               |                |              |            |               |                |           |              |      |   |       |  |        |  |           |   |  |  |           |   |  |  |  |  | 
|--------------------- |  | ---- | ------- | -------------- | ------- | -------------- | -------------- | ------- | --------- | ---- | ---------- | -------- | ------------- | -------------- | ------------ | ---------- | ------------- | -------------- | --------- | ------------ | ---- | - | ----- |  | ------ |  | --------- | - |  |  | --------- | - |  |  |  |  | 
|                      |  |      |         |                |         |                |                |         |           |      |            |          |               |                |              |            |               |                |           |              |      |   |       |  |        |  | Estimated |   |  |  |           |   |  |  | 
|                      |  |      |         |                |         |                | Costs          |         |           |      |            |          |               |                |              |            |               |                |           |              |      |   |       |  | Year 1 |  |           |   |  |  | Estimated
|                      |  |      |         |                |         |                | Incurred       |         | Estimated |      | Percent    |          | Shell         |                | Estimated    |            | Stabilized    |                | Estimated |              | Year
|                      |  |      | Square  |                | To Date |                | Total Cost (1) |         | Leased at |      | Completion |          | Stabilization |                | Cash NOI (3) |            | Year 1 Annual |                | Annual   
|Property              |  | Feet |         | (in thousands) |         | (in thousands) |                | 7/30/03 |           | Date |            | Date (2) |               | (in thousands) |              | Cash Yield |               | GAAP Yield (4)
|                      |  |      |         |                |         |                |                |         |           |      |            |          |               |                |              |            |               |               
|Howard Hughes Center: |  |      |         |                |         |                |                |         |           |      |            |          |               |                |              |            |               |                |           |              |      |   |       |  |        |  |           |   |  |  |           |   |  |  |  | 
|6100 Center Drive     |  |      | 283,000 |                |         | $              | 69,286         |         |           | $    | 81,500     |          |               |                | 55           | %          |               | 2nd Qtr 2002   |           | 4th Qtr 2003 |      | $ | 6,450 |  |        |  | 7.9       | % |  |  | 8.9       | %
|                      |  |      |         |                |         |                |                |         |           |      |            |          |               |                |              |            |               |                |           |              |      |   |       |  |        |  |           |   |  |  |           |   |  |  |  | 



---

|(1) |  | Estimated total cost includes purchase and closing costs, capital
expenditures, tenant improvements, leasing commissions and carrying
costs during development, as well as an allocation of land and master
plan costs. Unallocated acquisition and master plan costs consists of
unallocated land costs and master plan costs that will be allocated to
future development projects at the Howard Hughes Center.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | We consider a property to be stabilized in the quarter when the
property is at least 95% leased.                                                                                                                                                                                                                                                                                                                 
|   
|(3) |  | We consider Stabilized Cash NOI to be the rental revenues from the
property less the operating expenses of the property on a cash basis
before deducting financing costs (interest and principal payments) after
the property is at least 95% leased.                                                                                                                                                            
|   
|(4) |  | We consider the Estimated Year 1 Annual GAAP Yield to be the propertys
Stabilized Cash NOI adjusted for straight-line rents during its first
year in service over the propertys estimated total costs.                                                                                                                                                                                                         

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

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

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




Item 3. Quantitative and Qualitative Disclosure about Market Risk

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

Interest Rate Risk

In order to modify and manage the interest characteristics of our
outstanding debt and limit the effects of interest rates on our operations, we
may use a variety of financial instruments, including interest rate swaps,
caps, floors and other interest rate exchange contracts. The use of these
types of instruments to hedge our exposure to changes in interest rates carries
additional risks such as counter-party credit risk. We do not enter into any
transactions for speculative or trading purposes. During 2002, we entered into
interest rate swap agreements fixing the interest rates on variable debt with
notional amounts totaling $175.0 million. During 2003, we entered into $100
million of forward-starting swap agreements fixing the 10-year Treasury rate
for borrowings that are anticipated to occur in 2004 to refinance some of our
scheduled debt maturities.

Some of our future earnings, cash flows and fair values relating to
financial instruments are dependent upon prevailing market rates of interest,
such as LIBOR. Based on interest rates and outstanding balances as of June 30,
2003, a 1% increase in interest rates on our $108.0 million of floating rate
debt would decrease annual future earnings and cash flows by approximately $1.1
million and would not have an impact on the fair value of the floating rate
debt. Conversely, a 1% decrease in interest rates on our $108.0 million of
floating rate debt would increase annual future earnings and cash flows by
approximately $1.1 million and would not have an impact on the fair value of
the floating rate debt. The weighted average interest rate on our floating
debt as of June 30, 2003 was 3.68%.

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Our fixed rate debt totaled $1,241.8 million as of June 30, 2003 with a
weighted average interest rate of 7.35% and a total fair value of approximately
$1,317.6 million. A 1% decrease in interest rates would increase the fair
value of our fixed rate debt by approximately $35.9 million and would not have
an impact on future earnings and cash flows. A 1% increase in interest rates
would decrease the fair value of our fixed rated debt by approximately $22.6
million and would not have an impact on future earnings and cash flows.

These amounts are determined by considering the impact of hypothetical
interest rates on our borrowing cost. These analyses do not consider the
effects of the reduced level of overall economic activity that could exist in
that environment. Further, in the event of a change of this magnitude, we
would consider taking actions to further mitigate our exposure to the change.
Due to the uncertainty of the specific actions that would be taken and their
possible effects, however, this sensitivity analysis assumes no changes in our
capital structure.




Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Securities Exchange Act of
1934 reports is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and our Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, our management recognized that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and our
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Also, we have an
investment in an unconsolidated entity. Because we do not control or manage
this entity, our disclosure controls and procedures with respect to such an
entity are necessarily substantially more limited than those we maintain with
respect to our consolidated subsidiaries.

As required by SEC rule 13a15(b), we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the quarter covered by this report. Based on the foregoing, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective at the reasonable assurance level.

There has been no change in our internal controls over financial reporting
during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.

27



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##### Table of Contents






Part II   OTHER INFORMATION

Item 1.   Legal Proceedings

We are presently subject to various lawsuits, claims and proceedings
arising in the ordinary course of business none of which if determined
unfavorably to us is expected to have a material adverse effect on our cash
flows, financial condition or results of operations. There were no material
changes in our legal proceedings during the three months ended June 30, 2003.

Item 2.  
Changes in Securities - None

Item 3.  
Defaults Upon Senior Securities - None

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

On May 20, 2003 we held our annual meeting of stockholders in Santa
Monica, California. The matters voted on at that meeting and the results were
as follows:



| | 1. |  | To elect directors of Arden Realty, Inc. to hold office
until the annual meeting of stockholders in the year 2006 or until
their respective successors are elected and qualified as follows:
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             |  |                            |            |                           |  |  |            | 
|---------------------------- |  | -------------------------- | ---------- | ------------------------- |  |  | ---------- | 
|                             |  | Number of Shares Voted For |            | Number of Shares Withheld
|                             |  |                            |            |                          
|Director #1  Carl D. Covitz |  |                            | 34,220,933 |                           |  |  | 23,088,626 | 
|Director #2  Larry S. Flax  |  |                            | 34,221,483 |                           |  |  | 23,088,076 | 



| | 2. |  | To request the Board of Directors to redeem the stockholder
rights adopted in August 1998. Results of the vote were as
follows:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------

|                           |  |                                |           |                            |  |  |         | 
|-------------------------- |  | ------------------------------ | --------- | -------------------------- |  |  | ------- | 
|Number of Shares Voted For |  | Number of Shares Voted Against |           | Number of Shares Abstained
|                           |  |                                |           |                           
|43,564,989                 |  |                                | 8,904,501 |                            |  |  | 169,401 | 

The following individuals are those whose terms of office as directors
continued after the meeting:

|                 
|-----------------
|Richard S. Ziman 
|Victor J. Coleman
|Peter S. Gold    
|Steven C. Good   

Item 5.  
Other Information - None

Item 6.   Exhibits and Reports on Form 8-K



|(a) |  | Exhibits                                                                                   
|--- |  | -------------------------------------------------------------------------------------------
|   
|    |  | 31.1 Officers certifications pursuant to Rule 13a14(a) or Rule
15d14(a).                
|   
|    |  | 32.1 Officers certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.(1)
|   
|    |  |                                                                                            

| | (1) |  | In accordance with SEC Release No. 33-8212, the following
exhibit is being furnished, and is not being filed as part of this
Report or as a separate disclosure document, and is not being
incorporated by reference into any Securities Act of 1933
registration statement.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

On April 30, 2003, we filed a report on Form 8-K (Items 9 and 12) relating
to our financial information for the quarter ended March 31, 2003 as presented
in a press release dated April 29, 2003.

On July 1, 2003, we filed a report on Form 8-K (Items 5 and 7) regarding
the vote of our Board of Directors to amend our stockholder rights agreement.
Under the terms of the amendment, the purchase rights issued under the rights
agreement expired at the close of business on June 30, 2003, rather than on
August 28, 2008, as initially provided under the rights agreement. In
addition, the rights agreement terminated upon the expiration of the purchase
rights.

28



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##### Table of Contents






SIGNATURES

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

|                      |  |                    |  |                                              
|--------------------- |  | ------------------ |  | ---------------------------------------------
|                      |  | ARDEN REALTY, INC.
|                      |  |                    |  |                                              
|Date: August 14, 2003 |  | By:                |  | /s/ Andrew J. Sobel                          
|                      |  |                    |  |                                              
|                      |  |                    |  | Andrew J. Sobel                              
|                      |  |                    |  | Executive Vice
President - Strategic Planning
|                      |  |                    |  | and Operations                               
|                      |  |                    |  |                                              
|Date: August 14, 2003 |  | By:                |  | /s/ Richard S. Davis                         
|                      |  |                    |  |                                              
|                      |  |                    |  | Richard S. Davis                             
|                      |  |                    |  | Senior Vice President and                    
|                      |  |                    |  | Chief Financial Officer                      

29