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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 September 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 November 12, 2003 there were 64,242,448 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    
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 2. Changes in Securities                                                                
|                              | Item 3. Defaults Upon Senior Securities                                                      
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                              | Item 5. Other Information                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   
|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 September 30, 2003 (unaudited) and
December 31, 2002                        |  | 3       
|        |  |                       |  | Consolidated Statements of Income for the three and nine months ended
September 30, 2003 and 2002 (unaudited) |  | 4       
|        |  |                       |  | Consolidated Statements of Cash Flows for the nine months ended
September 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                         |  | 11      
|        |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                                    |  | 27      
|        |  | Item 4.               |  | Controls and Procedures                                                                                       |  | 28      
|PART II |  | OTHER INFORMATION     |  |                                                                                                              
|        |  | Item 1.               |  | Legal Proceedings                                                                                             |  | 29      
|        |  | Item 2.               |  | Changes in Securities                                                                                         |  | 29      
|        |  | Item 3.               |  | Defaults Upon Senior Securities                                                                               |  | 29      
|        |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                           |  | 29      
|        |  | Item 5.               |  | Other Information                                                                                             |  | 29      
|        |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                                              |  | 29      
|        |  | SIGNATURES            |  | 30                                                                                                           





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Part I. FINANCIAL INFORMATION




Item 1. Financial Statements




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

|                                                                                                                                                                        |                                                 |                                            |           |               |           |              |           |           |           | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------------ | --------- | ------------- | --------- | ------------ | --------- | --------- | --------- | 
|                                                                                                                                                                        |                                                 |                                            |           | September 30, |           | December 31,
|                                                                                                                                                                        |                                                 |                                            |           | 2003          |           | 2002        
|                                                                                                                                                                        |                                                 |                                            |           |               |           |             
|                                                                                                                                                                        |                                                 |                                            |           | (unaudited)   |           |              |           |          
|Assets                                                                                                                                                                  |                                                 |                                            |           |               |           |              |           |          
|Investment in real estate:                                                                                                                                              |                                                 |                                            |           |               |           |              |           |          
|                                                                                                                                                                        | Land                                            |                                            | $         | 467,096       |           |              | $         | 467,096   |          
|                                                                                                                                                                        | Buildings and improvements                      |                                            |           | 2,107,298     |           |              |           | 2,102,500 |          
|                                                                                                                                                                        | Tenant improvements and leasing commissions     |                                            |           | 336,404       |           |              |           | 314,556   |          
|                                                                                                                                                                        |                                                 |                                            |           |               |           |              |           |          
|                                                                                                                                                                        |                                                 |                                            | 2,910,798 |               |           |              | 2,884,152 |          
|                                                                                                                                                                        | Less: accumulated depreciation and amortization |                                            |           | (438,770      | )         |              |           | (377,005  | )        
|                                                                                                                                                                        |                                                 |                                            |           |               |           |              |           |          
|                                                                                                                                                                        |                                                 |                                            | 2,472,028 |               |           |              | 2,507,147 |          
|                                                                                                                                                                        | Properties under development                    |                                            |           | 71,659        |           |              |           | 65,296    |          
|                                                                                                                                                                        | Land available for development                  |                                            |           | 23,701        |           |              |           | 23,731    |          
|                                                                                                                                                                        | Properties held for disposition, net            |                                            |           | 70,970        |           |              |           | 145,450   |          
|                                                                                                                                                                        |                                                 |                                            |           |               |           |              |           |          
|                                                                                                                                                                        |                                                 | Net investment in real estate              |           |               | 2,638,358 |              |           |           | 2,741,624 | 
|Cash and cash equivalents                                                                                                                                               |                                                 |                                            | 18,292    |               |           |              | 4,063     |          
|Restricted cash                                                                                                                                                         |                                                 |                                            | 23,550    |               |           |              | 20,498    |          
|Rent and other receivables, net of allowance of $4,633 and $4,001 at
September 30, 2003 and December 31, 2002, respectively                                             |                                                 |                                            | 2,193     |               |           |              | 2,917     |          
|Deferred rent                                                                                                                                                           |                                                 |                                            | 43,889    |               |           |              | 43,646    |          
|Prepaid financing costs, expenses and other assets, net of amortization                                                                                                 |                                                 |                                            | 19,506    |               |           |              | 19,661    |          
|                                                                                                                                                                        |                                                 |                                            |           |               |           |              |           |          
|                                                                                                                                                                        |                                                 | Total assets                               |           | $             | 2,745,788 |              |           | $         | 2,832,409 | 
|                                                                                                                                                                        |                                                 |                                            |           |               |           |              |           |          
|Liabilities                                                                                                                                                             |                                                 |                                            |           |               |           |              |           |          
|Mortgage loans payable                                                                                                                                                  |                                                 | $                                          | 566,912   |               |           | $            | 570,654   |          
|Unsecured lines of credit                                                                                                                                               |                                                 |                                            | 150,000   |               |           |              | 208,587   |          
|Unsecured term loan                                                                                                                                                     |                                                 |                                            | 125,000   |               |           |              | 125,000   |          
|Unsecured senior notes, net of discount                                                                                                                                 |                                                 |                                            | 498,350   |               |           |              | 498,063   |          
|Accounts payable and accrued expenses                                                                                                                                   |                                                 |                                            | 58,308    |               |           |              | 55,705    |          
|Security deposits                                                                                                                                                       |                                                 |                                            | 22,144    |               |           |              | 20,645    |          
|Dividends payable                                                                                                                                                       |                                                 |                                            | 32,427    |               |           |              | 31,807    |          
|                                                                                                                                                                        |                                                 |                                            |           |               |           |              |           |          
|                                                                                                                                                                        |                                                 | Total liabilities                          |           |               | 1,453,141 |              |           |           | 1,510,461 | 
|Minority interest                                                                                                                                                       |                                                 |                                            | 72,726    |               |           |              | 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, 64,212,448
and 62,984,217 issued and outstanding at September 30, 2003
and December 31, 2002, respectively |                                                 |                                            | 644       |               |           |              | 631       |          
|Additional paid-in capital                                                                                                                                              |                                                 |                                            | 1,238,787 |               |           |              | 1,260,773 |          
|Deferred compensation                                                                                                                                                   |                                                 |                                            | (15,757   | )             |           |              | (11,259   | )        
|Accumulated other comprehensive loss                                                                                                                                    |                                                 |                                            | (3,753    | )             |           |              | (2,768    | )        
|                                                                                                                                                                        |                                                 |                                            |           |               |           |              |           |          
|                                                                                                                                                                        |                                                 | Total stockholders equity                 |           |               | 1,219,921 |              |           |           | 1,247,377 | 
|                                                                                                                                                                        |                                                 |                                            |           |               |           |              |           |          
|                                                                                                                                                                        |                                                 | Total liabilities and stockholders equity |           | $             | 2,745,788 |              |           | $         | 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 |      | Nine Months Ended
|                                                                                          |                                     |   | September 30,      |      | September 30,    
|                                                                                          |                                     |   |                    |      |                  
|                                                                                          |                                     |   | 2003               |      | 2002              |   | 2003   |      | 2002
|                                                                                          |                                     |   |                    |      |                   |   |        |      |     
|Property revenues                                                                         |                                     | $ | 104,858            |      |                   | $ | 99,060 |      |      | $ | 308,488 |      |  | $ | 293,247 |     
|Property operating expenses                                                               |                                     |   | 35,255             |      |                   |   | 32,988 |      |      |   | 99,372  |      |  |   | 90,744  |     
|                                                                                          |                                     |   |                    |      |                   |   |        |      |      |   |         |      |  |   |         |     
|                                                                                          |                                     |   | 69,603             |      |                   |   | 66,072 |      |      |   | 209,116 |      |  |   | 202,503 |     
|General and administrative expenses                                                       |                                     |   | 4,697              |      |                   |   | 3,323  |      |      |   | 12,574  |      |  |   | 9,234   |     
|Interest expense                                                                          |                                     |   | 23,953             |      |                   |   | 22,403 |      |      |   | 70,242  |      |  |   | 65,384  |     
|Depreciation and amortization                                                             |                                     |   | 30,578             |      |                   |   | 26,368 |      |      |   | 88,573  |      |  |   | 79,056  |     
|Interest and other income                                                                 |                                     |   | (121               | )    |                   |   | (524   | )    |      |   | (631    | )    |  |   | (1,576  | )   
|                                                                                          |                                     |   |                    |      |                   |   |        |      |      |   |         |      |  |   |         |     
|Income from continuing operations before gain
on sale of properties and minority interest |                                     |   | 10,496             |      |                   |   | 14,502 |      |      |   | 38,358  |      |  |   | 50,405  |     
|Gain on sale of operating properties                                                      |                                     |   |                   |      |                   |   |       |      |      |   |        |      |  |   | 1,273   |     
|                                                                                          |                                     |   |                    |      |                   |   |        |      |      |   |         |      |  |   |         |     
|Income from continuing operations before minority interest                                |                                     |   | 10,496             |      |                   |   | 14,502 |      |      |   | 38,358  |      |  |   | 51,678  |     
|Minority interest                                                                         |                                     |   | (1,319             | )    |                   |   | (1,424 | )    |      |   | (4,153  | )    |  |   | (4,518  | )   
|                                                                                          |                                     |   |                    |      |                   |   |        |      |      |   |         |      |  |   |         |     
|Income from continuing operations                                                         |                                     |   | 9,177              |      |                   |   | 13,078 |      |      |   | 34,205  |      |  |   | 47,160  |     
|Discontinued operations, net of minority interest                                         |                                     |   | 1,364              |      |                   |   | 2,035  |      |      |   | 5,295   |      |  |   | 6,713   |     
|Gain on sale of discontinued properties                                                   |                                     |   |                   |      |                   |   |       |      |      |   | 5,382   |      |  |   |        |     
|                                                                                          |                                     |   |                    |      |                   |   |        |      |      |   |         |      |  |   |         |     
|Net income                                                                                |                                     | $ | 10,541             |      |                   | $ | 15,113 |      |      | $ | 44,882  |      |  | $ | 53,873  |     
|                                                                                          |                                     |   |                    |      |                   |   |        |      |      |   |         |      |  |   |         |     
|Basic net income per common share:                                                        |                                     |   |                    |      |                   |   |        |      |      |   |         |      |  |   |         |     
|                                                                                          | Income from continuing operations   |   | $                  | 0.15 |                   |   | $      | 0.20 |      |   | $       | 0.54 |  |   | $       | 0.73 | 
|                                                                                          | Income from discontinued operations |   |                    | 0.02 |                   |   |        | 0.03 |      |   |         | 0.17 |  |   |         | 0.11 | 
|                                                                                          |                                     |   |                    |      |                   |   |        |      |      |   |         |      |  |   |         |     
|Net income per common share  basic                                                       |                                     | $ | 0.17               |      |                   | $ | 0.23   |      |      | $ | 0.71    |      |  | $ | 0.84    |     
|                                                                                          |                                     |   |                    |      |                   |   |        |      |      |   |         |      |  |   |         |     
|Weighted average number of common shares  basic                                          |                                     |   | 63,635             |      |                   |   | 64,586 |      |      |   | 63,296  |      |  |   | 64,440  |     
|                                                                                          |                                     |   |                    |      |                   |   |        |      |      |   |         |      |  |   |         |     
|Diluted net income per common share:                                                      |                                     |   |                    |      |                   |   |        |      |      |   |         |      |  |   |         |     
|                                                                                          | Income from continuing operations   |   | $                  | 0.14 |                   |   | $      | 0.20 |      |   | $       | 0.54 |  |   | $       | 0.73 | 
|                                                                                          | Income from discontinued operations |   |                    | 0.02 |                   |   |        | 0.03 |      |   |         | 0.17 |  |   |         | 0.10 | 
|                                                                                          |                                     |   |                    |      |                   |   |        |      |      |   |         |      |  |   |         |     
|Net income per common share  diluted                                                     |                                     | $ | 0.16               |      |                   | $ | 0.23   |      |      | $ | 0.71    |      |  | $ | 0.83    |     
|                                                                                          |                                     |   |                    |      |                   |   |        |      |      |   |         |      |  |   |         |     
|Weighted average number of common shares  diluted                                        |                                     |   | 64,050             |      |                   |   | 64,790 |      |      |   | 63,516  |      |  |   | 64,695  |     
|                                                                                          |                                     |   |                    |      |                   |   |        |      |      |   |         |      |  |   |         |     

See accompanying notes to consolidated financial statements.

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

|                                                     |                                                                                   |                                                                  |                                                    |          |                   |        |         |          |        |        |  
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------------------------- | -------------------------------------------------- | -------- | ----------------- | ------ | ------- | -------- | ------ | ------ | -
|                                                     |                                                                                   |                                                                  |                                                    |          | Nine Months Ended
|                                                     |                                                                                   |                                                                  |                                                    |          | September 30,    
|                                                     |                                                                                   |                                                                  |                                                    |          |                  
|                                                     |                                                                                   |                                                                  |                                                    |          | 2003              |        | 2002   
|                                                     |                                                                                   |                                                                  |                                                    |          |                   |        |        
|Operating Activities:                                |                                                                                   |                                                                  |                                                    |          |                   |        |         |         
|                                                     | Net income                                                                        |                                                                  | $                                                  | 44,882   |                   |        | $       | 53,873   |       
|                                                     | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                                  |                                                    |          |                   |        |         |          |       
|                                                     |                                                                                   | Minority interest, including discontinued operations             |                                                    |          | 4,441             |        |         |          | 4,701  |       
|                                                     |                                                                                   | Gain on sale of operating properties                             |                                                    |          |                  |        |         |          | (1,273 | )     
|                                                     |                                                                                   | Gain on sale of discontinued properties                          |                                                    |          | (5,382            | )      |         |          |       |       
|                                                     |                                                                                   | Depreciation and amortization, including discontinued operations |                                                    |          | 90,775            |        |         |          | 82,855 |       
|                                                     |                                                                                   | Amortization of loan costs                                       |                                                    |          | 3,058             |        |         |          | 2,814  |       
|                                                     |                                                                                   | Non-cash compensation expense                                    |                                                    |          | 1,409             |        |         |          | 875    |       
|                                                     |                                                                                   | Changes in operating assets and liabilities:                     |                                                    |          |                   |        |         |          |        |       
|                                                     |                                                                                   |                                                                  | Rent and other receivables                         |          |                   | 724    |         |          |        | 6,735  |  
|                                                     |                                                                                   |                                                                  | Deferred rent                                      |          |                   | (243   | )       |          |        | (3,851 | )
|                                                     |                                                                                   |                                                                  | Prepaid financing costs, expenses and other assets |          |                   | (1,381 | )       |          |        | (2,666 | )
|                                                     |                                                                                   |                                                                  | Accounts payable and accrued expenses              |          |                   | 1,589  |         |          |        | 8,979  |  
|                                                     |                                                                                   |                                                                  | Security deposits                                  |          |                   | 1,499  |         |          |        | 595    |  
|                                                     |                                                                                   |                                                                  |                                                    |          |                   |        |         |         
|                                                     | Net cash provided by operating activities                                         |                                                                  |                                                    | 141,371  |                   |        |         | 153,637  |       
|                                                     |                                                                                   |                                                                  |                                                    |          |                   |        |         |         
|Investing Activities:                                |                                                                                   |                                                                  |                                                    |          |                   |        |         |         
|                                                     | Improvements to commercial properties                                             |                                                                  |                                                    | (61,797  | )                 |        |         | (85,419  | )     
|                                                     | Acquisition of properties                                                         |                                                                  |                                                    |         |                   |        |         | (134,938 | )     
|                                                     | Proceeds from sale of properties                                                  |                                                                  |                                                    | 78,719   |                   |        |         | 21,919   |       
|                                                     |                                                                                   |                                                                  |                                                    |          |                   |        |         |         
|                                                     | Net cash provided by (used in) investing activities                               |                                                                  |                                                    | 16,922   |                   |        |         | (198,438 | )     
|                                                     |                                                                                   |                                                                  |                                                    |          |                   |        |         |         
|Financing Activities:                                |                                                                                   |                                                                  |                                                    |          |                   |        |         |         
|                                                     | Proceeds from term loan                                                           |                                                                  |                                                    |         |                   |        |         | 125,000  |       
|                                                     | Repayments of mortgage loans                                                      |                                                                  |                                                    | (3,742   | )                 |        |         | (2,056   | )     
|                                                     | Proceeds from unsecured lines of credit                                           |                                                                  |                                                    | 66,500   |                   |        |         | 182,737  |       
|                                                     | Repayments of unsecured lines of credit                                           |                                                                  |                                                    | (125,087 | )                 |        |         | (188,500 | )     
|                                                     | Proceeds from issuance of common stock                                            |                                                                  |                                                    | 22,780   |                   |        |         | 8,358    |       
|                                                     | Repurchases of common stock                                                       |                                                                  |                                                    |         |                   |        |         | (5,723   | )     
|                                                     | Distributions to preferred operating partnership unit holders                     |                                                                  |                                                    | (3,234   | )                 |        |         | (3,234   | )     
|                                                     | Increase in restricted cash                                                       |                                                                  |                                                    | (3,052   | )                 |        |         | (3,293   | )     
|                                                     | Distributions to minority interests                                               |                                                                  |                                                    | (2,590   | )                 |        |         | (2,660   | )     
|                                                     | Dividends paid                                                                    |                                                                  |                                                    | (95,639  | )                 |        |         | (96,581  | )     
|                                                     |                                                                                   |                                                                  |                                                    |          |                   |        |         |         
|                                                     | Net cash (used in) provided by financing activities                               |                                                                  |                                                    | (144,064 | )                 |        |         | 14,048   |       
|                                                     |                                                                                   |                                                                  |                                                    |          |                   |        |         |         
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                                  | 14,229                                             |          |                   |        | (30,753 | )       
|Cash and cash equivalents at beginning of period     |                                                                                   |                                                                  | 4,063                                              |          |                   |        | 37,041  |         
|                                                     |                                                                                   |                                                                  |                                                    |          |                   |        |         |         
|Cash and cash equivalents at end of period           |                                                                                   | $                                                                | 18,292                                             |          |                   | $      | 6,288   |         
|                                                     |                                                                                   |                                                                  |                                                    |          |                   |        |         |         
|Supplemental Disclosure of Cash Flow Information:    |                                                                                   |                                                                  |                                                    |          |                   |        |         |         
|                                                     | Cash paid during the period for interest                                          |                                                                  | $                                                  | 72,236   |                   |        | $       | 69,024   |       
|                                                     |                                                                                   |                                                                  |                                                    |          |                   |        |         |         

See accompanying notes to consolidated financial statements.

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Arden Realty, Inc.
Notes to Consolidated Condensed Financial Statements
September 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 September 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 September 30, 2003, excluding the
development project which was 9% occupied, our portfolio was 89.9% occupied.

The minority interests at September 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 5.5% 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 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 for which either the equity
investors do not have a controlling financial interest or an entity for which
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.

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 an 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. We adopted SFAS 150 in the third quarter of 2003 other
than as SFAS 150 applies to noncontrolling interests that are classified as
equity under SFAS 150 in the financial statements of the subsidiary which has
been deferred indefinitely and its adoption did not have an impact on 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.

6



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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.

On October 28, 2003, we sold an approximate 21,000 square foot office
property located in Simi Valley, California for a gross sale price of
approximately $3.6 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 September 30, 2003 and
December 31, 2002 is as follows:

|                               |  |                |           |              |  |               |           |                |  |                  |      |          |  |                          |  |           |    |  |      |  |       |  |  | 
|------------------------------ |  | -------------- | --------- | ------------ |  | ------------- | --------- | -------------- |  | ---------------- | ---- | -------- |  | ------------------------ |  | --------- | -- |  | ---- |  | ----- |  |  | 
|                               |  |                |           |              |  |               |           |                |  | Stated Annual    |      |          |  |                          |  |           |    |  |      |  |       | 
|                               |  |                |           |              |  |               |           |                |  | Interest Rate at |      |          |  |                          |  | Number of |    |  |      | 
|                               |  | September 30,  |           | December 30, |  | September 30, |           | Rate           |  | Properties       |      |          |  |                         
|Type of Debt                   |  | 2003           |           | 2002         |  | 2003          |           | 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)      |  |                | 135,251   |              |  |               | 136,100   |                |  |                  | 6.74 | %        |  | Fixed                    |  |           | 22 |  |      |  | 4/08  | 
|Mortgage Financing IV(2)       |  |                | 110,524   |              |  |               | 111,200   |                |  |                  | 6.61 | %        |  | Fixed                    |  |           | 12 |  |      |  | 4/08  | 
|Mortgage Financing V(2)        |  |                | 106,483   |              |  |               | 108,153   |                |  |                  | 6.94 | %        |  | Fixed                    |  |           | 12 |  |      |  | 4/09  | 
|Mortgage Financing VI(2)       |  |                | 21,657    |              |  |               | 21,816    |                |  |                  | 7.54 | %        |  | Fixed                    |  |           | 3  |  |      |  | 4/09  | 
|Activity Business Center(2)    |  |                | 7,453     |              |  |               | 7,580     |                |  |                  | 8.85 | %        |  | Fixed                    |  |           | 1  |  |      |  | 5/06  | 
|145 South Fairfax(2)           |  |                | 3,922     |              |  |               | 3,952     |                |  |                  | 8.93 | %        |  | Fixed                    |  |           | 1  |  |      |  | 1/27  | 
|Marin Corporate Center(2)      |  |                | 2,756     |              |  |               | 2,850     |                |  |                  | 9.00 | %        |  | Fixed                    |  |           | 1  |  |      |  | 7/15  | 
|Conejo Business Center(2)      |  |                | 2,702     |              |  |               | 2,795     |                |  |                  | 8.75 | %        |  | Fixed                    |  | (Note 3)  |    |  | 7/15 | 
|Conejo Business Center(2)      |  |                | 1,164     |              |  |               | 1,208     |                |  |                  | 7.88 | %        |  | Fixed                    |  | (Note 3)  |    |  | 7/15 | 
|                               |  |                |           |              |  |               |           |                |  |                  |      |          |  |                          |  |           |    |  |      |  |       |  |  | 
|                               |  |                | 566,912   |              |  |               | 570,654   |                |  |                  |      |          |  |                          |  |           |    |  |      |  |       |  |  | 
|Unsecured Lines of Credit:     |  |                |           |              |  |               |           |                |  |                  |      |          |  |                          |  |           |    |  |      |  |       |  |  | 
|Floating Rate                  |  |                |           |              |  |               |           |                |  |                  |      |          |  |                          |  |           |    |  |      |  |       |  |  | 
|Wells Fargo  $310 mm(1)       |  |                | 150,000   |              |  |               | 208,587   |                |  |                  | 2.77 | %        |  | LIBOR +1.00% (Notes 4,5) |  |           |   |  |      |  | 4/06  | 
|City National Bank  $10 mm(1) |  |                |          |              |  |               |          |                |  |                  |     |          |  | Prime Rate - 0.875%      |  |           |   |  |      |  | 8/04  | 
|                               |  |                |           |              |  |               |           |                |  |                  |      |          |  |                          |  |           |    |  |      |  |       |  |  | 
|                               |  |                | 150,000   |              |  |               | 208,587   |                |  |                  |      |          |  |                          |  |           |    |  |      |  |       |  |  | 
|Unsecured Term Loan:           |  |                |           |              |  |               |           |                |  |                  |      |          |  |                          |  |           |    |  |      |  |       |  |  | 
|Fixed Rate                     |  |                |           |              |  |               |           |                |  |                  |      |          |  |                          |  |           |    |  |      |  |       |  |  | 
|Wells Fargo  $125 mm(1)       |  |                | 125,000   |              |  |               | 125,000   |                |  |                  | 3.64 | %        |  | Fixed (Note 6)           |  |           |   |  |      |  | 6/06  | 
|Unsecured Senior Notes:        |  |                |           |              |  |               |           |                |  |                  |      |          |  |                          |  |           |    |  |      |  |       |  |  | 
|Fixed Rate                     |  |                |           |              |  |               |           |                |  |                  |      |          |  |                          |  |           |    |  |      |  |       |  |  | 
|2005 Notes(7)                  |  |                | 199,846   |              |  |               | 199,769   |                |  |                  | 8.88 | %        |  | Fixed                    |  |           |   |  |      |  | 3/05  | 
|2007 Notes(7)                  |  |                | 149,362   |              |  |               | 149,245   |                |  |                  | 7.00 | %        |  | Fixed                    |  |           |   |  |      |  | 11/07 | 
|2010 Notes(7)                  |  |                | 49,734    |              |  |               | 49,704    |                |  |                  | 9.15 | %        |  | Fixed                    |  |           |   |  |      |  | 3/10  | 
|2010 Notes(7)                  |  |                | 99,408    |              |  |               | 99,345    |                |  |                  | 8.50 | %        |  | Fixed                    |  |           |   |  |      |  | 11/10 | 
|                               |  |                |           |              |  |               |           |                |  |                  |      |          |  |                          |  |           |    |  |      |  |       |  |  | 
|                               |  |                | 498,350   |              |  |               | 498,063   |                |  |                  |      |          |  |                          |  |           |    |  |      |  |       |  |  | 
|                               |  |                |           |              |  |               |           |                |  |                  |      |          |  |                          |  |           |    |  |      |  |       |  |  | 
|Total Debt                     |  | $              | 1,340,262 |              |  | $             | 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) |  | In 2002, we entered into interest rate swap agreements that fixed
the interest rate on the entire balance of this loan at 3.64% in
2003, 4.18% in 2004, 4.75% in 2005 and 4.90% in 2006.
|   
|   
|   
|   
|(7) |  | Requires semi-annual interest payments only, with principal balance
due upon maturity.                                                                                                  

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6. Interest Rate Swap Agreements

We have entered into interest rate swap agreements to effectively convert
floating rate debt into fixed rate debt, to convert fixed rate debt to floating
rate debt and to lock the current Treasury rate in anticipation of future debt
issuances. Net amounts received or paid under these agreements are recognized
as an adjustment to interest expense when such amounts are incurred or earned.
Our objective in using interest rate swap agreements is to manage 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. Since June of 2003, we
have also entered into $150 million of forward-starting swaps that effectively
fixed the 10-year Treasury rate at an average rate of approximately 4.1% 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.

In October and November of 2003, we also entered into reverse interest
rate swap agreements to float $100 million of the fixed interest rate
associated with the 7.00% senior unsecured notes due in November of 2007.
Under these reverse swaps, we will receive interest at a fixed rate of 7.00%
and pay interest at a variable rate averaging six-month LIBOR in arrears plus
3.10%. The interest rate swaps mature at the same time the notes are due. These
swaps qualify as fair value hedges for accounting purposes. Net semi-annual
interest payments will be recognized as increases or decreases in interest
expense. The fair value of the interest rate swaps will be recognized on our
balance sheet and the carrying value of the senior unsecured notes will be
increased or decreased by an offsetting amount.

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 $175 million in floating-to-fixed swaps and our $150
million in forward-starting swaps outstanding as of September 30, 2003 are
classified as cash flow hedges with their fair value of approximately $3.8
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 in the case of the fixed-to-floating swaps
or as part of interest expense for future borrowings in the case of the forward
starting swaps. If the underlying debt related to these swaps 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.

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 the election of
the Operating Partnership, for shares of our common stock on a one-for-one
basis.

Our minority interest balance includes $50 million of 8 5/8% 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 8 5/8% Series B Cumulative Redeemable Preferred Stock, on a one-for-one
basis. The Preferred OP Units and Series B Cumulative Redeemable Preferred
Stock have no stated maturity or mandatory redemption and are subordinate to
all debt.

On September 16, 2003, we declared a quarterly dividend of $0.505 per
share to stockholders of record on September 30, 2003.

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8. Revenue from Rental Operations and Property Expenses

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

|                                |                          |   |                    |        |                   |   |        |        |      |   |         |         |  |   |         |         | 
|------------------------------- | ------------------------ | - | ------------------ | ------ | ----------------- | - | ------ | ------ | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                |                          |   | Three Months Ended |        | Nine Months Ended
|                                |                          |   | September 30,      |        | September 30,    
|                                |                          |   |                    |        |                  
|                                |                          |   | 2003               |        | 2002              |   | 2003   |        | 2002
|                                |                          |   |                    |        |                   |   |        |        |     
|                                |                          |   | (unaudited)       
|Revenue from Rental Operations: |                          |   |                    |        |                   |   |        |        |      |   |         |         |  |   |         |        
|                                | Scheduled cash rents     |   | $                  | 89,490 |                   |   | $      | 85,347 |      |   | $       | 266,733 |  |   | $       | 251,507 | 
|                                | Straight-line rents      |   |                    | 131    |                   |   |        | 524    |      |   |         | 601     |  |   |         | 3,585   | 
|                                | Tenant reimbursements    |   |                    | 7,081  |                   |   |        | 5,140  |      |   |         | 18,279  |  |   |         | 17,061  | 
|                                | Parking, net of expenses |   |                    | 5,659  |                   |   |        | 5,236  |      |   |         | 16,307  |  |   |         | 15,386  | 
|                                | Other rental operations  |   |                    | 2,497  |                   |   |        | 2,813  |      |   |         | 6,568   |  |   |         | 5,708   | 
|                                |                          |   |                    |        |                   |   |        |        |      |   |         |         |  |   |         |        
|                                |                          |   | 104,858            |        |                   |   | 99,060 |        |      |   | 308,488 |         |  |   | 293,247 |        
|                                |                          |   |                    |        |                   |   |        |        |      |   |         |         |  |   |         |        
|Property Expenses:              |                          |   |                    |        |                   |   |        |        |      |   |         |         |  |   |         |        
|                                | Repairs and maintenance  |   |                    | 10,795 |                   |   |        | 9,211  |      |   |         | 31,529  |  |   |         | 26,941  | 
|                                | Utilities                |   |                    | 10,722 |                   |   |        | 10,138 |      |   |         | 26,557  |  |   |         | 25,240  | 
|                                | Real estate taxes        |   |                    | 7,245  |                   |   |        | 7,311  |      |   |         | 21,621  |  |   |         | 21,230  | 
|                                | Insurance                |   |                    | 2,166  |                   |   |        | 2,083  |      |   |         | 6,286   |  |   |         | 5,665   | 
|                                | Ground rent              |   |                    | 326    |                   |   |        | 278    |      |   |         | 690     |  |   |         | 616     | 
|                                | Administrative           |   |                    | 4,001  |                   |   |        | 3,967  |      |   |         | 12,689  |  |   |         | 11,052  | 
|                                |                          |   |                    |        |                   |   |        |        |      |   |         |         |  |   |         |        
|                                |                          |   | 35,255             |        |                   |   | 32,988 |        |      |   | 99,372  |         |  |   | 90,744  |        
|                                |                          |   |                    |        |                   |   |        |        |      |   |         |         |  |   |         |        
|                                |                          | $ | 69,603             |        |                   | $ | 66,072 |        |      | $ | 209,116 |         |  | $ | 202,503 |        
|                                |                          |   |                    |        |                   |   |        |        |      |   |         |         |  |   |         |        

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 nine
months ended September 30 2003, we expensed approximately $8,000 and $24,000,
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 |      | Nine Months Ended
|                                                                                                     |                     |   | September 30,      |      | September 30,    
|                                                                                                     |                     |   |                    |      |                  
|                                                                                                     |                     |   | 2003               |      | 2002              |   | 2003   |      | 2002
|                                                                                                     |                     |   |                    |      |                   |   |        |      |     
|Net income available to common stockholders, as reported                                             |                     | $ | 10,541             |      |                   | $ | 15,113 |      |      | $ | 44,882 |      |  | $ | 53,873 |     
|Stock based employee compensation costs for options granted
prior to 2003 assuming fair value method |                     |   | (124               | )    |                   |   | (389   | )    |      |   | (647   | )    |  |   | (1,070 | )   
|                                                                                                     |                     |   |                    |      |                   |   |        |      |      |   |        |      |  |   |        |     
|Net income available to common stockholders, as adjusted                                             |                     | $ | 10,417             |      |                   | $ | 14,724 |      |      | $ | 44,235 |      |  | $ | 52,803 |     
|                                                                                                     |                     |   |                    |      |                   |   |        |      |      |   |        |      |  |   |        |     
|Earnings per share:                                                                                  |                     |   |                    |      |                   |   |        |      |      |   |        |      |  |   |        |     
|                                                                                                     | Basic as reported   |   | $                  | 0.17 |                   |   | $      | 0.23 |      |   | $      | 0.71 |  |   | $      | 0.84 | 
|                                                                                                     |                     |   |                    |      |                   |   |        |      |      |   |        |      |  |   |        |     
|                                                                                                     | Basic as adjusted   |   | $                  | 0.16 |                   |   | $      | 0.23 |      |   | $      | 0.70 |  |   | $      | 0.82 | 
|                                                                                                     |                     |   |                    |      |                   |   |        |      |      |   |        |      |  |   |        |     
|                                                                                                     | Diluted as reported |   | $                  | 0.16 |                   |   | $      | 0.23 |      |   | $      | 0.71 |  |   | $      | 0.83 | 
|                                                                                                     |                     |   |                    |      |                   |   |        |      |      |   |        |      |  |   |        |     
|                                                                                                     | Diluted as adjusted |   | $                  | 0.16 |                   |   | $      | 0.23 |      |   | $      | 0.70 |  |   | $      | 0.82 | 
|                                                                                                     |                     |   |                    |      |                   |   |        |      |      |   |        |      |  |   |        |     

10. Comprehensive Income

Comprehensive income represents net income, plus the results of certain
non-shareholders equity changes not reflected in the Consolidated Statements
of Income. The components of comprehensive income are as follows (in
thousands):

|                                   |                                                       |   |                    |       |                   |   |        |   |      |   |        |      |   |   |        |   | 
|---------------------------------- | ----------------------------------------------------- | - | ------------------ | ----- | ----------------- | - | ------ | - | ---- | - | ------ | ---- | - | - | ------ | - | 
|                                   |                                                       |   | Three Months Ended |       | Nine Months Ended
|                                   |                                                       |   | September 30,      |       | September 30,    
|                                   |                                                       |   |                    |       |                  
|                                   |                                                       |   | 2003               |       | 2002              |   | 2003   |   | 2002
|                                   |                                                       |   |                    |       |                   |   |        |   |     
|Net Income                         |                                                       | $ | 10,541             |       |                   | $ | 15,113 |   |      | $ | 44,882 |      |   | $ | 53,873 |  
|Other comprehensive income (loss): |                                                       |   |                    |       |                   |   |        |   |      |   |        |      |   |   |        |  
|                                   | Unrealized derivative gain (loss) on cash flow hedges |   |                    | 1,924 |                   |   |        |  |      |   |        | (985 | ) |   |        |  | 
|                                   |                                                       |   |                    |       |                   |   |        |   |      |   |        |      |   |   |        |  
|Comprehensive income               |                                                       | $ | 12,465             |       |                   | $ | 15,113 |   |      | $ | 43,897 |      |   | $ | 53,873 |  
|                                   |                                                       |   |                    |       |                   |   |        |   |      |   |        |      |   |   |        |  

9



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11. 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 and nine months ended
September 30, 2003.

10



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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 September 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 September 30,
2003, excluding the development project which was 9% occupied, our portfolio
was 89.9% 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
expiring 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 on occupancy and rental rates and
upward pressure on leasing costs 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 nine 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 leases 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 89.9% as of September 30, 2003.

According to published reports, overall market rental rates in Southern
California declined 0.4to0.5% during the three months ended September 30,
2003. Given the current trends, including the expected continued occupancy
pressures and more aggressive pricing from competing office landlords and
sublease space, we expect market rates will decline by an additional 2to3%
through the first six months of 2004. Concessions also rose during the three
months ended September 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 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

11



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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.

12



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##### Table of Contents



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

|                 |                                 |                                                   |                                                            |   |                    |         |        |   |        |        |         |   |       |        |   |   |     |     |   
|---------------- | ------------------------------- | ------------------------------------------------- | ---------------------------------------------------------- | - | ------------------ | ------- | ------ | - | ------ | ------ | ------- | - | ----- | ------ | - | - | --- | --- | --
|                 |                                 |                                                   |                                                            |   | Three Months Ended |         |        |   |        |        |         |   |      
|                 |                                 |                                                   |                                                            |   | September 30,      |         |        |   |        |        |         |   |      
|                 |                                 |                                                   |                                                            |   |                    |         |        |   |        |        | Percent
|                 |                                 |                                                   |                                                            |   | 2003               |         | 2002   |   | Change |        | Change 
|                 |                                 |                                                   |                                                            |   |                    |         |        |   |        |        |        
|Total Portfolio: |                                 |                                                   |                                                            |   |                    |         |        |   |        |        |         |   |       |        |   |  
|                 | Revenue from rental operations: |                                                   |                                                            |   |                    |         |        |   |        |        |         |   |       |        |   |   |    
|                 |                                 | Scheduled cash rents                              |                                                            | $ | 89,490             |         |        | $ | 85,347 |        |         | $ | 4,143 |        |   |   | 5   | %  
|                 |                                 | Straight-line rents                               |                                                            |   | 131                |         |        |   | 524    |        |         |   | (393  | )      |   |   | (75 | )  
|                 |                                 | Tenant reimbursements                             |                                                            |   | 7,081              |         |        |   | 5,140  |        |         |   | 1,941 |        |   |   | 38  |    
|                 |                                 | Parking, net of expense                           |                                                            |   | 5,659              |         |        |   | 5,236  |        |         |   | 423   |        |   |   | 8   |    
|                 |                                 | Other rental operations                           |                                                            |   | 2,497              |         |        |   | 2,813  |        |         |   | (316  | )      |   |   | (11 | )  
|                 |                                 |                                                   |                                                            |   |                    |         |        |   |        |        |         |   |       |        |   |  
|                 |                                 |                                                   | Total revenue from rental operations                       |   |                    | 104,858 |        |   |        | 99,060 |         |   |       | 5,798  |   |   |     | 6   |   
|                 | Property expenses:              |                                                   |                                                            |   |                    |         |        |   |        |        |         |   |       |        |   |   |    
|                 |                                 | Repairs and maintenance                           |                                                            |   | 10,795             |         |        |   | 9,211  |        |         |   | 1,584 |        |   |   | 17  |    
|                 |                                 | Utilities                                         |                                                            |   | 10,722             |         |        |   | 10,138 |        |         |   | 584   |        |   |   | 6   |    
|                 |                                 | Real estate taxes                                 |                                                            |   | 7,245              |         |        |   | 7,311  |        |         |   | (66   | )      |   |   | (1  | )  
|                 |                                 | Insurance                                         |                                                            |   | 2,166              |         |        |   | 2,083  |        |         |   | 83    |        |   |   | 4   |    
|                 |                                 | Ground rent                                       |                                                            |   | 326                |         |        |   | 278    |        |         |   | 48    |        |   |   | 17  |    
|                 |                                 | Administrative                                    |                                                            |   | 4,001              |         |        |   | 3,967  |        |         |   | 34    |        |   |   | 1   |    
|                 |                                 |                                                   |                                                            |   |                    |         |        |   |        |        |         |   |       |        |   |  
|                 |                                 |                                                   | Total property expenses                                    |   |                    | 35,255  |        |   |        | 32,988 |         |   |       | 2,267  |   |   |     | 6   |   
|                 |                                 |                                                   |                                                            |   |                    |         |        |   |        |        |         |   |       |        |   |  
|                 |                                 | Property Operating Results (1)                    |                                                            |   | 69,603             |         |        |   | 66,072 |        |         |   | 3,531 |        |   |   | 5   |    
|                 |                                 | General and administrative                        |                                                            |   | 4,697              |         |        |   | 3,323  |        |         |   | 1,374 |        |   |   | 41  |    
|                 |                                 | Interest                                          |                                                            |   | 23,953             |         |        |   | 22,403 |        |         |   | 1,550 |        |   |   | 7   |    
|                 |                                 | Depreciation and amortization                     |                                                            |   | 30,578             |         |        |   | 26,368 |        |         |   | 4,210 |        |   |   | 16  |    
|                 |                                 | Interest and other income                         |                                                            |   | (121               | )       |        |   | (524   | )      |         |   | (403  | )      |   |   | (77 | )  
|                 |                                 |                                                   | Income from continuing operations before
minority interest |   | $                  | 10,496  |        |   | $      | 14,502 |         |   | $     | (4,006 | ) |   |     | (28 | )%
|                 |                                 |                                                   |                                                            |   |                    |         |        |   |        |        |         |   |       |        |   |  
|                 |                                 | Discontinued operations, net of minority interest |                                                            | $ | 1,364              |         |        | $ | 2,035  |        |         | $ | (671  | )      |   |   | (33 | )% 
|                 |                                 |                                                   |                                                            |   |                    |         |        |   |        |        |         |   |       |        |   |  
|                 | Number of Properties:           |                                                   |                                                            |   |                    |         |        |   |        |        |         |   |       |        |   |   |    
|                 |                                 | Acquired during period                            |                                                            |   |                   |         |        |   | 5      |        |         |   |       |        |   |   |     |    
|                 |                                 | In service at end of period                       |                                                            |   | 130                |         |        |   | 135    |        |         |   |       |        |   |   |     |    
|                 | Net Rentable Square Feet:       |                                                   |                                                            |   |                    |         |        |   |        |        |         |   |       |        |   |   |    
|                 |                                 | Acquired during period                            |                                                            |   |                   |         |        |   | 803    |        |         |   |       |        |   |   |     |    
|                 |                                 | In service at end of period                       |                                                            |   | 18,617             |         |        |   | 18,845 |        |         |   |       |        |   |   |     |    
|                 | Same Store Portfolio(2):        |                                                   |                                                            |   |                    |         |        |   |        |        |         |   |       |        |   |   |    
|                 |                                 | Revenue from rental operations                    |                                                            | $ | 99,961             |         |        | $ | 98,370 |        |         | $ | 1,591 |        |   |   | 2   | %  
|                 |                                 | Property expenses                                 |                                                            |   | 33,769             |         |        |   | 32,365 |        |         |   | 1,404 |        |   |   | 4   |    
|                 |                                 |                                                   |                                                            |   |                    |         |        |   |        |        |         |   |       |        |   |  
|                 |                                 | $                                                 | 66,192                                                     |   |                    | $       | 66,005 |   |        | $      | 187     |   |       |        |  | %
|                 |                                 |                                                   |                                                            |   |                    |         |        |   |        |        |         |   |       |        |   |  
|                 |                                 | Straight-line rents                               |                                                            | $ | 210                |         |        | $ | 612    |        |         | $ | (402  | )      |   |   | (66 | )% 
|                 |                                 |                                                   |                                                            |   |                    |         |        |   |        |        |         |   |       |        |   |  
|                 |                                 | Number of non-development properties              |                                                            |   | 124                |         |        |   | 124    |        |         |   |       |        |   |   |     |    
|                 |                                 | Average occupancy                                 |                                                            |   | 89.6               | %       |        |   | 89.8   | %      |         |   |       |        |   |   |     |    
|                 |                                 | 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.                                                                                                                                                                                                                                                                                                                                                                                 
|   
|   
|   
|   
|    |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

13



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##### Table of Contents



| |  | 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 September 30,
|                                                                                          |                                    |   |                                 
|                                                                                          |                                    |   | 2003                             |        | 2002
|                                                                                          |                                    |   |                                  |        |     
|Income from continuing operations
before gain on sale of properties
and minority interest |                                    | $ | 10,496                           |        |      | $ | 14,502 |       
|Add:                                                                                      |                                    |   |                                  |        |      |   |        |       
|                                                                                          | General and administrative expense |   |                                  | 4,697  |      |   |        | 3,323  |  
|                                                                                          | Interest expense                   |   |                                  | 23,953 |      |   |        | 22,403 |  
|                                                                                          | Depreciation and amortization      |   |                                  | 30,578 |      |   |        | 26,368 |  
|Less:                                                                                     |                                    |   |                                  |        |      |   |        |       
|                                                                                          | Interest and other income          |   |                                  | (121   | )    |   |        | (524   | )
|                                                                                          |                                    |   |                                  |        |      |   |        |       
|Property Operating Results                                                                |                                    | $ | 69,603                           |        |      | $ | 66,072 |       
|                                                                                          |                                    |   |                                  |        |      |   |        |       



---

|(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 September 30, 2003
compared to the same period in 2002 were primarily affected by our
acquisitions, dispositions and development activities since July 1, 2002.

As a result of these changes within our portfolio of properties since July
1,2002, we do not believe the Property Operating Results presented above are
comparable from period to period. Therefore, in the table above, we have also
presented 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 803,000 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, the placement in service of the 6080 Center Drive development
project at the Howard Hughes Center in the fourth quarter of 2002 and a change
in our method of estimating tenant reimbursements in 2003 to adjust for
quarterly seasonality variations associated with recoverable operating
expenses.

The increase in revenue from rental operations for the same store
portfolio was primarily due to an approximate $1.7 million increase in cash
rents, a $600,000 increase in tenant reimbursements and a $300,000 increase in
parking income, all of which were partially offset by a $600,000 decrease in
other rental operations and a $400,000 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 0.2% decrease in average
occupancy for these properties. The increase in tenant reimbursements was
primarily due to increases in operating expenses, as discussed below. The
increase in parking income is primarily due to an increase in demand for
monthly parking spaces in 2003 in some of our buildings. Other rental
operations decreased primarily due to lower lease termination fees in 2003
while straight-line rents decreased primarily due to the scheduled reversal of
straight-line rents for certain 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 and the one development property placed in
service subsequent to July 1, 2002 described above.

The increase in property expenses for the same store portfolio was
primarily due to an approximate $1.0 million increase in repairs and
maintenance, a $500,000 increase in property administrative expense and a
$300,000 increase in utilities expense, all of which were partially offset by
an approximate $400,000 decrease in real estate taxes. Repairs and maintenance
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 from
annual merit increases and higher property legal costs while utilities expense
increased due to higher usage in 2003. Real estate taxes decreased due to the
timing of final reassessments of some properties in 2002.

General and Administrative

General and administrative expenses as a percentage of total revenues were
approximately 4.4% for the three months ended September 30, 2003 as compared to
approximately 3.2% for the same period in 2002. The $1.4 million increase in
general and administrative expenses was primarily related to higher personnel
costs as a result of employee separation costs incurred in the current period
and non-cash compensation expense associated with annual restricted stock
grants issued in 2003 as well as higher corporate governance costs in 2003.

Interest Expense

Interest expense increased approximately $1.6 million, or 7%, during the
three months ended September 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 capitalized interest in 2003. Capitalized interest was
lower in 2003 as we stopped capitalizing interest on our 6100 Center Drive
development property in May 2003. The increases in interest expense were
partially offset by lower effective interest rates in 2003.

14



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##### Table of Contents



Depreciation and Amortization

Depreciation and amortization expense increased by approximately $4.2
million, or 16%, during the three months ended September 30, 2003 as compared
to the same period in 2002, primarily due to depreciation related to five
properties 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 $400,000 for the
three months ended September 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.

15



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##### Table of Contents



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

|                 |                                 |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |   |      |     |   
|---------------- | ------------------------------- | ------------------------------------------------- | ---------------------------------------------------------- | - | ----------------- | ------- | ------- | - | ------- | ------- | ------- | - | ------ | ------- | - | - | ---- | --- | --
|                 |                                 |                                                   |                                                            |   | Nine Months Ended |         |         |   |         |         |         |   |       
|                 |                                 |                                                   |                                                            |   | September 30,     |         |         |   |         |         |         |   |       
|                 |                                 |                                                   |                                                            |   |                   |         |         |   |         |         | Percent
|                 |                                 |                                                   |                                                            |   | 2003              |         | 2002    |   | Change  |         | Change 
|                 |                                 |                                                   |                                                            |   |                   |         |         |   |         |         |        
|Total Portfolio: |                                 |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |  
|                 | Revenue from rental operations: |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |   |     
|                 |                                 | Scheduled cash rents                              |                                                            | $ | 266,733           |         |         | $ | 251,507 |         |         | $ | 15,226 |         |   |   | 6    | %  
|                 |                                 | Straight-line rents                               |                                                            |   | 601               |         |         |   | 3,585   |         |         |   | (2,984 | )       |   |   | (83  | )  
|                 |                                 | Tenant reimbursements                             |                                                            |   | 18,279            |         |         |   | 17,061  |         |         |   | 1,218  |         |   |   | 7    |    
|                 |                                 | Parking, net of expense                           |                                                            |   | 16,307            |         |         |   | 15,386  |         |         |   | 921    |         |   |   | 6    |    
|                 |                                 | Other rental operations                           |                                                            |   | 6,568             |         |         |   | 5,708   |         |         |   | 860    |         |   |   | 15   |    
|                 |                                 |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |  
|                 |                                 |                                                   | Total revenue from rental operations                       |   |                   | 308,488 |         |   |         | 293,247 |         |   |        | 15,241  |   |   |      | 5   |   
|                 | Property expenses:              |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |   |     
|                 |                                 | Repairs and maintenance                           |                                                            |   | 31,529            |         |         |   | 26,941  |         |         |   | 4,588  |         |   |   | 17   |    
|                 |                                 | Utilities                                         |                                                            |   | 26,557            |         |         |   | 25,240  |         |         |   | 1,317  |         |   |   | 5    |    
|                 |                                 | Real estate taxes                                 |                                                            |   | 21,621            |         |         |   | 21,230  |         |         |   | 391    |         |   |   | 2    |    
|                 |                                 | Insurance                                         |                                                            |   | 6,286             |         |         |   | 5,665   |         |         |   | 621    |         |   |   | 11   |    
|                 |                                 | Ground rent                                       |                                                            |   | 690               |         |         |   | 616     |         |         |   | 74     |         |   |   | 12   |    
|                 |                                 | Administrative                                    |                                                            |   | 12,689            |         |         |   | 11,052  |         |         |   | 1,637  |         |   |   | 15   |    
|                 |                                 |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |  
|                 |                                 |                                                   | Total property expenses                                    |   |                   | 99,372  |         |   |         | 90,744  |         |   |        | 8,628   |   |   |      | 10  |   
|                 |                                 |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |  
|                 |                                 | Property Operating Results (1)                    |                                                            |   | 209,116           |         |         |   | 202,503 |         |         |   | 6,613  |         |   |   | 3    |    
|                 |                                 | General and administrative                        |                                                            |   | 12,574            |         |         |   | 9,234   |         |         |   | 3,340  |         |   |   | 36   |    
|                 |                                 | Interest                                          |                                                            |   | 70,242            |         |         |   | 65,384  |         |         |   | 4,858  |         |   |   | 7    |    
|                 |                                 | Depreciation and amortization                     |                                                            |   | 88,573            |         |         |   | 79,056  |         |         |   | 9,517  |         |   |   | 12   |    
|                 |                                 | Interest and other income                         |                                                            |   | (631              | )       |         |   | (1,576  | )       |         |   | (945   | )       |   |   | (60  | )  
|                 |                                 | Gain on sale of operating properties              |                                                            |   |                  |         |         |   | (1,273  | )       |         |   | (1,273 | )       |   |   | (100 | )  
|                 |                                 |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |  
|                 |                                 |                                                   | Income from continuing operations before
minority interest |   | $                 | 38,358  |         |   | $       | 51,678  |         |   | $      | (13,320 | ) |   |      | (26 | )%
|                 |                                 |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |  
|                 |                                 | Discontinued operations, net of minority interest |                                                            | $ | 5,295             |         |         | $ | 6,713   |         |         | $ | (1,418 | )       |   |   | (21  | )% 
|                 |                                 |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |  
|                 |                                 | Gain on sale of discontinued properties           |                                                            | $ | 5,382             |         |         | $ |        |         |         | $ | 5,382  |         |   |   |     | %  
|                 |                                 |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |  
|                 | Number of Properties:           |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |   |     
|                 |                                 | Acquired during period                            |                                                            |   |                  |         |         |   | 5       |         |         |   |        |         |   |   |      |    
|                 |                                 | Disposed of during period                         |                                                            |   | (6                | )       |         |   | (3      | )       |         |   |        |         |   |   |      |    
|                 |                                 | In service at end of period                       |                                                            |   | 130               |         |         |   | 135     |         |         |   |        |         |   |   |      |    
|                 | Net Rentable Square Feet:       |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |   |     
|                 |                                 | Acquired during period                            |                                                            |   |                  |         |         |   | 803     |         |         |   |        |         |   |   |      |    
|                 |                                 | Disposed of during period                         |                                                            |   | (515              | )       |         |   | (205    | )       |         |   |        |         |   |   |      |    
|                 |                                 | In service at end of period                       |                                                            |   | 18,617            |         |         |   | 18,845  |         |         |   |        |         |   |   |      |    
|                 | Same Store Portfolio(2):        |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |   |     
|                 |                                 | Revenue from rental operations                    |                                                            | $ | 293,954           |         |         | $ | 289,531 |         |         | $ | 4,423  |         |   |   | 2    | %  
|                 |                                 | Property expenses                                 |                                                            |   | 94,749            |         |         |   | 90,054  |         |         |   | 4,695  |         |   |   | 5    |    
|                 |                                 |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |  
|                 |                                 | $                                                 | 199,205                                                    |   |                   | $       | 199,477 |   |         | $       | (272    | ) |        |         |  | %
|                 |                                 |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |  
|                 |                                 | Straight-line rents                               |                                                            | $ | 637               |         |         | $ | 3,634   |         |         | $ | (2,997 | )       |   |   | (82  | )% 
|                 |                                 |                                                   |                                                            |   |                   |         |         |   |         |         |         |   |        |         |   |  
|                 |                                 | Number of non-development properties              |                                                            |   | 124               |         |         |   | 124     |         |         |   |        |         |   |   |      |    
|                 |                                 | Average occupancy                                 |                                                            |   | 90.0              | %       |         |   | 91.0    | %       |         |   |        |         |   |   |      |    
|                 |                                 | 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.                                                                                                                                                                                                                                                                                                                                                                                 
|   
|   
|   
|   
|    |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

16



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##### Table of Contents



| |  | 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):

|                                                                                          |                                    |   |                                 |        |      |   |         |        |  
|----------------------------------------------------------------------------------------- | ---------------------------------- | - | ------------------------------- | ------ | ---- | - | ------- | ------ | -
|                                                                                          |                                    |   | Nine Months Ended September 30,
|                                                                                          |                                    |   |                                
|                                                                                          |                                    |   | 2003                            |        | 2002
|                                                                                          |                                    |   |                                 |        |     
|Income from continuing operations
before gain on sale of properties
and minority interest |                                    | $ | 38,358                          |        |      | $ | 50,405  |       
|Add:                                                                                      |                                    |   |                                 |        |      |   |         |       
|                                                                                          | General and administrative expense |   |                                 | 12,574 |      |   |         | 9,234  |  
|                                                                                          | Interest expense                   |   |                                 | 70,242 |      |   |         | 65,384 |  
|                                                                                          | Depreciation and amortization      |   |                                 | 88,573 |      |   |         | 79,056 |  
|Less:                                                                                     |                                    |   |                                 |        |      |   |         |       
|                                                                                          | Interest and other income          |   |                                 | (631   | )    |   |         | (1,576 | )
|                                                                                          |                                    |   |                                 |        |      |   |         |       
|Property Operating Results                                                                |                                    | $ | 209,116                         |        |      | $ | 202,503 |       
|                                                                                          |                                    |   |                                 |        |      |   |         |       



---

|(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 nine months ended September 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, in the table
above, we
have also presented 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 803,000 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,
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 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 $4.0 million increase in cash
rents, a $2.6 million increase in tenant reimbursements and a $700,000 increase
in parking income, all of which were partially offset by an approximate $2.9
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 1.0% decrease in average occupancy for these
properties. The increase in tenant reimbursements was primarily due to
increases in operating expenses, as discussed below. The increase in parking
income was primarily due to an increase in demand for monthly parking in 2003
in some of our buildings. Straight-line rents decreased primarily due to the
decline in occupancy and the scheduled reversal of straight-line rents for
certain 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 and the one development property placed in
service subsequent to January 1, 2002 described above that were partially
offset by the three properties sold that were not classified as discontinued
operations in 2002.

The increase in property expenses for the same store portfolio was
primarily due to an approximate $2.8 million increase in repairs and
maintenance, a $1.8 million increase in property administrative expense, a
$500,000 increase in utilities expense and a $400,000 increase in insurance
costs, all of which were partially offset by a $800,000 decrease in real estate
taxes. Repairs and maintenance 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 from annual merit increases, higher property legal
expenses and costs associated with training programs implemented in 2003.
Utilities expense increased due to higher usage in 2003. Insurance costs
increased due to increases in industry-wide rates and premiums related to a
terrorism insurance policy entered into in the second quarter of 2002. Real
estate taxes decreased due to the timing of final reassessments of
some properties in 2002.

General and Administrative

General and administrative expenses as a percentage of total revenues were
approximately 3.9% for the nine months ended September 30, 2003 as compared to
approximately 3.0% for the same period in 2002. The approximate $3.3 million
increase in general and administrative expenses was primarily related to higher
personnel costs as a result of employee separation costs incurred in the
current period, non-cash compensation expense associated with annual restricted
stock grants issued in 2003 and annual merit increases as well as higher
corporate governance costs in 2003.

17



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##### Table of Contents



Interest Expense

Interest expense increased approximately $4.9 million, or 7%, during the
nine months ended September 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 capitalized interest in 2003. Capitalized interest was
lower in 2003 as we stopped capitalizing interest on our 6080 Center Drive
development property in May 2002 and our 6100 Center Drive development property
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 $9.5
million, or 12%, during the nine months ended September 30, 2003 as compared to
the same period in 2002, primarily due to depreciation related to five
properties 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 January 1, 2002.

Interest and Other Income

Interest and other income decreased by approximately $945,000 for the nine
months ended September 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 $12.2
million to $141.4 million for the nine months ended September 30, 2003 as
compared to $153.6 million for the same period in 2002. This decrease was
primarily due to a $6.7 million reduction in our outstanding trade receivable
balance during the first nine months of 2002 as a result of collection efforts
instituted in 2002 and increases in trade payables in 2002 as a result of
timing of payments.

Cash provided by investing activities increased by approximately $215.3
million to an inflow of $16.9 million for the nine months ended September 30,
2003 as compared to an outflow of $198.4 million for the same period in 2002.
This increase was primarily due to the acquisition of five properties in the
third quarter of 2002, 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 $158.1
million to an outflow of $144.1 million for the nine months ended September 30,
2003 as compared to an inflow $14.0 million for the same period in 2002. This
increase was primarily due to the proceeds from our term loan in the third
quarter of 2002 and higher net repayments in 2003 on our unsecured lines of
credit from proceeds generated from our capital recycling program.

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, 2004. 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 September
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 September
30, 2003, $150.0 million was outstanding on this line of credit and $160.0
million was available for additional borrowings.

As of September 30, 2003, we had approximately $41.9 million in cash and
cash equivalents, including $23.6 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 $9.9 million in cash impound accounts for
real estate taxes and insurance as required by several of our mortgage loans
payable.

We have entered into $150 million of forward-starting swaps during 2003 to
effectively fix the 10-year Treasury rate at an average rate of approximately
4.1% 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.

In October and November of 2003, we also entered into reverse interest
rate swap agreements to float $100 million of the fixed interest rate
associated with the 7.00% senior unsecured notes due in November of 2007.
Under these reverse swaps, we will receive interest at a fixed rate of 7.00%
and pay interest at a variable rate averaging six-month LIBOR in arrears plus
3.10%. These interest rate swaps mature at the same time the notes are due.
Including these swaps, our current floating-rate debt ratio is approximately
16%.

18



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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.

19



---



##### Table of Contents



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 September 30, 2003 (in thousands):

|           |       |        |         |           | 
|---------- | ----- | ------ | ------- | --------- | 
|Year       |       | Amount
|           |       |       
|2003       |       | $      | 2,005   |          
|2004       |       |        | 182,062 |          
|2005       |       |        | 207,678 |          
|2006       |       |        | 290,063 | (1)      
|2007       |       |        | 158,681 |          
|2008       |       |        | 230,305 |          
|2009       |       |        | 111,980 |          
|2010       |       |        | 150,565 |          
|2011       |       |        | 710     |          
|2012       |       |        | 768     |          
|Thereafter |       |        | 5,445   |          
|           |       |        |         |          
|           | Total |        | $       | 1,340,262 | 
|           |       |        |         |          



---

|(1) |  | Includes $150 million outstanding on our Wells Fargo unsecured line of
credit.
|--- |  | ------------------------------------------------------------------------------

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

Unsecured and Secured Debt:

|               |  |         |           |         |  |                  |     |                     |  |          |      |          |  |  |     | 
|-------------- |  | ------- | --------- | ------- |  | ---------------- | --- | ------------------- |  | -------- | ---- | -------- |  |  | --- | 
|               |  |         |           |         |  |                  |     |                     |  | Weighted |      | Weighted
|               |  |         |           |         |  |                  |     |                     |  | Average  |      | Average 
|               |  | Balance |           | Percent |  | Interest Rate(1) |     | Maturity (in years)
|               |  |         |           |         |  |                  |     |                    
|               |  | (000's) |           |         |  |                  |     |                     |  |          |      |          |  | 
|Unsecured Debt |  | $       | 773,350   |         |  |                  | 58  | %                   |  |          | 6.86 | %        |  |  | 3.4 | 
|Secured Debt   |  |         | 566,912   |         |  |                  | 42  |                     |  |          | 7.36 |          |  |  | 3.8 | 
|               |  |         |           |         |  |                  |     |                     |  |          |      |          |  |  |     | 
|Total Debt     |  | $       | 1,340,262 |         |  |                  | 100 | %                   |  |          | 7.07 | %        |  |  | 3.6 | 
|               |  |         |           |         |  |                  |     |                     |  |          |      |          |  |  |     | 

Floating and Fixed Rate Debt:

|                   |  |         |           |         |  |                  |     |                     |  |          |      |          |  |  |     | 
|------------------ |  | ------- | --------- | ------- |  | ---------------- | --- | ------------------- |  | -------- | ---- | -------- |  |  | --- | 
|                   |  |         |           |         |  |                  |     |                     |  | Weighted |      | Weighted
|                   |  |         |           |         |  |                  |     |                     |  | Average  |      | Average 
|                   |  | Balance |           | Percent |  | Interest Rate(1) |     | Maturity (in years)
|                   |  |         |           |         |  |                  |     |                    
|                   |  | (000's) |           |         |  |                  |     |                     |  |          |      |          |  | 
|Floating Rate Debt |  | $       | 100,000   |         |  |                  | 8   | %                   |  |          | 3.49 | %        |  |  | 2.5 | 
|Fixed Debt(2)      |  |         | 1,240,262 |         |  |                  | 92  |                     |  |          | 7.36 |          |  |  | 3.9 | 
|                   |  |         |           |         |  |                  |     |                     |  |          |      |          |  |  |     | 
|Total Debt         |  | $       | 1,340,262 |         |  |                  | 100 | %                   |  |          | 7.07 | %        |  |  | 3.6 | 
|                   |  |         |           |         |  |                  |     |                     |  |          |      |          |  |  |     | 



---

|(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):

|                        |  |                                  |        |                                 |  |      |        |      |  |   |        |   |  |   |        |  
|----------------------- |  | -------------------------------- | ------ | ------------------------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                        |  | Three Months Ended September 30, |        | Nine Months Ended September 30,
|                        |  |                                  |        |                                
|                        |  | 2003                             |        | 2002                            |  | 2003 |        | 2002
|                        |  |                                  |        |                                 |  |      |        |     
|Total interest incurred |  | $                                | 24,129 |                                 |  | $    | 23,651 |      |  | $ | 72,568 |   |  | $ | 69,749 |  
|Amount capitalized      |  |                                  | (176   | )                               |  |      | (1,248 | )    |  |   | (2,326 | ) |  |   | (4,365 | )
|                        |  |                                  |        |                                 |  |      |        |      |  |   |        |   |  |   |        |  
|Amount expensed         |  | $                                | 23,953 |                                 |  | $    | 22,403 |      |  | $ | 70,242 |   |  | $ | 65,384 |  
|                        |  |                                  |        |                                 |  |      |        |      |  |   |        |   |  |   |        |  

20



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##### Table of Contents



Senior Unsecured Notes Covenant Compliance Ratios

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

|                                          |                        |   |           |           | 
|----------------------------------------- | ---------------------- | - | --------- | --------- | 
|Net investment in real estate             |                        | $ | 2,638,358 |          
|Cash and cash equivalents                 |                        |   | 18,292    |          
|Restricted Cash                           |                        |   | 23,550    |          
|Accumulated depreciation and amortization |                        |   | 438,770   |          
|                                          |                        |   |           |          
|                                          | Total Assets           |   | $         | 3,118,970 | 
|                                          |                        |   |           |          
|Total unencumbered assets                 |                        | $ | 1,773,841 |          
|                                          |                        |   |           |          
|Mortgage loans payable                    |                        | $ | 566,912   |          
|Unsecured lines of credit                 |                        |   | 150,000   |          
|Unsecured term loan                       |                        |   | 125,000   |          
|Unsecured senior notes, net of discount   |                        |   | 498,350   |          
|                                          |                        |   |           |          
|                                          | Total Outstanding Debt |   | $         | 1,340,262 | 
|                                          |                        |   |           |          
|Consolidated EBITDA(1), (2)               |                        | $ | 273,796   |          
|                                          |                        |   |           |          
|Interest incurred(2)                      |                        | $ | 96,981    |          
|Loan fee amortization(2)                  |                        |   | 3,926     |          
|                                          |                        |   |           |          
|Debt Service(2)                           |                        | $ | 100,907   |          
|                                          |                        |   |           |          

|                                    |  |                   |  |        |     |   |  | 
|----------------------------------- |  | ----------------- |  | ------ | --- | - |  | 
|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% |  |        | 230 | %



---

|(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 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
|                                                                                          |                                                   |   |                   
|                                                                                          |                                                   |   | 9/30/03            |        | 6/30/03 |   | 3/31/03 |        | 12/31/02 |   | 9/30/02
|                                                                                          |                                                   |   |                    |        |         |   |         |        |          |   |        
|Income from continuing operations before gain on sale of
properties and minority interest |                                                   | $ | 10,496             |        |         | $ | 12,978  |        |          | $ | 14,884  |        |  | $ | 15,110 |        |  | $ | 14,502 |       
|Add:                                                                                      |                                                   |   |                    |        |         |   |         |        |          |   |         |        |  |   |        |        |  |   |        |       
|                                                                                          | Interest expense                                  |   |                    | 23,953 |         |   |         | 23,254 |          |   |         | 23,035 |  |   |        | 23,132 |  |   |        | 22,403 | 
|                                                                                          | Depreciation and amortization                     |   |                    | 30,578 |         |   |         | 29,537 |          |   |         | 28,458 |  |   |        | 27,126 |  |   |        | 26,368 | 
|                                                                                          | Discontinued operations, net of minority interest |   |                    | 1,364  |         |   |         | 1,295  |          |   |         | 2,636  |  |   |        | 1,979  |  |   |        | 2,035  | 
|                                                                                          | Minority interest from discontinued operations    |   |                    | 36     |         |   |         | 198    |          |   |         | 55     |  |   |        | 54     |  |   |        | 54     | 
|                                                                                          | Depreciation from discontinued operations         |   |                    | 527    |         |   |         | 511    |          |   |         | 1,164  |  |   |        | 1,436  |  |   |        | 1,282  | 
|                                                                                          |                                                   |   |                    |        |         |   |         |        |          |   |         |        |  |   |        |        |  |   |        |       
|EBITDA                                                                                    |                                                   | $ | 66,954             |        |         | $ | 67,773  |        |          | $ | 70,232  |        |  | $ | 68,837 |        |  | $ | 66,644 |       
|                                                                                          |                                                   |   |                    |        |         |   |         |        |          |   |         |        |  |   |        |        |  |   |        |       



---

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

21



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##### Table of Contents



Funds from Operations

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

|                                                                                     |  |                                  |        |                                 |  |      |        |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------ |  | -------------------------------- | ------ | ------------------------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                     |  | Three Months Ended September 30, |        | Nine Months Ended September 30,
|                                                                                     |  |                                  |        |                                
|                                                                                     |  | 2003                             |        | 2002                            |  | 2003 |        | 2002
|                                                                                     |  |                                  |        |                                 |  |      |        |     
|Funds From Operations:(1)                                                            |  |                                  |        |                                 |  |      |        |      |  |   |         |   |  |   |         |  
|Net income                                                                           |  | $                                | 10,541 |                                 |  | $    | 15,113 |      |  | $ | 44,882  |   |  | $ | 53,873  |  
|Depreciation and minority interest from
discontinued operations                      |  |                                  | 563    |                                 |  |      | 1,336  |      |  |   | 2,491   |   |  |   | 3,982   |  
|Gain on sale of discontinued properties                                              |  |                                  |       |                                 |  |      |       |      |  |   | (5,382  | ) |  |   |        |  
|Depreciation and amortization                                                        |  |                                  | 30,578 |                                 |  |      | 26,368 |      |  |   | 88,573  |   |  |   | 79,056  |  
|Minority interest                                                                    |  |                                  | 1,319  |                                 |  |      | 1,424  |      |  |   | 4,153   |   |  |   | 4,518   |  
|Gain on sale of operating properties                                                 |  |                                  |       |                                 |  |      |       |      |  |   |        |   |  |   | (1,273  | )
|Distribution on Preferred Operating
Partnership Units                                |  |                                  | (1,078 | )                               |  |      | (1,078 | )    |  |   | (3,234  | ) |  |   | (3,234  | )
|                                                                                     |  |                                  |        |                                 |  |      |        |      |  |   |         |   |  |   |         |  
|Funds From Operations(2)                                                             |  | $                                | 41,923 |                                 |  | $    | 43,163 |      |  | $ | 131,483 |   |  | $ | 136,922 |  
|                                                                                     |  |                                  |        |                                 |  |      |        |      |  |   |         |   |  |   |         |  
|Weighted average common shares and
Operating Partnership units
outstanding  Diluted |  |                                  | 65,740 |                                 |  |      | 66,513 |      |  |   | 65,216  |   |  |   | 66,452  |  
|                                                                                     |  |                                  |        |                                 |  |      |        |      |  |   |         |   |  |   |         |  



---

|(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 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 $572,000 and $315,000 in non-cash compensation expense for
the three months ended September 30, 2003 and 2002, respectively and
$1.4 million and $875,000 in non-cash compensation expense for the
nine months ended September 30, 2003 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                         

22



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##### Table of Contents



Portfolio and Lease Information

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

PORTFOLIO SUMMARY
As of September 30, 2003

|                      |         |            |    |           |     |                    |    |                    |     |                    |    |                   |     |            |    |       |     |            |           |           |            |            |    |    |     |   |        |                               |        |  |    |    |     |   |        |        |         |  |    |    |     |  
|--------------------- | ------- | ---------- | -- | --------- | --- | ------------------ | -- | ------------------ | --- | ------------------ | -- | ----------------- | --- | ---------- | -- | ----- | --- | ---------- | --------- | --------- | ---------- | ---------- | -- | -- | --- | - | ------ | ----------------------------- | ------ |  | -- | -- | --- | - | ------ | ------ | ------- |  | -- | -- | --- | -
|                      |         |            |    |           |     |                    |    |                    |     |                    |    |                   |     |            |    |       |     |            |           |           |            |            |    |    |     |   |        | Property Operating Results(1)
|                      |         |            |    |           |     |                    |    |                    |     |                    |    |                   |     |            |    |       |     |            |           |           |            |            |    |    |     |   |        |                              
|                      |         |            |    | Number of |     | Number of          |    | Approximate Net    |     | Three Months Ended |    | Nine Months Ended
|Location              |         | Properties |    | Buildings |     | Rentable (Sq. Ft.) |    | September 30, 2003 |     | September 30, 2003
|                      |         |            |    |           |     |                    |    |                    |     |                   
|                      |         |            |    |           |     |                    |    |                    |     |                    |    |                   |     |            |    |       |     |            |           |           |            |            |    |    |     |   |        | (in thousands and unaudited) 
|                      |         |            |    | Total     |     | % of Total         |    | Total              |     | % of Total         |    | Total             |     | % of Total |    | Total |     | % of Total |           | Total     |            | % of Total
|                      |         |            |    |           |     |                    |    |                    |     |                    |    |                   |     |            |    |       |     |            |           |           |            |           
|Los Angeles County    |         |            |    |           |     |                    |    |                    |     |                    |    |                   |     |            |    |       |     |            |           |           |            |            |    |    |     |   |        |                               |        |  |    |    |     |   |        |        |         |  |    |   
|                      | West(2) |            |    | 30        |     |                    |    | 23                 | %   |                    |    | 32                |     |            |    | 15    | %   |            |           | 4,882,004 |            |            |    | 26 | %   |   | $      | 25,738                        |        |  |    | 37 | %   |   | $      | 77,588 |         |  |    | 37 | %  
|                      | North   |            |    | 29        |     |                    |    | 22                 | %   |                    |    | 46                |     |            |    | 21    | %   |            |           | 3,231,591 |            |            |    | 17 | %   |   |        | 11,585                        |        |  |    | 17 | %   |   |        | 33,894 |         |  |    | 16 | %  
|                      | South   |            |    | 16        |     |                    |    | 12                 | %   |                    |    | 21                |     |            |    | 10    | %   |            |           | 3,057,925 |            |            |    | 17 | %   |   |        | 10,157                        |        |  |    | 15 | %   |   |        | 29,759 |         |  |    | 14 | %  
|                      |         |            |    |           |     |                    |    |                    |     |                    |    |                   |     |            |    |       |     |            |           |           |            |            |    |    |     |   |        |                               |        |  |    |    |     |   |        |        |         |  |    |    |    
|                      |         | Subtotal   |    |           | 75  |                    |    |                    | 57  | %                  |    |                   | 99  |            |    |       | 46  | %          |           |           | 11,171,520 |            |    |    | 60  | % |        |                               | 47,480 |  |    |    | 69  | % |        |        | 141,241 |  |    |    | 67  | %
|Orange County         |         |            | 23 |           |     |                    | 18 | %                  |     |                    | 56 |                   |     |            | 26 | %     |     |            | 3,676,119 |           |            |            | 20 | %  |     |   | 11,376 |                               |        |  | 16 | %  |     |   | 34,562 |        |         |  | 17 | % 
|San Diego County      |         |            | 25 |           |     |                    | 19 | %                  |     |                    | 40 |                   |     |            | 18 | %     |     |            | 2,857,195 |           |            |            | 15 | %  |     |   | 8,399  |                               |        |  | 12 | %  |     |   | 26,177 |        |         |  | 13 | % 
|Ventura/Kern Counties |         |            | 6  |           |     |                    | 5  | %                  |     |                    | 17 |                   |     |            | 8  | %     |     |            | 778,363   |           |            |            | 4  | %  |     |   | 2,348  |                               |        |  | 3  | %  |     |   | 7,136  |        |         |  | 3  | % 
|Riverside County(3)   |         |            | 1  |           |     |                    | 1  | %                  |     |                    | 4  |                   |     |            | 2  | %     |     |            | 133,481   |           |            |            | 1  | %  |     |   |       |                               |        |  |   |    |     |   |       |        |         |  |   |   
|                      |         |            |    |           |     |                    |    |                    |     |                    |    |                   |     |            |    |       |     |            |           |           |            |            |    |    |     |   |        |                               |        |  |    |    |     |   |        |        |         |  |    |    |    
|                      |         | Total      |    |           | 130 | (4)                |    |                    | 100 | %                  |    |                   | 216 | (4)        |    |       | 100 | %          |           |           | 18,616,678 | (4)        |    |    | 100 | % |        | $                             | 69,603 |  |    |    | 100 | % |        | $      | 209,116 |  |    |    | 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 and four properties currently classified as held for
disposition. 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 September 30, 2003

|                       |       |          |         |        |         |                           |                      |      |      |   |           |       |                 |   |       |       | 
|---------------------- | ----- | -------- | ------- | ------ | ------- | ------------------------- | -------------------- | ---- | ---- | - | --------- | ----- | --------------- | - | ----- | ----- | 
|                       |       |          | Percent |        | Percent |                           | Annualized Base Rent
|Location               |       | Occupied |         | Leased |         | Per Leased Square Foot(1)
|                       |       |          |         |        |         |                          
|                       |       |          |         |        |         |                           |                      |      |      |   | Portfolio |       | Full Service   
|                       |       |          |         |        |         |                           |                      |      |      |   | Total     |       | Gross Leases(2)
|                       |       |          |         |        |         |                           |                      |      |      |   |           |       |                
|Los Angeles County     |       |          |         |        |         |                           |                      |      |      |   |           |       |                 |   |       |      
|                       | West  |          |         | 92.8   | %(3)    |                           |                      | 95.2 | %(3) |   | $         | 28.02 |                 |   | $     | 28.13 | 
|                       | North |          |         | 90.7   | %       |                           |                      | 93.1 | %    |   |           | 21.55 |                 |   |       | 22.38 | 
|                       | South |          |         | 86.2   | %       |                           |                      | 87.9 | %    |   |           | 19.32 |                 |   |       | 20.43 | 
|Orange County          |       |          | 92.1    | %      |         |                           | 94.5                 | %    |      |   | 18.33     |       |                 |   | 21.75 |      
|San Diego County       |       |          | 82.6    | %      |         |                           | 84.6                 | %    |      |   | 19.15     |       |                 |   | 23.62 |      
|Ventura/Kern Counties  |       |          | 97.7    | %      |         |                           | 97.9                 | %    |      |   | 18.68     |       |                 |   | 19.17 |      
|Riverside County       |       |          | 96.8    | %      |         |                           | 99.4                 | %    |      |   | 12.81     |       |                 |   |      |      
|                       |       |          |         |        |         |                           |                      |      |      |   |           |       |                 |   |       |       | 
|Total/Weighted Average |       |          | 89.9    | %      |         |                           | 92.0                 | %    |      | $ | 21.77     |       |                 | $ | 23.79 |      
|                       |       |          |         |        |         |                           |                      |      |      |   |           |       |                 |   |       |       | 



---

|(1) |  | Based on monthly contractual base rent under existing leases as of
September 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 61% leased and 9% occupied.                                                                                                                                                                                                           

23



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##### Table of Contents



TEN LARGEST TENANTS
As of September 30, 2003

|                                  |  |           |    |            |  |             |     |               |  |               |       |                |  |  |       |            |  |  |           |  |  |   |        | 
|--------------------------------- |  | --------- | -- | ---------- |  | ----------- | --- | ------------- |  | ------------- | ----- | -------------- |  |  | ----- | ---------- |  |  | --------- |  |  | - | ------ | 
|                                  |  |           |    |            |  | Weighted    |     | Percentage of |  | Percentage of |       |                |  |  |       |            |  | 
|                                  |  |           |    |            |  | Average     |     | 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 |            |  |             | 46  |               |  |               | 2.24  | %              |  |  | 2.20  | %          |  |  | 384,358   |  |  | $ | 8,203  | 
|Vivendi Universal                 |  |           | 2  |            |  |             | 79  |               |  |               | 1.35  |                |  |  | 2.09  |            |  |  | 231,681   |  |  |   | 7,792  | 
|University of Phoenix             |  |           | 6  |            |  |             | 14  |               |  |               | 1.49  |                |  |  | 1.37  |            |  |  | 255,168   |  |  |   | 5,090  | 
|Univision Television Group        |  |           | 1  |            |  |             | 217 |               |  |               | 0.97  |                |  |  | 1.14  |            |  |  | 166,363   |  |  |   | 4,246  | 
|Ceridian Corporation              |  |           | 2  |            |  |             | 77  |               |  |               | 0.89  |                |  |  | 0.94  |            |  |  | 152,071   |  |  |   | 3,507  | 
|SBC Communications, Inc.          |  |           | 4  |            |  |             | 21  |               |  |               | 0.85  |                |  |  | 0.87  |            |  |  | 145,663   |  |  |   | 3,240  | 
|Atlantic Richfield                |  |           | 1  |            |  |             | 35  |               |  |               | 0.79  |                |  |  | 0.77  |            |  |  | 135,609   |  |  |   | 2,887  | 
|State Compensation Insurance Fund |  |           | 1  |            |  |             | 54  |               |  |               | 0.66  |                |  |  | 0.71  |            |  |  | 113,513   |  |  |   | 2,656  | 
|U.S. Government                   |  |           | 15 |            |  |             | 36  |               |  |               | 0.67  |                |  |  | 0.71  |            |  |  | 113,854   |  |  |   | 2,639  | 
|Haight, Brown & Bonesteel, LLP    |  |           | 1  |            |  |             | 94  |               |  |               | 0.36  |                |  |  | 0.69  |            |  |  | 61,399    |  |  |   | 2,579  | 
|                                  |  |           |    |            |  |             |     |               |  |               |       |                |  |  |       |            |  |  |           |  |  |   |        | 
|Total/Weighted Average(2)         |  |           | 57 |            |  |             | 63  |               |  |               | 10.27 | %              |  |  | 11.49 | %          |  |  | 1,759,679 |  |  | $ | 42,839 | 
|                                  |  |           |    |            |  |             |     |               |  |               |       |                |  |  |       |            |  |  |           |  |  |   |        | 



---

|(1) |  | Annualized base rent is calculated as monthly contractual base rent
under existing leases as of September 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

|                                                       |                    |  |                    |       |                    |  |           |       |    
|------------------------------------------------------ | ------------------ |  | ------------------ | ----- | ------------------ |  | --------- | ----- | ---
|                                                       |                    |  | Three Months Ended |       | Nine Months Ended 
|                                                       |                    |  | September 30, 2003 |       | September 30, 2003
|                                                       |                    |  |                    |       |                   
|Net Absorption (square feet)                           |                    |  | 64,287             |       |                    |  | (39,788   | )    
|                                                       |                    |  |                    |       |                    |  |           |      
|Gross New Leasing Activity (square feet)               |                    |  | 474,336            |       |                    |  | 1,472,539 |      
|                                                       |                    |  |                    |       |                    |  |           |      
|Retention Rate                                         |                    |  | 65.9               | %     |                    |  | 63.2      | %    
|                                                       |                    |  |                    |       |                    |  |           |      
|Cash Rent Growth(1):                                   |                    |  |                    |       |                    |  |           |      
|                                                       | Expiring Rate      |  | $                  | 22.76 |                    |  | $         | 21.02 |    
|                                                       |                    |  |                    |       |                    |  |           |      
|                                                       | New / Renewed Rate |  | $                  | 20.88 |                    |  | $         | 20.42 |    
|                                                       |                    |  |                    |       |                    |  |           |      
|                                                       | Decrease           |  |                    | (8    | %)                 |  |           | (3    | %) 
|                                                       |                    |  |                    |       |                    |  |           |      
|GAAP Rent Growth(2):                                   |                    |  |                    |       |                    |  |           |      
|                                                       | Expiring Rate      |  | $                  | 21.84 |                    |  | $         | 20.21 |    
|                                                       |                    |  |                    |       |                    |  |           |      
|                                                       | New / Renewed Rate |  | $                  | 22.18 |                    |  | $         | 21.54 |    
|                                                       |                    |  |                    |       |                    |  |           |      
|                                                       | Increase           |  |                    | 2     | %                  |  |           | 7     | %  
|                                                       |                    |  |                    |       |                    |  |           |      
|Weighted Average Lease Term in Months                  |                    |  | 47                 |       |                    |  | 51        |      
|                                                       |                    |  |                    |       |                    |  |           |      
|Tenant Improvements and Commissions (per square foot): |                    |  |                    |       |                    |  |           |      
|                                                       | New(3)             |  | $                  | 23.79 |                    |  | $         | 22.09 |    
|                                                       |                    |  |                    |       |                    |  |           |      
|                                                       | Renewal            |  | $                  | 8.79  |                    |  | $         | 11.42 | (4)
|                                                       |                    |  |                    |       |                    |  |           |      
|Capital Expenditures (per square foot):                |                    |  |                    |       |                    |  |           |      
|                                                       | Recurring          |  | $                  | 0.02  |                    |  | $         | 0.09  |    
|                                                       |                    |  |                    |       |                    |  |           |      
|                                                       | Non-recurring      |  | $                  | 0.03  |                    |  | $         | 0.06  |    
|                                                       |                    |  |                    |       |                    |  |           |      



---

|(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 nine
months ended September 30, 2003 averaged $9.38 per square foot.

24



---



##### Table of Contents



PORTFOLIO DIVERSIFICATION

As of September 30, 2003

|                                                                         |  |       |         |        |  |           |            |       |  |               |        |  
|------------------------------------------------------------------------ |  | ----- | ------- | ------ |  | --------- | ---------- | ----- |  | ------------- | ------ | -
|                                                                         |  |       |         |        |  |           |            |       |  | Percentage of
|                                                                         |  |       |         |        |  | Occupied  |            | Total
|                                                                         |  | NAICS |         | Square |  | Occupied 
|North American Industrial Classification System Description              |  | Code  |         | Feet   |  | Portfolio
|                                                                         |  |       |         |        |  |          
|Professional, Scientific, and Technical Services                         |  |       | 541     |        |  |           | 4,464,027  |       |  |               | 26.68  | %
|Finance and Insurance                                                    |  |       | 521-525 |        |  |           | 2,624,913  |       |  |               | 15.69  |  
|Information                                                              |  |       | 511-519 |        |  |           | 2,006,107  |       |  |               | 11.99  |  
|Manufacturing                                                            |  |       | 311-339 |        |  |           | 1,366,133  |       |  |               | 8.16   |  
|Health Care and Social Assistance                                        |  |       | 621-624 |        |  |           | 1,098,471  |       |  |               | 6.56   |  
|Administrative and Support and Waste Management and Remediation Services |  |       | 561-562 |        |  |           | 671,986    |       |  |               | 4.01   |  
|Public Administration                                                    |  |       | 921-928 |        |  |           | 764,352    |       |  |               | 4.57   |  
|Educational Services                                                     |  |       | 611     |        |  |           | 739,895    |       |  |               | 4.42   |  
|Real Estate, Rental and Leasing                                          |  |       | 531-533 |        |  |           | 753,570    |       |  |               | 4.50   |  
|Wholesale Trade                                                          |  |       | 423-425 |        |  |           | 547,050    |       |  |               | 3.27   |  
|Transportation and Warehousing                                           |  |       | 481-493 |        |  |           | 389,353    |       |  |               | 2.33   |  
|Arts, Entertainment, and Recreation                                      |  |       | 711-713 |        |  |           | 332,879    |       |  |               | 1.99   |  
|Construction                                                             |  |       | 236-238 |        |  |           | 250,951    |       |  |               | 1.50   |  
|Accommodation and Food Services                                          |  |       | 721-722 |        |  |           | 184,221    |       |  |               | 1.10   |  
|Other Services (except Public Administration)                            |  |       | 811-814 |        |  |           | 270,090    |       |  |               | 1.61   |  
|Retail Trade                                                             |  |       | 441-454 |        |  |           | 139,961    |       |  |               | 0.84   |  
|Mining                                                                   |  |       | 211-213 |        |  |           | 73,307     |       |  |               | 0.44   |  
|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                                                    |  |       |         |        |  |           | 20,609     |       |  |               | 0.12   |  
|                                                                         |  |       |         |        |  |           |            |       |  |               |        |  
|Square Feet Occupied by Tenants at 9/30/03                               |  |       |         |        |  |           | 16,734,705 |       |  |               | 100.00 | %
|                                                                         |  |       |         |        |  |           |            |       |  |               |        |  

25



---



##### Table of Contents



LEASE EXPIRATIONS

As of September 30, 2003

|                    |                    |                   |                 |   |         |         |       |   |           |           |      |   |           |           |      |   |            |           |  |   |           |           |  |   |           |           |          |  | 
|------------------- | ------------------ | ----------------- | --------------- | - | ------- | ------- | ----- | - | --------- | --------- | ---- | - | --------- | --------- | ---- | - | ---------- | --------- |  | - | --------- | --------- |  | - | --------- | --------- | -------- |  | 
|                    |                    |                   |                 |   |         |         |       |   |           |           |      |   |           |           |      |   |            |           |  |   |           |           |  |   |           |           | 2008 and
|                    |                    |                   |                 |   |         |         | Q4-03 |   | 2004      |           | 2005 |   | 2006      |           | 2007 |   | Thereafter
|                    |                    |                   |                 |   |         |         |       |   |           |           |      |   |           |           |      |   |           
|Los Angeles County: |                    |                   |                 |   |         |         |       |   |           |           |      |   |           |           |      |   |            |           |  |   |           |           |  |   |           |           |          | 
|                    | West               |                   | Expiring SF (1) |   |         | 219,386 |       |   |           | 686,873   |      |   |           | 757,916   |      |   |            | 493,631   |  |   |           | 549,901   |  |   |           | 1,906,974 |         
|                    |                    | % of Leased SF(2) |                 |   | 1.28    | %       |       |   | 4.01      | %         |      |   | 4.42      | %         |      |   | 2.88       | %         |  |   | 3.21      | %         |  |   | 11.13     | %        
|                    |                    | Rent per SF(3)    |                 | $ | 29.24   |         |       | $ | 27.36     |           |      | $ | 27.29     |           |      | $ | 29.26      |           |  | $ | 29.39     |           |  | $ | 34.23     |          
|                    | North              |                   | Expiring SF(1)  |   |         | 113,631 |       |   |           | 651,651   |      |   |           | 414,295   |      |   |            | 396,269   |  |   |           | 439,911   |  |   |           | 929,456   |         
|                    |                    | % of Leased SF(2) |                 |   | 0.67    | %       |       |   | 3.80      | %         |      |   | 2.42      | %         |      |   | 2.32       | %         |  |   | 2.57      | %         |  |   | 5.43      | %        
|                    |                    | Rent per SF(3)    |                 | $ | 22.97   |         |       | $ | 21.28     |           |      | $ | 23.12     |           |      | $ | 24.35      |           |  | $ | 22.64     |           |  | $ | 23.52     |          
|                    | South              |                   | Expiring SF(1)  |   |         | 57,064  |       |   |           | 499,740   |      |   |           | 707,031   |      |   |            | 301,915   |  |   |           | 214,421   |  |   |           | 819,553   |         
|                    |                    | % of Leased SF(2) |                 |   | 0.33    | %       |       |   | 2.92      | %         |      |   | 4.13      | %         |      |   | 1.76       | %         |  |   | 1.25      | %         |  |   | 4.78      | %        
|                    |                    | Rent per SF(3)    |                 | $ | 21.14   |         |       | $ | 20.74     |           |      | $ | 15.64     |           |      | $ | 22.79      |           |  | $ | 23.32     |           |  | $ | 22.57     |          
|                    |                    |                   |                 |   |         |         |       |   |           |           |      |   |           |           |      |   |            |           |  |   |           |           |  |   |           |           |          | 
|Subtotal           |                    |                   |                 |   |         |         |       |   |           |           |      |   |           |           |      |   |            |           |  |   |           |           |  |   |           |           |          | 
|                    | Los Angeles County |                   | Expiring SF(1)  |   |         | 390,081 |       |   |           | 1,838,264 |      |   |           | 1,879,242 |      |   |            | 1,191,815 |  |   |           | 1,204,233 |  |   |           | 3,655,983 |         
|                    |                    | % of Leased SF(2) |                 |   | 2.28    | %       |       |   | 10.73     | %         |      |   | 10.97     | %         |      |   | 6.96       | %         |  |   | 7.03      | %         |  |   | 21.34     | %        
|                    |                    | Rent per SF(3)    |                 | $ | 26.33   |         |       | $ | 23.40     |           |      | $ | 21.99     |           |      | $ | 25.99      |           |  | $ | 25.84     |           |  | $ | 28.89     |          
|                    | Orange County      |                   | Expiring SF(1)  |   |         | 216,910 |       |   |           | 717,667   |      |   |           | 620,228   |      |   |            | 813,624   |  |   |           | 403,021   |  |   |           | 608,106   |         
|                    |                    | % of Leased SF(2) |                 |   | 1.27    | %       |       |   | 4.19      | %         |      |   | 3.62      | %         |      |   | 4.75       | %         |  |   | 2.35      | %         |  |   | 3.55      | %        
|                    |                    | Rent per SF(3)    |                 | $ | 16.09   |         |       | $ | 16.34     |           |      | $ | 21.04     |           |      | $ | 19.65      |           |  | $ | 20.58     |           |  | $ | 22.82     |          
|                    | San Diego County   |                   | Expiring SF(1)  |   |         | 100,278 |       |   |           | 483,487   |      |   |           | 544,940   |      |   |            | 344,506   |  |   |           | 159,161   |  |   |           | 775,209   |         
|                    |                    | % of Leased SF(2) |                 |   | 0.58    | %       |       |   | 2.82      | %         |      |   | 3.18      | %         |      |   | 2.01       | %         |  |   | 0.93      | %         |  |   | 4.53      | %        
|                    |                    | Rent per SF(3)    |                 | $ | 18.82   |         |       | $ | 20.10     |           |      | $ | 18.69     |           |      | $ | 22.56      |           |  | $ | 24.03     |           |  | $ | 22.94     |          
|                    | All Others         |                   | Expiring SF(1)  |   |         | 22,688  |       |   |           | 221,151   |      |   |           | 152,560   |      |   |            | 208,206   |  |   |           | 85,679    |  |   |           | 199,087   |         
|                    |                    | % of Leased SF(2) |                 |   | 0.13    | %       |       |   | 1.29      | %         |      |   | 0.89      | %         |      |   | 1.21       | %         |  |   | 0.50      | %         |  |   | 1.16      | %        
|                    |                    | Rent per SF(3)    |                 | $ | 20.68   |         |       | $ | 17.66     |           |      | $ | 19.94     |           |      | $ | 19.66      |           |  | $ | 16.92     |           |  | $ | 18.88     |          
|                    |                    |                   |                 |   |         |         |       |   |           |           |      |   |           |           |      |   |            |           |  |   |           |           |  |   |           |           |          | 
|Total Portfolio     |                    | Expiring SF(1)    |                 |   | 729,957 |         |       |   | 3,260,569 |           |      |   | 3,196,970 |           |      |   | 2,558,151  |           |  |   | 1,852,094 |           |  |   | 5,238,385 |          
|                    |                    |                   |                 |   |         |         |       |   |           |           |      |   |           |           |      |   |            |           |  |   |           |           |  |   |           |           |          | 
|                    |                    | % of Leased SF(2) |                 |   | 4.26    | %       |       |   | 19.03     | %         |      |   | 18.66     | %         |      |   | 14.93      | %         |  |   | 10.81     | %         |  |   | 30.58     | %        
|                    |                    |                   |                 |   |         |         |       |   |           |           |      |   |           |           |      |   |            |           |  |   |           |           |  |   |           |           |          | 
|                    |                    | Rent per SF(3)    |                 | $ | 22.08   |         |       | $ | 20.97     |           |      | $ | 21.14     |           |      | $ | 23.00      |           |  | $ | 24.13     |           |  | $ | 26.93     |          
|                    |                    |                   |                 |   |         |         |       |   |           |           |      |   |           |           |      |   |            |           |  |   |           |           |  |   |           |           |          | 



---

|(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.                                                                                                                   

QUARTERLY EXPIRATIONS FOR 2004
As of September 30, 2003

|                    |                    |                   |                |   |         |         |       |   |         |         |       |   |         |         |  |   |         |         |  |  | 
|------------------- | ------------------ | ----------------- | -------------- | - | ------- | ------- | ----- | - | ------- | ------- | ----- | - | ------- | ------- |  | - | ------- | ------- |  |  | 
|                    |                    |                   |                |   |         |         | Q1-04 |   | Q2-04   |         | Q3-04 |   | Q4-04  
|                    |                    |                   |                |   |         |         |       |   |         |         |       |   |        
|Los Angeles County: |                    |                   |                |   |         |         |       |   |         |         |       |   |         |         |  |   |         |         |  | 
|                    | West               |                   | Expiring SF(1) |   |         | 129,067 |       |   |         | 204,021 |       |   |         | 181,666 |  |   |         | 172,119 | 
|                    |                    | % of Leased SF(2) |                |   | 0.76    | %       |       |   | 1.19    | %       |       |   | 1.06    | %       |  |   | 1.00    | %      
|                    |                    | Rent per SF(3)    |                | $ | 25.47   |         |       | $ | 25.70   |         |       | $ | 27.96   |         |  | $ | 30.10   |        
|                    | North              |                   | Expiring SF(1) |   |         | 89,083  |       |   |         | 92,425  |       |   |         | 155,314 |  |   |         | 314,829 | 
|                    |                    | % of Leased SF(2) |                |   | 0.52    | %       |       |   | 0.54    | %       |       |   | 0.90    | %       |  |   | 1.84    | %      
|                    |                    | Rent per SF(3)    |                | $ | 20.57   |         |       | $ | 23.45   |         |       | $ | 23.18   |         |  | $ | 19.92   |        
|                    | South              |                   | Expiring SF(1) |   |         | 98,366  |       |   |         | 114,012 |       |   |         | 208,484 |  |   |         | 78,878  | 
|                    |                    | % of Leased SF(2) |                |   | 0.57    | %       |       |   | 0.67    | %       |       |   | 1.22    | %       |  |   | 0.46    | %      
|                    |                    | Rent per SF(3)    |                | $ | 26.27   |         |       | $ | 20.28   |         |       | $ | 18.24   |         |  | $ | 21.10   |        
|                    |                    |                   |                |   |         |         |       |   |         |         |       |   |         |         |  |   |         |         |  | 
|Subtotal           |                    |                   |                |   |         |         |       |   |         |         |       |   |         |         |  |   |         |         |  | 
|                    | Los Angeles County |                   | Expiring SF(1) |   |         | 316,516 |       |   |         | 410,458 |       |   |         | 545,464 |  |   |         | 565,826 | 
|                    |                    | % of Leased SF(2) |                |   | 1.85    | %       |       |   | 2.40    | %       |       |   | 3.18    | %       |  |   | 3.30    | %      
|                    |                    | Rent per SF(3)    |                | $ | 24.34   |         |       | $ | 23.69   |         |       | $ | 22.88   |         |  | $ | 23.18   |        
|                    | Orange County      |                   | Expiring SF(1) |   |         | 213,901 |       |   |         | 155,238 |       |   |         | 133,667 |  |   |         | 214,861 | 
|                    |                    | % of Leased SF(2) |                |   | 1.25    | %       |       |   | 0.91    | %       |       |   | 0.78    | %       |  |   | 1.25    | %      
|                    |                    | Rent per SF(3)    |                | $ | 14.32   |         |       | $ | 19.97   |         |       | $ | 19.75   |         |  | $ | 13.62   |        
|                    | San Diego County   |                   | Expiring SF(1) |   |         | 196,238 |       |   |         | 74,040  |       |   |         | 134,849 |  |   |         | 78,360  | 
|                    |                    | % of Leased SF(2) |                |   | 1.14    | %       |       |   | 0.43    | %       |       |   | 0.79    | %       |  |   | 0.46    | %      
|                    |                    | Rent per SF(3)    |                | $ | 19.95   |         |       | $ | 20.26   |         |       | $ | 24.21   |         |  | $ | 13.25   |        
|                    | All Others         |                   | Expiring SF(1) |   |         | 31,903  |       |   |         | 10,257  |       |   |         | 82,951  |  |   |         | 96,040  | 
|                    |                    | % of Leased SF(2) |                |   | 0.19    | %       |       |   | 0.05    | %       |       |   | 0.49    | %       |  |   | 0.56    | %      
|                    |                    | Rent per SF(3)    |                | $ | 20.17   |         |       | $ | 18.20   |         |       | $ | 15.85   |         |  | $ | 18.34   |        
|                    |                    |                   |                |   |         |         |       |   |         |         |       |   |         |         |  |   |         |         |  | 
|Total Portfolio     |                    | Expiring SF(1)    |                |   | 758,558 |         |       |   | 649,993 |         |       |   | 896,931 |         |  |   | 955,087 |        
|                    |                    |                   |                |   |         |         |       |   |         |         |       |   |         |         |  |   |         |         |  | 
|                    |                    | % of Leased SF(2) |                |   | 4.43    | %       |       |   | 3.79    | %       |       |   | 5.24    | %       |  |   | 5.57    | %      
|                    |                    |                   |                |   |         |         |       |   |         |         |       |   |         |         |  |   |         |         |  | 
|                    |                    | Rent per SF(3)    |                | $ | 20.20   |         |       | $ | 22.32   |         |       | $ | 21.96   |         |  | $ | 19.73   |        
|                    |                    |                   |                |   |         |         |       |   |         |         |       |   |         |         |  |   |         |         |  | 



---

|(1) |  | Represents the square footage of expiring leases, 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.                            

26



---



##### Table of Contents



DEVELOPMENT SUMMARY
As of September 30, 2003

|                      |                   |      |        |                |         |                |               |          |           |      |            |        |               |                |           |            |           |               |              |  |              |  |   |       |               |  |            |     |           |  |  |     |   |  |  |  | 
|--------------------- | ----------------- | ---- | ------ | -------------- | ------- | -------------- | ------------- | -------- | --------- | ---- | ---------- | ------ | ------------- | -------------- | --------- | ---------- | --------- | ------------- | ------------ |  | ------------ |  | - | ----- | ------------- |  | ---------- | --- | --------- |  |  | --- | - |  |  |  | 
|                      |                   |      |        |                |         |                |               |          |           |      |            |        |               |                |           |            |           |               |              |  |              |  |   |       |               |  | Estimated  |     |           |  |  |     |   |  | 
|                      |                   |      |        |                |         |                |               |          |           |      |            |        |               |                |           |            |           |               |              |  |              |  |   |       |               |  | Year 1     |     |           |  |  |     |   |  | 
|                      |                   |      |        |                |         |                |               |          |           |      |            |        |               |                |           |            |           |               |              |  |              |  |   |       |               |  | Stabilized |     |           |  |  |     |   |  | 
|                      |                   |      |        |                |         |                | Costs         |          |           |      |            |        |               |                |           |            |           |               |              |  |              |  |   |       | Cash Property |  | Estimated  |     | Estimated
|                      |                   |      |        |                |         |                | Incurred      |          | Estimated |      | Percent    |        | Shell         |                | Estimated |            | Operating |               | Year 1       |  | Year 1      
|                      |                   |      | Square |                | To Date |                | Total Cost(1) |          | Leased at |      | Completion |        | Stabilization |                | Results   |            | Annual    |               | Annual      
|Property              |                   | Feet |        | (in thousands) |         | (in thousands) |               | 10/28/03 |           | Date |            | Date   |               | (in thousands) |           | Cash Yield |           | GAAP Yield(2)
|                      |                   |      |        |                |         |                |               |          |           |      |            |        |               |                |           |            |           |              
|Howard Hughes Center: |                   |      |        |                |         |                |               |          |           |      |            |        |               |                |           |            |           |               |              |  |              |  |   |       |               |  |            |     |           |  |  |     |   |  |  | 
|                      | 6100 Center Drive |      |        | 283,000        |         |                | $             | 71,659   |           |      | $          | 81,500 |               |                |           | 61         | %         |               | 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. We have entitlements to construct an additional
approximately 425,000 net rentable square feet of office space and
have two parcels entitled for hotel developments for up to 600 hotel
rooms at the Howard Hughes Center.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Estimated Year 1 Annual GAAP Yield includes an adjustment for
straight-line rents.                                                                                                                                                                                                                                                                                                                                                                

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 $150
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. In October and November of 2003, we also entered
into reverse interest rate swap agreements to float $100 million of the fixed
interest rate associated with the 7.00% senior unsecured notes due in November
2007.

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
September 30, 2003, a 1% increase in interest rates on our $100.0 million of
floating rate debt would decrease annual future earnings and cash flows by
approximately $1.0 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
$100.0 million of floating rate debt would increase annual future earnings and
cash flows by approximately $1.0 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 September 30, 2003 was 3.49%.

Our fixed rate debt totaled $1,240.3 million as of September 30, 2003 with
a weighted average interest rate of 7.36% and a total fair value of
approximately $1,294.3 million. A 1% decrease in interest rates would increase
the fair value of our fixed rate debt by approximately $36.1 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 $33.8 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.

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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 Securities Exchange Act 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.

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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 September 30,
2003.




Item 2. Changes in Securities

See Item 6(b) below regarding the expiration of the preferred stock purchase rights.




Item 3. Defaults Upon Senior Securities  None




Item 4. Submission of Matters to a Vote of Security Holders  None




Item 5. Other Information  None




Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits
| | --- |  | --------

| |        |  |                                                                                                                                                                                                                                                                                                                                                                        
| | ------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.46* |  | Second Amended and Restated Agreement of Limited Partnership of Arden Realty Limited
Partnership, dated September 7, 1999, filed as an exhibit to Arden Realtys quarterly
report on Form 10-Q filed with the Commission on November 15, 1999.                                                                                                                         
|
| | 10.47* |  | Admission of New Partners and Amendment to Limited Partnership Agreement entered into
as of the 20th day of December, 2000, by and between Arden Realty Limited
Partnership and the persons identified as the New Partners therein, filed as an
exhibit to Arden Realty Limited Partnerships annual report on Form 10-K filed with
the Commission on March 30, 2001.
|
| | 10.48* |  | Second Amendment to Limited Partnership Agreement entered into as of September 13,
2003, by Arden Realty Limited Partnership, filed as an exhibit to Arden Realty
Limited Partnerships quarterly report on Form 10-Q filed with the Commission on
November 13, 2003.                                                                                                  
|
| | 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)                                                                                                                                                                                                                                                                                 



---

|(*) |  | Incorporated by reference.                                                                                                                                                                                                                                                  
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(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 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 preferred stock 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 preferred stock purchase rights.

On July 31, 2003, we filed a report on Form 8-K (Item 12) relating to our
financial information for the quarter ended June 30, 2003 as presented in a
press release dated July 30, 2003.

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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: November 13, 2003 | By:                                                                          | /s/ Andrew J. Sobel
|                        |                                                                             
|                        | Andrew J. Sobel
Executive Vice President  Strategic Planning
and Operations

|                        |                                                                    |                     
|----------------------- | ------------------------------------------------------------------ | --------------------
|Date: November 13, 2003 | By:                                                                | /s/ Richard S. Davis
|                        |                                                                   
|                        | Richard S. Davis
Senior Vice President and
Chief Financial Officer

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