##### Table of Contents








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Securities and Exchange Commission

Washington, D.C. 20549




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FORM 10-K



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|                                                |  |                                                                                                     
|----------------------------------------------- |  | ----------------------------------------------------------------------------------------------------
|x                                               |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES AND EXCHANGE ACT OF 1934.   
|                                               
|For the fiscal year ended December 31,
    2003
|                                               
|OR                                             
|                                               
|o                                               |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES AND EXCHANGE ACT OF 1934
|                                               
|For the transition period
    from           to

Commission File Number 1-12193

ARDEN REALTY, INC.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                     
|------------------------------------------------------------------ |  | ------------------------------------
|Maryland                                                           |  | 95-4578533                          
|(State or other jurisdiction of
    incorporation or organization) |  | (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

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

|                                |  |                                          
|------------------------------- |  | -----------------------------------------
|Title of each class             |  | Name of each exchange on which registered
|                                |  |                                          
|Common Stock, $0.01 par value   |  | New York Stock Exchange                  
|Preferred Stock Purchase Rights |  | New York Stock Exchange                  

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

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

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

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

The aggregate market value of the shares of
common stock held by non-affiliates was approximately
$1.6 billion based on the closing price on the
New York Stock Exchange for such shares on June 30,
2003.

The number of the Registrants shares of
common stock outstanding was 65,315,254 as of March 11,
2004.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this report incorporates
information by reference from the definitive Proxy Statement for
the 2004 Annual Meeting of Stockholders.





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ARDEN REALTY, INC.

TABLE OF CONTENTS

|             |     |  |  |                                                                                                                      |  |  |    | 
|------------ | --- |  |  | -------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|Item         |     |  |  | Page                                                                                                                
|No.          |     |  |  | No.                                                                                                                 
|             |     |  |  |                                                                                                                     
|PART I      
|             | 1.  |  |  | Business                                                                                                             |  |  | 1  | 
|             | 2.  |  |  | Properties                                                                                                           |  |  | 7  | 
|             | 3.  |  |  | Legal Proceedings                                                                                                    |  |  | 18 | 
|             | 4.  |  |  | Submission of Matters to a
    Vote of Security Holders                                                              |  |  | 18 | 
|PART II     
|             | 5.  |  |  | Market for Registrants
    Common Equity, Related Stockholder Matters and Issuer Purchases
    of Equity Securities |  |  | 18 | 
|             | 6.  |  |  | Selected Financial Data                                                                                              |  |  | 20 | 
|             | 7.  |  |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                            |  |  | 22 | 
|             | 7A. |  |  | Quantitative and Qualitative
    Disclosure about Market Risk                                                        |  |  | 45 | 
|             | 8.  |  |  | Financial Statements and
    Supplementary Data                                                                      |  |  | 55 | 
|             | 9.  |  |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure                             |  |  | 56 | 
|             | 9A. |  |  | Controls and Procedures                                                                                              |  |  | 56 | 
|PART III    
|             | 10. |  |  | Directors and Executive
    Officers of the Registrant                                                               |  |  | 56 | 
|             | 11. |  |  | Executive Compensation                                                                                               |  |  | 56 | 
|             | 12. |  |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters               |  |  | 57 | 
|             | 13. |  |  | Certain Relationships and
    Related Transactions                                                                   |  |  | 57 | 
|             | 14. |  |  | Principal Accountant Fees
    and Services                                                                           |  |  | 57 | 
|PART IV     
|             | 15. |  |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                                                  |  |  | 58 | 
|             |     |  |  | Signatures                                                                                                           |  |  | 63 | 
|EXHIBIT 12.1
|EXHIBIT 23.1
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32.1
|EXHIBIT 32.2



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PART I

Forward-Looking Statements

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






|        |         
|------- | --------
|ITEM 1. | Business



|    |        
|--- | -------
|(a) | GENERAL

The terms Arden Realty,
us, we and our as used in
this report refer to Arden Realty, Inc. We were
incorporated in Maryland in May 1996 and completed our initial
public offering in October 1996. Commencing with our taxable
year ended December 31, 1996, we have operated and
qualified as a real estate investment trust, or REIT, for
federal income tax purposes. We are a self-administered and
self-managed REIT that owns, manages, leases, develops,
renovates and acquires commercial properties located in Southern
California. We are the sole general partner of Arden Realty
Limited Partnership, or the Operating Partnership, and as of
December 31, 2003, we owned approximately 97.4% of the
Operating Partnerships common partnership units. We
conduct substantially all of our operations through the
Operating Partnership and its consolidated subsidiaries.



|    |                  
|--- | -----------------
|(b) | INDUSTRY SEGMENTS

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



|    |                        
|--- | -----------------------
|(c) | DESCRIPTION OF BUSINESS

We are a full-service real estate organization
managed by 7 senior executive officers who have experience in
the real estate industry ranging from 13 to 34 years and
who collectively have an average of 18 years of experience.
We perform all property management, construction management,
accounting, finance and acquisition and disposition activities
and a majority of our leasing transactions for our portfolio
with our staff of approximately 300 employees.

As of December 31, 2003, we were Southern
Californias largest publicly traded office landlord as
measured by total net rentable square feet owned. As of
December 31, 2003, our portfolio of primarily suburban
office properties consisted of 130 properties and 215 buildings
containing approximately 18.9 million net rentable square
feet including one development property with approximately
283,000 net rentable square feet under lease-up. As of
December 31, 2003, our operating portfolio was 90.4%
occupied.

Portfolio
Management

We perform all portfolio management activities,
including management of all lease negotiations, construction
management of tenant improvements or tenant build-outs, property
renovations, capital expenditures and on-site property
management for our portfolio. We directly manage these
activities from approximately 45 management offices located
throughout our portfolio. The activities of these management
offices are supervised by four regional offices with oversight
by our corporate office to ensure consistency of the application
of our operating policies and procedures. Each regional office
is strategically located within the

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Southern California submarkets where our
properties are located and is managed by a regional First Vice
President who is responsible for supervising the day-to-day
activities of our management offices. Each regional office is
staffed with leasing, property management, building engineering,
construction and information systems specialists, referred to as
our Regional Service Teams. By maintaining a regionally focused
organizational structure led by seasoned managers, we are able
to quickly respond to our tenants needs and market
opportunities.


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

We currently lease approximately 60% of our
portfolios net rentable space using our in-house staff. We
employ outside brokers who are monitored by our Regional Service
Teams for the remainder of our net rentable space. Our in-house
leasing program allows us to closely monitor rental rates and
lease terms for new and renewal leases and reduce third-party
leasing commissions.

Business
Strategies

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

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



| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | using integrated decision making to provide
    proactive solutions to the space needs of tenants in the markets
    where we have extensive real estate and technical expertise;           
|
| |  | emphasizing quality service and tenant
    satisfaction and retention;                                                                                                                      
|
| |  | employing intensive property marketing and
    leasing programs; and                                                                                                                        
|
| |  | implementing cost control management techniques
    and systems that capitalize on economies of scale and
    concentration arising from the size and geographic focus of our
    portfolio.

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

Integrated Decision Making

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

Quality Service and Tenant
Satisfaction

We strive to provide quality service through our
multidisciplinary operating approach resulting in timely
responses to our tenants needs. Our seasoned Regional
Service Teams interact and resolve issues relating to tenant
satisfaction and day-to-day operations. For portfolio-wide
operational and administrative functions, our

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corporate office provides support to all regional
offices and provides immediate response for critical operational
issues. Providing quality service leads to enhanced tenant
retention.


Proactive Marketing and
Leasing

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

Cost Control and Operating
Efficiencies

The size and geographic focus of our portfolio
permits us to enhance portfolio value by controlling operating
costs. We seek to capitalize on the economies of scale and
concentration which result from the geographic focus of our
portfolio through the ownership and management of multiple
properties within particular submarkets and the maintenance of
standardized processes and systems for cost control at each of
our properties. These cost controls and operating efficiencies
allowed us to achieve a 67.9% ratio of property operating
results to total property revenues in 2003.

Operating
Strategies

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



| |   |                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the broad diversification and balance of the
    Southern California economy and our tenant base minimizes our
    dependence on any one industry segment or limited group of
    tenants;                                                                                                                                                                     
|
| |  | the relative resiliency of the Southern
    California real estate market, as measured by lower vacancy
    rates compared to the national average and a lower decline in
    rental rates in our key submarkets than the average decreases in
    rates reported for the nation since the beginning of the office
    real estate sector downturn in 2001; and
|
| |  | the limited construction of new office properties
    in the Southern California region due to substantial building
    construction limitations and a minimal amount of developable
    land in many key submarkets.                                                                                                                                          

Internal Operating Strategy

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



| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | stabilizing occupancy throughout our portfolio;                                                                    
|
| |  | capitalizing on economies of scale and
    concentration due to the size and geographic focus of our
    portfolio;
|
| |  | controlling operating expenses through active
    cost control management techniques and systems; and              
|
| |  | sourcing new and innovative revenue streams while
    providing high quality services to our tenants.              

Stabilizing Portfolio Occupancy

Various published reports noted that Southern
California achieved approximately 4.1 million square feet
of positive net absorption in 2003 with average rental rates
declining less than 2% during the year. We believe that we have
been successful in attracting and retaining a diverse tenant
base by actively managing our properties with an emphasis on
tenant satisfaction and retention. Our in-house leasing teams,
working with outside leasing brokers, continuously monitor each
market to identify strong prospective tenants who are in need of
new or additional space. We also strive to be responsive to the
needs of existing tenants through our on-site professional
management staff and by providing them with alternative space
within our portfolio to accommodate their changing space
requirements.

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Capitalizing on Economies of Scale and
Concentration

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

Cost Control Management Techniques and
Systems

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



| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | lighting retrofits;                                                                                                            
|
| |  | replacement of inefficient heating, ventilation
    and air conditioning systems;                                              
|
| |  | computer-driven energy management systems that
    monitor and react to the climatic requirements of individual
    properties;
|
| |  | automated security systems that allow us to
    provide security services to our tenants at a lower cost;                      
|
| |  | online bid purchasing of supplies, building
    materials and construction services;                                           
|
| |  | enhancement of billing systems, which enable us
    to more efficiently recover operating expenses from our
    tenants; and   
|
| |  | on-going preventive maintenance programs to
    operate our building systems efficiently, thereby reducing
    operating costs.

Sourcing Additional Revenue While Providing
High Quality Services to Tenants

We have invested in energy enhancement programs
within our portfolio with the aim of reducing energy
consumption, enhancing efficiency and lowering operating costs.
From 2000 through 2002, we were recognized by the Environmental
Protection Agency with the national Commercial Real Estate
Partner of the Year award for our performance in the Energy Star
Program. The competition involves top commercial real estate
landlords throughout the United States and rigorous
bench-marking procedures that track individual building energy
efficiency. Of the 673 total Energy Star designated office
buildings awarded nationally during that three year period, 309
were awarded in California; of those, we had 83 award-winning
buildings and were cited for having the most energy efficient
buildings within a single portfolio in the nation.

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

External Operating Strategy

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

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



| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | low vacancy rates;                                                                                                                                                                          
|
| |  | opportunities for rising rents due to employment
    growth and population movements;                                                                                                       
|
| |  | a minimal amount of developable land; and                                                                                                                                                   
|
| |  | significant barriers to entry due to constraints
    on new development, including strict entitlement processes,
    height and density restrictions or other governmental
    requirements.

Competition

We compete with other owners and developers of
office properties to attract tenants to our properties and to
obtain suitable land for development. Ownership of competing
properties is currently diversified among many different types,
from publicly traded companies and institutional investors,
including other REITs, to small enterprises and individual
owners. No one owner or group of owners currently dominate or
significantly influence the markets in which we operate. See
Risk Factors  Competition affects occupancy
levels, rents and the cost of land which could adversely affect
our revenues.

California
Electric Utility Deregulation

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

Approximately 27% of our properties and 21% of
the total rentable square footage of our portfolio are subject
to leases that require our tenants to pay all utility costs and
the remainder provide that our tenants will reimburse us for
utility costs in excess of a base year amount. See Risk
Factors  Rising energy costs and power outages in
California may have an adverse effect on our operations and
revenue.

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



| |          
| | ---------
| | Employees

As of December 31, 2003, we had
approximately 300 full-time employees that perform all of
our property management, construction management, accounting,
finance and acquisition and disposition activities and a
majority of our leasing transactions.



| |                      
| | ---------------------
| | Available Information

We file with the Securities and Exchange
Commission, or SEC, our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to those reports, proxy
statements and registration statements. The public may read and
copy any materials we file with the SEC at the SECs Public
Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may also obtain public
information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains an internet site at www.sec.gov that contains
reports, proxy and information regarding registrants, including
us, that file electronically. This annual report on
Form 10-K and other periodic and current reports, and
amendments to those reports, filed or furnished with the SEC, are

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also available, free of charge, by viewing the
SEC filings available in the Investor Information section of our
website at www.ardenrealty.com as soon as reasonably
practicable after we file or furnish them with the SEC.




|    |                   
|--- | ------------------
|(d) | FOREIGN OPERATIONS

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

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|        |           
|------- | ----------
|ITEM 2. | Properties



| |                   
| | ------------------
| | Existing Portfolio

Our portfolio consists of 130 primarily office
properties, containing approximately 18.9 million net
rentable square feet, including one development property with
approximately 283,000 net rentable square feet under
lease-up, that individually range from approximately 12,000 to
600,000 net rentable square feet. Of the 129 properties
currently in service in our portfolio, 127, or 98%, are office
properties. All of our properties are located in Southern
California and most are in suburban areas in close proximity to
main thoroughfares. We believe that our properties are located
within desirable and established business communities and are
well maintained. Our properties offer an array of amenities
including high-speed internet access, security, parking,
conference facilities, on-site management, food services and
health clubs.

Following is a summary of our property portfolio
as of December 31, 2003:

|                       |         |               |       |              |    |                 |     |                    |    |       |    |       |    |                    |     |       |    |     |           |           |            |            |     |    |    |     |        |         |         |         |    |    |    |     |  
|---------------------- | ------- | ------------- | ----- | ------------ | -- | --------------- | --- | ------------------ | -- | ----- | -- | ----- | -- | ------------------ | --- | ----- | -- | --- | --------- | --------- | ---------- | ---------- | --- | -- | -- | --- | ------ | ------- | ------- | ------- | -- | -- | -- | --- | -
|                       |         |               |       |              |    |                 |     |                    |    |       |    |       |    |                   
|                       |         |               |       |              |    |                 |     |                    |    |       |    |       |    | Property Operating
|                       |         |               |       |              |    |                 |     |                    |    |       |    |       |    | Results(2),(3)    
|                       |         |               |       |              |    |                 |     |                    |    |       |    |      
|                       |         |               |       |              |    | Approximate Net |     |                   
|                       |         | Number of     |       | Number of    |    | Rentable Square |     | For the Year Ended
|                       |         | Properties(1) |       | Buildings(1) |    | Feet(1)         |     | December 31, 2003 
|                       |         |               |       |              |    |                 |     |                   
|                       |         |               |       | % of         |    |                 |     | % of               |    |       |    | % of  |    |                    |     | % of 
|Location               |         | Total         |       | Total        |    | Total           |     | Total              |    | Total |    | Total |    | Total              |     | Total
|                       |         |               |       |              |    |                 |     |                    |    |       |    |       |    |                    |     |      
|                       |         |               |       |              |    |                 |     |                    |    |       |    |       |    |                   
|                       |         |               |       |              |    |                 |     |                    |    |       |    |       |    | ($000s and       
|                       |         |               |       |              |    |                 |     |                    |    |       |    |       |    | unaudited)        
|Los Angeles County     |         |               |       |              |    |                 |     |                    |    |       |    |       |    |                    |     |       |    |     |           |           |            |            |     |    |    |     |        |         |         |         |    |   
|                       | West(4) |               |       | 30           |    |                 |     | 23                 | %  |       |    | 32    |    |                    |     | 15    | %  |     |           | 4,882,004 |            |            |     | 26 | %  |     | $      | 104,331 |         |         |    | 37 | % 
|                       | North   |               |       | 27           |    |                 |     | 21                 | %  |       |    | 43    |    |                    |     | 20    | %  |     |           | 3,149,186 |            |            |     | 17 | %  |     |        | 45,590  |         |         |    | 16 | % 
|                       | South   |               |       | 16           |    |                 |     | 12                 | %  |       |    | 21    |    |                    |     | 10    | %  |     |           | 3,057,925 |            |            |     | 16 | %  |     |        | 39,457  |         |         |    | 14 | % 
|                       |         |               |       |              |    |                 |     |                    |    |       |    |       |    |                    |     |       |    |     |           |           |            |            |     |    |    |     |        |         |         |         |    |   
|                       |         | Subtotal      |       |              | 73 |                 |     |                    | 56 | %     |    |       | 96 |                    |     |       | 45 | %   |           |           | 11,089,115 |            |     |    | 59 | %   |        |         | 189,378 |         |    |    | 67 | %  
|Orange County          |         |               | 23    |              |    |                 | 18  | %                  |    |       | 56 |       |    |                    | 26  | %     |    |     | 3,676,119 |           |            |            | 20  | %  |    |     | 46,278 |         |         |         | 17 | % 
|San Diego County       |         |               | 26    |              |    |                 | 20  | %                  |    |       | 41 |       |    |                    | 19  | %     |    |     | 2,958,628 |           |            |            | 16  | %  |    |     | 35,506 |         |         |         | 13 | % 
|Ventura/ Kern Counties |         |               | 6     |              |    |                 | 5   | %                  |    |       | 17 |       |    |                    | 8   | %     |    |     | 778,363   |           |            |            | 4   | %  |    |     | 9,620  |         |         |         | 3  | % 
|Riverside County(5)    |         |               | 1     |              |    |                 | 1   | %                  |    |       | 4  |       |    |                    | 2   | %     |    |     | 133,481   |           |            |            | 1   | %  |    |     |       |         |         |         |   |   
|                       |         |               |       |              |    |                 |     |                    |    |       |    |       |    |                    |     |       |    |     |           |           |            |            |     |    |    |     |        |         |         |         |    |   
|                       |         |               | Total |              |    | 129             | (6) |                    |    | 100   | %  |       |    | 214                | (6) |       |    | 100 | %         |           |            | 18,635,706 | (6) |    |    | 100 | %      |         | $       | 280,782 |    |    |    | 100 | %
|                       |         |               |       |              |    |                 |     |                    |    |       |    |       |    |                    |     |       |    |     |           |           |            |            |     |    |    |     |        |         |         |         |    |   




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes two properties with approximately
    295,000 net rentable square feet held for disposition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(2) | Property Operating Results is a non-GAAP measure
    of performance. Property Operating Results is used by investors
    and our management to evaluate and compare the performance of
    our office properties and to determine trends in earnings and to
    compute the fair value of our properties as it is not affected
    by (1) the cost of funds of the property owner,
    (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, or
    (3) general and administrative expenses and other specific
    costs such as permanent impairments to carrying costs. The cost
    of funds is eliminated from net income because it is specific to
    the particular financing capabilities and constraints of the
    owner. The cost of funds is also eliminated because it is
    dependent on historical interest rates and other costs of
    capital as well as past decisions made by us regarding the
    appropriate mix of capital which may have changed or may change
    in the future. Depreciation and amortization expenses as well as
    gains or losses from the sale of operating real estate assets
    are eliminated because they may not accurately represent the
    actual change in value in our office properties that result from
    use of the properties or changes in market conditions. While
    certain aspects of real property do decline in value over time
    in a manner that is reasonably captured by depreciation and
    amortization, the value of the properties as a whole have
    historically increased or decreased in value as a result of
    changes in overall economic conditions instead of from actual
    use of the property or the passage of time. Gains and losses
    from the sale of real property vary from property to property
    and are affected by market conditions at the time of sale which
    will usually change from period to period. These gains and
    losses can create distortions when comparing one period to
    another or when comparing our operating results to the operating
    results of other real estate companies that have not made
    similarly timed purchases or sales. We believe that eliminating
    these costs from net income is useful because the resulting
    measure captures the actual revenue generated and actual
    expenses incurred in operating our office properties as well as
    trends in occupancy rates, rental rates and operating costs.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | However, the usefulness of Property Operating
    Results is limited because it 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. Property Operating Results may fail
    to capture significant trends in these components of net income
    which further limits its usefulness.
|
| | Property Operating Results is a measure of the
    operating performance of our office properties but does not
    measure our performance as a whole. Property Operating Results
    is therefore not a substitute for net income as computed in
    accordance with GAAP. This                                                                                                                                                                                                                                                                                                                                                                                                                                                              

7



---



##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | measure should be analyzed in conjunction with
    net income computed in accordance with GAAP and discussions
    elsewhere in Managements Discussion and Analysis of
    Financial Condition and Results of Operations regarding
    the components of net income that are eliminated in the
    calculation of Property Operating Results. 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 Property
    Operating Results to net income computed in accordance with GAAP
    (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                           |                                                   |                         |         |         |   |      |         |         |   |   |         |        |  
|-------------------------- | ------------------------------------------------- | ----------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------ | -
|                           |                                                   |                        
|                           |                                                   | Year Ended December 31,
|                           |                                                   |                        
|                           |                                                   | 2003                    |         | 2002    |   | 2001
|                           |                                                   |                         |         |         |   |     
|Net Income                 |                                                   | $                       | 58,509  |         |   | $    | 70,175  |         |   | $ | 97,759  |       
|Add:                       |                                                   |                         |         |         |   |      |         |         |   |   |         |       
|                           | General and administrative expense                |                         |         | 18,123  |   |      |         | 13,166  |   |   |         | 12,143 |  
|                           | Interest expense                                  |                         |         | 93,767  |   |      |         | 88,516  |   |   |         | 86,651 |  
|                           | Depreciation and amortization                     |                         |         | 118,114 |   |      |         | 106,182 |   |   |         | 98,136 |  
|                           | Minority interest                                 |                         |         | 5,536   |   |      |         | 5,999   |   |   |         | 7,304  |  
|Less:                      |                                                   |                         |         |         |   |      |         |         |   |   |         |       
|                           | Interest and other income                         |                         |         | (734    | ) |      |         | (2,542  | ) |   |         | (2,941 | )
|                           | Gain on sale of discontinued properties           |                         |         | (5,937  | ) |      |         |        |   |   |         |       |  
|                           | Discontinued operations, net of minority interest |                         |         | (6,596  | ) |      |         | (8,692  | ) |   |         | (7,850 | )
|                           | Gain on sale of operating properties              |                         |         |        |   |      |         | (1,967  | ) |   |         | (4,591 | )
|                           |                                                   |                         |         |         |   |      |         |         |   |   |         |       
|Property Operating Results |                                                   | $                       | 280,782 |         |   | $    | 270,837 |         |   | $ | 286,611 |       
|                           |                                                   |                         |         |         |   |      |         |         |   |   |         |       



|    |                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Excludes the operating results of one property
    sold during the first quarter of 2003, five properties sold
    during the second quarter of 2003, two properties sold during
    the fourth quarter of 2003 and two properties classified as held
    for disposition. The operating results for these properties are
    reported as part of discontinued operations in our consolidated
    statements of income.
|   
|(4) | Includes a retail property with approximately
    37,000 net rentable square feet.                                                                                                                                                                                                                                                                                                                                     
|   
|(5) | Includes a retail property with approximately
    133,000 net rentable square feet.                                                                                                                                                                                                                                                                                                                                    
|   
|(6) | Including one development property currently
    under lease-up, our total portfolio consists of 130 properties
    with 215 buildings and approximately 18.9 million rentable
    square feet.                                                                                                                                                                                                                        

The following is a summary of our occupancy and
in-place rents as of December 31, 2003:

|                        |       |          |      |         |      |                          |      |                 |      |   |       |       |  |   |       |       | 
|----------------------- | ----- | -------- | ---- | ------- | ---- | ------------------------ | ---- | --------------- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                        |       |          |      |         |      |                         
|                        |       |          |      |         |      | Annualized Base Rent Per
|                        |       |          |      |         |      | Leased Square Foot(1)   
|                        |       |          |      |         |      |                         
|                        |       | Percent  |      | Percent |      | Portfolio                |      | Full Service   
|Location                |       | Occupied |      | Leased  |      | Total                    |      | Gross Leases(2)
|                        |       |          |      |         |      |                          |      |                
|Los Angeles County      |       |          |      |         |      |                          |      |                 |      |   |       |       |  |   |       |      
|                        | West  |          |      | 92.3    | %(3) |                          |      | 94.4            | %(3) |   | $     | 27.96 |  |   | $     | 28.07 | 
|                        | North |          |      | 90.6    | %    |                          |      | 92.2            | %    |   |       | 21.63 |  |   |       | 22.47 | 
|                        | South |          |      | 86.6    | %    |                          |      | 87.7            | %    |   |       | 19.39 |  |   |       | 20.51 | 
|Orange County           |       |          | 93.2 | %       |      |                          | 94.4 | %               |      |   | 18.35 |       |  |   | 21.70 |      
|San Diego County        |       |          | 85.3 | %       |      |                          | 87.9 | %               |      |   | 19.27 |       |  |   | 23.52 |      
|Ventura/ Kern Counties  |       |          | 96.9 | %       |      |                          | 97.9 | %               |      |   | 18.77 |       |  |   | 19.26 |      
|Riverside County        |       |          | 99.4 | %       |      |                          | 99.4 | %               |      |   | 12.76 |       |  |   |      |      
|                        |       |          |      |         |      |                          |      |                 |      |   |       |       |  |   |       |      
|Total/ Weighted Average |       |          | 90.4 | %       |      |                          | 92.1 | %               |      | $ | 21.76 |       |  | $ | 23.78 |      
|                        |       |          |      |         |      |                          |      |                 |      |   |       |       |  |   |       |      




|    |                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on monthly contractual base rent under
    existing leases as of December 31, 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 35 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 as of February 4,
    2004 was 74% leased and 60% occupied.                                                                                                                                                                                                       



| |                       
| | ----------------------
| | Development Properties

In addition to the properties listed above, we
currently have one development property containing approximately
283,000 net rentable square feet under lease-up. This
property is located in the Howard Hughes

8



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##### Table of Contents



Center, a 70-acre commercial development located
two miles north of Los Angeles International Airport and
immediately adjacent to the San Diego Freeway (I-405),
with on- and off-ramps that directly serve the site.


The following table summarizes information about
this property as of December 31, 2003:

|                      |                   |        |  |                |  |                |   |           |  |            |   |               |  |                |  |           |   |           |  |              |  |  |  |              |  |  |   |       |  |  |  |     |   |  |  |     |  
|--------------------- | ----------------- | ------ |  | -------------- |  | -------------- | - | --------- |  | ---------- | - | ------------- |  | -------------- |  | --------- | - | --------- |  | ------------ |  |  |  | ------------ |  |  | - | ----- |  |  |  | --- | - |  |  | --- | -
|                      |                   |        |  |                |  |                |   |           |  |            |   |               |  | Estimated      |  |           |   |          
|                      |                   |        |  |                |  |                |   |           |  |            |   |               |  | Year 1         |  | Estimated |   | Estimated
|                      |                   |        |  |                |  |                |   |           |  |            |   |               |  | Stabilized     |  | Year 1    |   | Year 1   
|                      |                   |        |  |                |  |                |   | Percent   |  | Shell      |   | Estimated     |  | Cash Property  |  | Annual    |   | Annual   
|                      |                   | Square |  | Costs Incurred |  | Estimated      |   | Leased at |  | Completion |   | Stabilization |  | Operating      |  | Cash      |   | GAAP     
|Property              |                   | Feet   |  | To Date        |  | Total Cost(1)  |   | 2/4/04    |  | Date       |   | Date(2)       |  | Results(3)     |  | Yield     |   | Yield(4) 
|                      |                   |        |  |                |  |                |   |           |  |            |   |               |  |                |  |           |   |          
|                      |                   |        |  | (in thousands) |  | (in thousands) |   |           |  |            |   |               |  | (in thousands) |  |           |   |          
|Howard Hughes Center: |                   |        |  |                |  |                |   |           |  |            |   |               |  |                |  |           |   |           |  |              |  |  |  |              |  |  |   |       |  |  |  |     |   |  |  |    
|                      | 6100 Center Drive |        |  | 283,000        |  |                | $ | 75,627    |  |            | $ | 81,500        |  |                |  | 74        | % |           |  | 2nd Qtr 2002 |  |  |  | 2nd Qtr 2004 |  |  | $ | 6,450 |  |  |  | 7.9 | % |  |  | 8.9 | %
|                      |                   |        |  |                |  |                |   |           |  |            |   |               |  |                |  |           |   |           |  |              |  |  |  |              |  |  |   |       |  |  |  |     |   |  |  |    




|    |                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Estimated total cost includes purchase and
    closing costs, capital expenditures, tenant improvements,
    leasing commissions and carrying costs during development, as
    well as an allocation of land and master plan costs.                                                                                                                                                                                       
|   
|(2) | We consider a property to be stabilized when the
    property is at least 95% leased.                                                                                                                                                                                                                                                                                                                                     
|   
|(3) | We consider stabilized Cash Property Operating
    Results to be the rental revenues from the property less the
    operating expenses of the property on a cash basis before
    deducting financing costs (interest and principle payments)
    after the property is at least 95% leased. Property Operating
    Results are discussed in greater detail in Note (2) to the
    Existing Portfolio summary table above.
|   
|(4) | Estimated Year 1 Annual GAAP Yield includes an
    adjustment for straight-line rents.                                                                                                                                                                                                                                                                                                                                    

In addition to the property above, we have
entitlements and preliminary architectural designs completed for
an additional 475,000 net rentable square feet. We also
have construction entitlements at the Howard Hughes Center for
up to 600 hotel rooms. We do not intend to commence construction
on any additional build-to-suit buildings or hotels at the
Howard Hughes Center until development plans and budgets are
finalized and build-to-suit tenant leases are signed with terms
allowing us to achieve yields commensurate with each
projects development risk.

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

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



| |             
| | ------------
| | Dispositions

The following table summarizes our disposition
activity during 2003:

|                             |  |                |  |                     |  |                   |  |          |        |        |  |             |         |  |  |   |        | 
|---------------------------- |  | -------------- |  | ------------------- |  | ----------------- |  | -------- | ------ | ------ |  | ----------- | ------- |  |  | - | ------ | 
|                             |  |                |  |                     |  |                   |  | Property |        | Square |  | Gross Sales
|Property                     |  | County         |  | Submarket           |  | Date of Sale      |  | Type     |        | Feet   |  | Price      
|                             |  |                |  |                     |  |                   |  |          |        |        |  |            
|                             |  |                |  |                     |  |                   |  |          |        |        |  | ($000s)   
|9201 Sunset                  |  | Los Angeles    |  | West Hollywood      |  | March 11, 2003    |  |          | Office |        |  |             | 139,711 |  |  | $ | 32,350 | 
|Centrelake Plaza             |  | San Bernardino |  | Inland Empire West  |  | April 11, 2003    |  |          | Office |        |  |             | 110,763 |  |  |   | 14,395 | 
|Havengate Center             |  | San Bernardino |  | Inland Empire East  |  | April 11, 2003    |  |          | Office |        |  |             | 80,557  |  |  |   | 10,521 | 
|HDS Plaza                    |  | San Bernardino |  | Inland Empire East  |  | April 11, 2003    |  |          | Office |        |  |             | 104,178 |  |  |   | 12,371 | 
|Chicago Avenue Business Park |  | Riverside      |  | Inland Empire East  |  | April 11, 2003    |  |          | Office |        |  |             | 47,482  |  |  |   | 6,113  | 
|Lambert Plaza                |  | Orange         |  | North County        |  | May 22, 2003      |  |          | Office |        |  |             | 32,807  |  |  |   | 5,000  | 
|Pennsfield Plaza             |  | Los Angeles    |  | Simi/ Conejo Valley |  | November 5, 2003  |  |          | Office |        |  |             | 21,202  |  |  |   | 3,555  | 
|Lyons Plaza                  |  | Los Angeles    |  | Simi/ Conejo Valley |  | December 11, 2003 |  |          | Office |        |  |             | 61,203  |  |  |   | 9,200  | 
|                             |  |                |  |                     |  |                   |  |          |        |        |  |             |         |  |  |   |        | 
|                             |  |                |  |                     |  |                   |  |          |        |        |  |             | 597,903 |  |  | $ | 93,505 | 
|                             |  |                |  |                     |  |                   |  |          |        |        |  |             |         |  |  |   |        | 

9



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##### Table of Contents





| |             
| | ------------
| | Acquisitions

The following table summarizes our acquisition
activity during 2003:

|                             |  |        |           |           |  |                  |               |          |  |                   |  |          |        |  |  |  |         |  |  |   |        | 
|---------------------------- |  | ------ | --------- | --------- |  | ---------------- | ------------- | -------- |  | ----------------- |  | -------- | ------ |  |  |  | ------- |  |  | - | ------ | 
|                             |  |        |           |           |  |                  |               |          |  |                   |  | Gross   
|                             |  |        |           |           |  |                  |               | Property |  | Square            |  | Purchase
|Property                     |  | County |           | Submarket |  | Date of Purchase |               | Type     |  | Feet              |  | Price   
|                             |  |        |           |           |  |                  |               |          |  |                   |  |         
|                             |  |        |           |           |  |                  |               |          |  |                   |  | ($000s)
|Governor Executive Centre II |  |        | San Diego |           |  |                  | Governor Park |          |  | December 23, 2003 |  |          | Office |  |  |  | 101,433 |  |  | $ | 23,400 | 
|                             |  |        |           |           |  |                  |               |          |  |                   |  |          |        |  |  |  |         |  |  |   |        | 

10



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##### Table of Contents



The following table presents specific information
regarding our 129 stabilized properties as of December 31,
2003:

|                            |                                                   |                               |  |               |  |             |  |              |         |           | 
|--------------------------- | ------------------------------------------------- | ----------------------------- |  | ------------- |  | ----------- |  | ------------ | ------- | --------- | 
|                            |                                                   |                               |  |               |  | Year(s)     |  | Approximate 
|Property                    |                                                   |                               |  |               |  | Built/      |  | Net Rentable
|Name                        |                                                   | Submarket                     |  | Location      |  | Renovated   |  | Square Feet 
|                            |                                                   |                               |  |               |  |             |  |             
|Los Angeles County          |                                                   |                               |  |               |  |             |  |              |         |          
|Los Angeles West            |                                                   |                               |  |               |  |             |  |              |         |          
|9665 Wilshire               |                                                   | Beverly Hills/ Century City   |  | Beverly Hills |  | 1972/ 92-93 |  |              | 158,684 |          
|Beverly Atrium              |                                                   | Beverly Hills/ Century City   |  | Beverly Hills |  | 1989        |  |              | 59,650  |          
|8383 Wilshire               |                                                   | Beverly Hills/ Century City   |  | Beverly Hills |  | 1971/ 93    |  |              | 417,463 |          
|120 S. Spalding             |                                                   | Beverly Hills/ Century City   |  | Beverly Hills |  | 1984        |  |              | 60,656  |          
|9100 Wilshire Blvd          |                                                   | Beverly Hills/ Century City   |  | Beverly Hills |  | 1971/ 90    |  |              | 326,227 |          
|Century Park Center         |                                                   | Beverly Hills/ Century City   |  | Los Angeles   |  | 1972/ 94    |  |              | 243,404 |          
|10350 Santa Monica          |                                                   | Beverly Hills/ Century City   |  | Los Angeles   |  | 1979        |  |              | 42,292  |          
|10351 Santa Monica          |                                                   | Beverly Hills/ Century City   |  | Los Angeles   |  | 1984        |  |              | 96,251  |          
|Westwood Terrace            |                                                   | Westwood/ West Los Angeles    |  | Los Angeles   |  | 1988        |  |              | 135,943 |          
|1950 Sawtelle               |                                                   | Westwood/ West Los Angeles    |  | Los Angeles   |  | 1988/ 95    |  |              | 103,106 |          
|10780 Santa Monica          |                                                   | Westwood/ West Los Angeles    |  | Los Angeles   |  | 1984        |  |              | 92,486  |          
|Wilshire Pacific Plaza      |                                                   | Westwood/ West Los Angeles    |  | Los Angeles   |  | 1976/ 87    |  |              | 100,122 |          
|World Savings Center(2)     |                                                   | Westwood/ West Los Angeles    |  | Los Angeles   |  | 1983        |  |              | 469,115 |          
|11075 Santa Monica          |                                                   | Westwood/ West Los Angeles    |  | Los Angeles   |  | 1983        |  |              | 35,696  |          
|2730 Wilshire               |                                                   | Westwood/ West Los Angeles    |  | Santa Monica  |  | 1985        |  |              | 55,080  |          
|2800 28th Street            |                                                   | Westwood/ West Los Angeles    |  | Santa Monica  |  | 1979        |  |              | 103,506 |          
|1919 Santa Monica           |                                                   | Westwood/ West Los Angeles    |  | Santa Monica  |  | 1991        |  |              | 43,796  |          
|2001 Wilshire Blvd          |                                                   | Westwood/ West Los Angeles    |  | Santa Monica  |  | 1980        |  |              | 101,125 |          
|Westwood Center             |                                                   | Westwood/ West Los Angeles    |  | Santa Monica  |  | 1965/ 2000  |  |              | 313,000 |          
|400 Corporate Pointe        |                                                   | Marina Area/ Culver City/ LAX |  | Culver City   |  | 1987        |  |              | 164,598 |          
|600 Corporate Pointe        |                                                   | Marina Area/ Culver City/ LAX |  | Culver City   |  | 1989        |  |              | 273,339 |          
|Bristol Plaza               |                                                   | Marina Area/ Culver City/ LAX |  | Culver City   |  | 1982        |  |              | 84,014  |          
|Northpoint                  |                                                   | Marina Area/ Culver City/ LAX |  | Los Angeles   |  | 1991        |  |              | 104,235 |          
|Howard Hughes Spectrum Club |                                                   | Marina Area/ Culver City/ LAX |  | Los Angeles   |  | 1993        |  |              | 36,959  |          
|Howard Hughes Tower         |                                                   | Marina Area/ Culver City/ LAX |  | Los Angeles   |  | 1987        |  |              | 313,833 |          
|6060 Center Drive           |                                                   | Marina Area/ Culver City/ LAX |  | Los Angeles   |  | 2000        |  |              | 241,928 |          
|6080 Center Drive           |                                                   | Marina Area/ Culver City/ LAX |  | Los Angeles   |  | 2002        |  |              | 287,148 |          
|Univision-5999 Center Drive |                                                   | Marina Area/ Culver City/ LAX |  | Los Angeles   |  | 2001        |  |              | 161,650 |          
|6100 Wilshire               |                                                   | Park Mile/ West Hollywood     |  | Los Angeles   |  | 1986        |  |              | 202,704 |          
|145 South Fairfax           |                                                   | Park Mile/ West Hollywood     |  | Los Angeles   |  | 1984        |  |              | 53,994  |          
|                            |                                                   |                               |  |               |  |             |  |              |         |          
|                            | Subtotal/ Weighted Average  Los
    Angeles West |                               |  |               |  |             |  |              |         | 4,882,004 | 

[Additional columns below]

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

|                            |                                                   |               |     |         |   |            |       |           |   |              |        |         |  |  |     |     |  |   |       |       | 
|--------------------------- | ------------------------------------------------- | ------------- | --- | ------- | - | ---------- | ----- | --------- | - | ------------ | ------ | ------- |  |  | --- | --- |  | - | ----- | ----- | 
|                            |                                                   |               |     |         |   |            |       |           |   | Annualized  
|                            |                                                   | Percentage of |     |         |   |            |       |           |   | Base Rent   
|                            |                                                   | Total         |     |         |   |            |       |           |   | per Leased  
|                            |                                                   | Portfolio Net |     |         |   | Annualized |       |           |   | Net Rentable
|Property                    |                                                   | Rentable      |     | Percent |   | Base Rent  |       | Number of |   | Square      
|Name                        |                                                   | Square Feet   |     | Leased  |   | ($000s)    |       | Leases    |   | Feet(1)     
|                            |                                                   |               |     |         |   |            |       |           |   |             
|Los Angeles County          |                                                   |               |     |         |   |            |       |           |   |              |        |         |  |  |     |     |  |   |       |      
|Los Angeles West            |                                                   |               |     |         |   |            |       |           |   |              |        |         |  |  |     |     |  |   |       |      
|9665 Wilshire               |                                                   |               | 0.9 | %       |   |            | 100.0 | %         |   | $            | 6,338  |         |  |  | 23  |     |  | $ | 39.46 |      
|Beverly Atrium              |                                                   |               | 0.3 |         |   |            | 99.6  |           |   |              | 1,665  |         |  |  | 15  |     |  |   | 28.01 |      
|8383 Wilshire               |                                                   |               | 2.2 |         |   |            | 98.3  |           |   |              | 10,581 |         |  |  | 134 |     |  |   | 25.79 |      
|120 S. Spalding             |                                                   |               | 0.3 |         |   |            | 100.0 |           |   |              | 2,499  |         |  |  | 15  |     |  |   | 39.50 |      
|9100 Wilshire Blvd          |                                                   |               | 1.8 |         |   |            | 94.9  |           |   |              | 8,586  |         |  |  | 74  |     |  |   | 27.73 |      
|Century Park Center         |                                                   |               | 1.3 |         |   |            | 98.3  |           |   |              | 5,451  |         |  |  | 98  |     |  |   | 22.79 |      
|10350 Santa Monica          |                                                   |               | 0.2 |         |   |            | 89.7  |           |   |              | 883    |         |  |  | 16  |     |  |   | 23.28 |      
|10351 Santa Monica          |                                                   |               | 0.5 |         |   |            | 90.9  |           |   |              | 2,006  |         |  |  | 15  |     |  |   | 22.94 |      
|Westwood Terrace            |                                                   |               | 0.7 |         |   |            | 99.6  |           |   |              | 3,763  |         |  |  | 27  |     |  |   | 27.81 |      
|1950 Sawtelle               |                                                   |               | 0.6 |         |   |            | 86.4  |           |   |              | 2,127  |         |  |  | 36  |     |  |   | 23.88 |      
|10780 Santa Monica          |                                                   |               | 0.5 |         |   |            | 88.7  |           |   |              | 2,032  |         |  |  | 32  |     |  |   | 24.79 |      
|Wilshire Pacific Plaza      |                                                   |               | 0.5 |         |   |            | 96.5  |           |   |              | 2,392  |         |  |  | 41  |     |  |   | 24.76 |      
|World Savings Center(2)     |                                                   |               | 2.5 |         |   |            | 88.9  |           |   |              | 12,247 |         |  |  | 51  |     |  |   | 29.37 |      
|11075 Santa Monica          |                                                   |               | 0.2 |         |   |            | 100.0 |           |   |              | 844    |         |  |  | 8   |     |  |   | 23.66 |      
|2730 Wilshire               |                                                   |               | 0.3 |         |   |            | 99.9  |           |   |              | 1,502  |         |  |  | 31  |     |  |   | 27.30 |      
|2800 28th Street            |                                                   |               | 0.6 |         |   |            | 97.2  |           |   |              | 2,684  |         |  |  | 41  |     |  |   | 26.69 |      
|1919 Santa Monica           |                                                   |               | 0.2 |         |   |            | 95.1  |           |   |              | 1,164  |         |  |  | 5   |     |  |   | 27.93 |      
|2001 Wilshire Blvd          |                                                   |               | 0.5 |         |   |            | 95.1  |           |   |              | 2,499  |         |  |  | 21  |     |  |   | 25.99 |      
|Westwood Center             |                                                   |               | 1.7 |         |   |            | 99.5  |           |   |              | 11,226 |         |  |  | 45  |     |  |   | 36.06 |      
|400 Corporate Pointe        |                                                   |               | 0.9 |         |   |            | 67.3  |           |   |              | 2,024  |         |  |  | 16  |     |  |   | 18.26 |      
|600 Corporate Pointe        |                                                   |               | 1.5 |         |   |            | 91.5  |           |   |              | 5,465  |         |  |  | 23  |     |  |   | 21.86 |      
|Bristol Plaza               |                                                   |               | 0.4 |         |   |            | 93.8  |           |   |              | 1,652  |         |  |  | 28  |     |  |   | 20.95 |      
|Northpoint                  |                                                   |               | 0.6 |         |   |            | 62.5  |           |   |              | 1,955  |         |  |  | 5   |     |  |   | 30.00 |      
|Howard Hughes Spectrum Club |                                                   |               | 0.2 |         |   |            | 100.0 |           |   |              | 967    |         |  |  | 1   |     |  |   | 26.16 |      
|Howard Hughes Tower         |                                                   |               | 1.7 |         |   |            | 99.0  |           |   |              | 8,297  |         |  |  | 39  |     |  |   | 26.70 |      
|6060 Center Drive           |                                                   |               | 1.3 |         |   |            | 100.0 |           |   |              | 8,190  |         |  |  | 8   |     |  |   | 33.00 |      
|6080 Center Drive           |                                                   |               | 1.5 |         |   |            | 93.0  |           |   |              | 9,654  |         |  |  | 15  |     |  |   | 36.15 |      
|Univision-5999 Center Drive |                                                   |               | 0.9 |         |   |            | 100.0 |           |   |              | 4,247  |         |  |  | 2   |     |  |   | 25.53 |      
|6100 Wilshire               |                                                   |               | 1.1 |         |   |            | 94.6  |           |   |              | 4,736  |         |  |  | 54  |     |  |   | 24.71 |      
|145 South Fairfax           |                                                   |               | 0.3 |         |   |            | 97.7  |           |   |              | 1,152  |         |  |  | 14  |     |  |   | 21.84 |      
|                            |                                                   |               |     |         |   |            |       |           |   |              |        |         |  |  |     |     |  |   |       |      
|                            | Subtotal/ Weighted Average  Los
    Angeles West |               |     | 26.2    | % |            |       | 94.4      | % |              | $      | 128,828 |  |  |     | 933 |  |   | $     | 27.96 | 

11



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##### Table of Contents



|                                 |                                                    |                                      |  |                 |  |               |  |              |         |           | 
|-------------------------------- | -------------------------------------------------- | ------------------------------------ |  | --------------- |  | ------------- |  | ------------ | ------- | --------- | 
|                                 |                                                    |                                      |  |                 |  | Year(s)       |  | Approximate 
|Property                         |                                                    |                                      |  |                 |  | Built/        |  | Net Rentable
|Name                             |                                                    | Submarket                            |  | Location        |  | Renovated     |  | Square Feet 
|                                 |                                                    |                                      |  |                 |  |               |  |             
|Los Angeles North                |                                                    |                                      |  |                 |  |               |  |              |         |          
|Calabasas Commerce Center        |                                                    | Simi/ Conejo Valley                  |  | Calabasas       |  | 1990          |  |              | 126,771 |          
|Calabasas Tech                   |                                                    | Simi/ Conejo Valley                  |  | Calabasas       |  | 1990/ 2001    |  |              | 273,526 |          
|Conejo Business Center           |                                                    | Simi/ Conejo Valley                  |  | Thousand Oaks   |  | 1991          |  |              | 69,017  |          
|Marin Corporate Center           |                                                    | Simi/ Conejo Valley                  |  | Thousand Oaks   |  | 1986          |  |              | 51,360  |          
|Hillside Corporate Center        |                                                    | Simi/ Conejo Valley                  |  | Westlake        |  | 1998          |  |              | 59,876  |          
|Westlake  5601 Lindero          |                                                    | Simi/ Conejo Valley                  |  | Westlake        |  | 1989          |  |              | 105,830 |          
|Westlake Gardens                 |                                                    | Simi/ Conejo Valley                  |  | Westlake        |  | 1998          |  |              | 49,639  |          
|Westlake Gardens II              |                                                    | Simi/ Conejo Valley                  |  | Westlake        |  | 1999          |  |              | 48,874  |          
|Woodland Hills                   |                                                    | West San Fernando Valley             |  | Woodland Hills  |  | 1972/ 95      |  |              | 224,955 |          
|Los Angeles Corporate Center     |                                                    | San Gabriel Valley                   |  | Monterey Park   |  | 1984/ 86      |  |              | 389,293 |          
|Clarendon Crest                  |                                                    | West San Fernando Valley             |  | Woodland Hills  |  | 1990          |  |              | 43,063  |          
|Tourney Pointe                   |                                                    | Santa Clarita Valley                 |  | Santa Clarita   |  | 1985/ 98-2000 |  |              | 219,991 |          
|16000 Ventura                    |                                                    | Central San Fernando Valley          |  | Encino          |  | 1980/ 96      |  |              | 174,841 |          
|15250 Ventura                    |                                                    | Central San Fernando Valley          |  | Sherman Oaks    |  | 1970/ 90-91   |  |              | 110,641 |          
|Noble Professional Center        |                                                    | Central San Fernando Valley          |  | Sherman Oaks    |  | 1985/ 93      |  |              | 51,828  |          
|Sunset Pointe Plaza              |                                                    | Valencia                             |  | Newhall         |  | 1988          |  |              | 58,105  |          
|303 Glenoaks                     |                                                    | East San Fernando Valley/ Tri-Cities |  | Burbank         |  | 1983/ 96      |  |              | 175,289 |          
|601 S. Glenoaks                  |                                                    | East San Fernando Valley/ Tri-Cities |  | Burbank         |  | 1990          |  |              | 72,524  |          
|Burbank Executive Plaza          |                                                    | East San Fernando Valley/ Tri-Cities |  | Burbank         |  | 1983          |  |              | 60,395  |          
|333 N Glenoaks                   |                                                    | East San Fernando Valley/ Tri-Cities |  | Burbank         |  | 1978          |  |              | 81,243  |          
|425 West Broadway                |                                                    | East San Fernando Valley/ Tri-Cities |  | Glendale        |  | 1984          |  |              | 71,589  |          
|Glendale Corporate Center        |                                                    | East San Fernando Valley/ Tri-Cities |  | Glendale        |  | 1985          |  |              | 108,209 |          
|70 South Lake                    |                                                    | East San Fernando Valley/ Tri-Cities |  | Pasadena        |  | 1982/ 94      |  |              | 100,133 |          
|150 East Colorado Boulevard      |                                                    | East San Fernando Valley/ Tri-Cities |  | Pasadena        |  | 1979/ 97      |  |              | 61,168  |          
|299 N. Euclid                    |                                                    | East San Fernando Valley/ Tri-Cities |  | Pasadena        |  | 1983          |  |              | 73,522  |          
|5161 Lankershim                  |                                                    | East San Fernando Valley/ Tri-Cities |  | North Hollywood |  | 1985/ 97      |  |              | 178,317 |          
|535 N. Brand Blvd                |                                                    | East San Fernando Valley/ Tri-Cities |  | North Hollywood |  | 1973/ 92/ 99  |  |              | 109,187 |          
|                                 |                                                    |                                      |  |                 |  |               |  |              |         |          
|                                 | Subtotal/ Weighted Average  Los
    Angeles North |                                      |  |                 |  |               |  |              |         | 3,149,186 | 
|Los Angeles South                |                                                    |                                      |  |                 |  |               |  |              |         |          
|Long Beach Airport Bldg D(2)     |                                                    | Long Beach                           |  | Long Beach      |  | 1987/ 95      |  |              | 121,610 |          
|Long Beach Airport Bldg F & G(2) |                                                    | Long Beach                           |  | Long Beach      |  | 1987/ 95      |  |              | 150,403 |          
|5000 East Spring(2)              |                                                    | Long Beach                           |  | Long Beach      |  | 1989/ 95      |  |              | 163,358 |          
|100 Broadway                     |                                                    | Long Beach                           |  | Long Beach      |  | 1987/ 96      |  |              | 191,727 |          
|1501 Hughes Way                  |                                                    | Long Beach                           |  | Long Beach      |  | 1983/ 97      |  |              | 77,060  |          
|3901 Via Oro                     |                                                    | Long Beach                           |  | Long Beach      |  | 1986/ 97      |  |              | 53,195  |          

[Additional columns below]

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

|                                 |                                                    |               |     |         |   |            |       |           |   |              |       |        |  |  |    |     |  |   |       |       | 
|-------------------------------- | -------------------------------------------------- | ------------- | --- | ------- | - | ---------- | ----- | --------- | - | ------------ | ----- | ------ |  |  | -- | --- |  | - | ----- | ----- | 
|                                 |                                                    |               |     |         |   |            |       |           |   | Annualized  
|                                 |                                                    | Percentage of |     |         |   |            |       |           |   | Base Rent   
|                                 |                                                    | Total         |     |         |   |            |       |           |   | per Leased  
|                                 |                                                    | Portfolio Net |     |         |   | Annualized |       |           |   | Net Rentable
|Property                         |                                                    | Rentable      |     | Percent |   | Base Rent  |       | Number of |   | Square      
|Name                             |                                                    | Square Feet   |     | Leased  |   | ($000s)    |       | Leases    |   | Feet(1)     
|                                 |                                                    |               |     |         |   |            |       |           |   |             
|Los Angeles North                |                                                    |               |     |         |   |            |       |           |   |              |       |        |  |  |    |     |  |   |       |      
|Calabasas Commerce Center        |                                                    |               | 0.7 | %       |   |            | 96.7  | %         |   | $            | 1,932 |        |  |  | 11 |     |  | $ | 15.76 |      
|Calabasas Tech                   |                                                    |               | 1.5 |         |   |            | 91.2  |           |   |              | 4,487 |        |  |  | 14 |     |  |   | 17.99 |      
|Conejo Business Center           |                                                    |               | 0.4 |         |   |            | 90.7  |           |   |              | 1,302 |        |  |  | 28 |     |  |   | 20.80 |      
|Marin Corporate Center           |                                                    |               | 0.3 |         |   |            | 90.6  |           |   |              | 1,053 |        |  |  | 29 |     |  |   | 22.63 |      
|Hillside Corporate Center        |                                                    |               | 0.3 |         |   |            | 87.2  |           |   |              | 1,324 |        |  |  | 10 |     |  |   | 25.35 |      
|Westlake  5601 Lindero          |                                                    |               | 0.6 |         |   |            | 95.6  |           |   |              | 1,870 |        |  |  | 5  |     |  |   | 18.49 |      
|Westlake Gardens                 |                                                    |               | 0.3 |         |   |            | 80.8  |           |   |              | 1,079 |        |  |  | 15 |     |  |   | 26.89 |      
|Westlake Gardens II              |                                                    |               | 0.3 |         |   |            | 100.0 |           |   |              | 1,290 |        |  |  | 4  |     |  |   | 26.40 |      
|Woodland Hills                   |                                                    |               | 1.2 |         |   |            | 84.5  |           |   |              | 4,414 |        |  |  | 67 |     |  |   | 23.21 |      
|Los Angeles Corporate Center     |                                                    |               | 2.1 |         |   |            | 100.0 |           |   |              | 8,662 |        |  |  | 47 |     |  |   | 22.20 |      
|Clarendon Crest                  |                                                    |               | 0.2 |         |   |            | 97.9  |           |   |              | 878   |        |  |  | 18 |     |  |   | 20.82 |      
|Tourney Pointe                   |                                                    |               | 1.2 |         |   |            | 85.0  |           |   |              | 3,842 |        |  |  | 34 |     |  |   | 20.53 |      
|16000 Ventura                    |                                                    |               | 0.9 |         |   |            | 96.8  |           |   |              | 3,706 |        |  |  | 47 |     |  |   | 21.91 |      
|15250 Ventura                    |                                                    |               | 0.6 |         |   |            | 86.9  |           |   |              | 2,242 |        |  |  | 36 |     |  |   | 23.32 |      
|Noble Professional Center        |                                                    |               | 0.3 |         |   |            | 100.0 |           |   |              | 1,175 |        |  |  | 19 |     |  |   | 22.49 |      
|Sunset Pointe Plaza              |                                                    |               | 0.3 |         |   |            | 99.7  |           |   |              | 1,493 |        |  |  | 28 |     |  |   | 25.78 |      
|303 Glenoaks                     |                                                    |               | 0.9 |         |   |            | 95.0  |           |   |              | 3,725 |        |  |  | 30 |     |  |   | 22.36 |      
|                                
|601 S. Glenoaks                  |                                                    |               | 0.4 |         |   |            | 74.6  |           |   |              | 1,107 |        |  |  | 16 |     |  |   | 20.48 |      
|                                
|Burbank Executive Plaza          |                                                    |               | 0.3 |         |   |            | 93.4  |           |   |              | 1,308 |        |  |  | 16 |     |  |   | 23.19 |      
|333 N Glenoaks                   |                                                    |               | 0.4 |         |   |            | 80.1  |           |   |              | 1,322 |        |  |  | 12 |     |  |   | 20.32 |      
|                                
|425 West Broadway                |                                                    |               | 0.4 |         |   |            | 100.0 |           |   |              | 1,543 |        |  |  | 15 |     |  |   | 21.49 |      
|                                
|Glendale Corporate Center        |                                                    |               | 0.6 |         |   |            | 82.1  |           |   |              | 1,823 |        |  |  | 20 |     |  |   | 20.51 |      
|70 South Lake                    |                                                    |               | 0.5 |         |   |            | 100.0 |           |   |              | 2,574 |        |  |  | 19 |     |  |   | 25.54 |      
|                                
|150 East Colorado Boulevard      |                                                    |               | 0.3 |         |   |            | 100.0 |           |   |              | 1,396 |        |  |  | 20 |     |  |   | 22.81 |      
|299 N. Euclid                    |                                                    |               | 0.4 |         |   |            | 100.0 |           |   |              | 1,730 |        |  |  | 4  |     |  |   | 23.16 |      
|                                
|5161 Lankershim                  |                                                    |               | 0.9 |         |   |            | 84.3  |           |   |              | 3,189 |        |  |  | 7  |     |  |   | 21.22 |      
|                                
|535 N. Brand Blvd                |                                                    |               | 0.6 |         |   |            | 96.9  |           |   |              | 2,353 |        |  |  | 43 |     |  |   | 22.24 |      
|                                 |                                                    |               |     |         |   |            |       |           |   |              |       |        |  |  |    |     |  |   |       |      
|                                 | Subtotal/ Weighted Average  Los
    Angeles North |               |     | 16.9    | % |            |       | 92.2      | % |              | $     | 62,819 |  |  |    | 614 |  |   | $     | 21.63 | 
|Los Angeles South                |                                                    |               |     |         |   |            |       |           |   |              |       |        |  |  |    |     |  |   |       |      
|Long Beach Airport Bldg D(2)     |                                                    |               | 0.6 | %       |   |            | 100.0 | %         |   | $            | 1,211 |        |  |  | 1  |     |  | $ | 9.96  |      
|Long Beach Airport Bldg F & G(2) |                                                    |               | 0.8 |         |   |            | 100.0 |           |   |              | 1,354 |        |  |  | 1  |     |  |   | 9.00  |      
|5000 East Spring(2)              |                                                    |               | 0.9 |         |   |            | 79.0  |           |   |              | 3,178 |        |  |  | 36 |     |  |   | 24.61 |      
|100 Broadway                     |                                                    |               | 1.0 |         |   |            | 90.8  |           |   |              | 4,044 |        |  |  | 37 |     |  |   | 23.23 |      
|1501 Hughes Way                  |                                                    |               | 0.4 |         |   |            | 97.3  |           |   |              | 1,385 |        |  |  | 6  |     |  |   | 18.47 |      
|3901 Via Oro                     |                                                    |               | 0.3 |         |   |            | 90.3  |           |   |              | 826   |        |  |  | 5  |     |  |   | 17.18 |      

12



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##### Table of Contents



|                            |                                                    |                                  |  |                                   |  |                   |  |              |                 |           | 
|--------------------------- | -------------------------------------------------- | -------------------------------- |  | --------------------------------- |  | ----------------- |  | ------------ | --------------- | --------- | 
|                            |                                                    |                                  |  |                                   |  | Year(s)           |  | Approximate 
|Property                    |                                                    |                                  |  |                                   |  | Built/            |  | Net Rentable
|Name                        |                                                    | Submarket                        |  | Location                          |  | Renovated         |  | Square Feet 
|                            |                                                    |                                  |  |                                   |  |                   |  |             
|Oceangate Tower             |                                                    | Long Beach                       |  | Long Beach                        |  | 1971/ 93-94       |  |              | 210,907         |          
|Continental Grand Plaza     |                                                    | El Segundo                       |  | El Segundo                        |  | 1986              |  |              | 235,926         |          
|Grand Avenue Plaza (1970)   |                                                    | El Segundo                       |  | El Segundo                        |  | 1980              |  |              | 81,448          |          
|5200 West Century           |                                                    | Marina Area/ Culver City/ LAX    |  | Culver City                       |  | 1982/ 98-99       |  |              | 310,910         |          
|Skyview Center              |                                                    | Marina Area/ Culver City/ LAX    |  | Los Angeles                       |  | 1981/ 87/ 95      |  |              | 391,675         |          
|South Bay Centre            |                                                    | Torrance                         |  | Gardena                           |  | 1984              |  |              | 202,830         |          
|Pacific Gateway             |                                                    | Torrance                         |  | Torrance                          |  | 1982/ 90          |  |              | 223,731         |          
|Mariner Court               |                                                    | Torrance                         |  | Torrance                          |  | 1989              |  |              | 105,436         |          
|South Bay Tech              |                                                    | Torrance                         |  | Torrance                          |  | 1984              |  |              | 104,815         |          
|Gateway Towers              |                                                    | Torrance                         |  | Torrance                          |  | 1984/ 86          |  |              | 432,894         |          
|                            |                                                    |                                  |  |                                   |  |                   |  |              |                 |          
|                            | Subtotal/ Weighted Average  Los
    Angeles South |                                  |  |                                   |  |                   |  |              |                 | 3,057,925 | 
|Orange County               |                                                    | San Gabriel Valley               |  | Whittier                          |  | 1982              |  |              | 135,415         |          
|Whittier                    |                                                    | San Gabriel Valley               |  | Diamond Bar                       |  | 1988              |  |              | 84,081          |          
|1370 Valley Vista           |                                                    | West County                      |  | Huntington Beach                  |  | 1985              |  |              | 49,355          |          
|5832 Bolsa                  |                                                    |                                  |  |                                   |  |                   |  |              |                 |          
|Huntington Beach Plaza      |                                                    | West County West County          |  | Huntington Beach Huntington Beach |  | 1984/ 96 1987/ 97 |  |              | 52,186 27,731   |          
|5702 Bolsa                  |                                                    | West County                      |  | Huntington Beach                  |  | 1987              |  |              | 11,968          |          
|5672 Bolsa                  |                                                    | West County                      |  | Huntington Beach                  |  | 1987              |  |              | 21,568          |          
|5632 Bolsa                  |                                                    |                                  |  |                                   |  |                   |  |              |                 |          
|Huntington Commerce Center  |                                                    | West County West County          |  | Huntington Beach Fountain Valley  |  | 1987 1982         |  |              | 67,551 302,519  |          
|City Centre                 |                                                    |                                  |  |                                   |  |                   |  |              |                 |          
|Fountain Valley Plaza       |                                                    | West County Greater Airport Area |  | Fountain Valley Newport Beach     |  | 1982 1981/ 97     |  |              | 107,252 74,224  |          
|3300 Irvine Avenue          |                                                    | Greater Airport Area             |  | Irvine                            |  | 1980/ 88          |  |              | 115,061         |          
|1821 Dyer                   |                                                    |                                  |  |                                   |  |                   |  |              |                 |          
|Von Karman Corporate Center |                                                    | Greater Airport Area Long Beach  |  | Irvine Norwalk                    |  | 1981/ 84 1978/ 94 |  |              | 451,477 122,175 |          
|Norwalk                     |                                                    | Mid-Cities                       |  | Artesia                           |  | 1986/ 97          |  |              | 93,277          |          
|91 Freeway Center           |                                                    | Greater Airport Area             |  | Costa Mesa                        |  | 1979/ 97          |  |              | 60,605          |          
|1503 South Coast            |                                                    | Tri-Freeway Area                 |  | Anaheim                           |  | 1986/ 91          |  |              | 175,391         |          
|222 South Harbor(2)         |                                                    |                                  |  |                                   |  |                   |  |              |                 |          
|Crown Cabot Financial       |                                                    | South County Tri-Freeway Area    |  | Laguna Niguel Orange              |  | 1989 1985/ 97     |  |              | 172,900 139,806 |          
|625 The City                |                                                    |                                  |  |                                   |  |                   |  |              |                 |          
|Orange Financial Center     |                                                    | Central County                   |  | Orange                            |  | 1985/ 95          |  |              | 305,439         |          

[Additional columns below]

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

|                            |                                                    |               |         |         |   |            |            |           |   |              |             |        |  |  |       |     |  |   |             |       | 
|--------------------------- | -------------------------------------------------- | ------------- | ------- | ------- | - | ---------- | ---------- | --------- | - | ------------ | ----------- | ------ |  |  | ----- | --- |  | - | ----------- | ----- | 
|                            |                                                    |               |         |         |   |            |            |           |   | Annualized  
|                            |                                                    | Percentage of |         |         |   |            |            |           |   | Base Rent   
|                            |                                                    | Total         |         |         |   |            |            |           |   | per Leased  
|                            |                                                    | Portfolio Net |         |         |   | Annualized |            |           |   | Net Rentable
|Property                    |                                                    | Rentable      |         | Percent |   | Base Rent  |            | Number of |   | Square      
|Name                        |                                                    | Square Feet   |         | Leased  |   | ($000s)    |            | Leases    |   | Feet(1)     
|                            |                                                    |               |         |         |   |            |            |           |   |             
|Oceangate Tower             |                                                    |               | 1.1     |         |   |            | 91.8       |           |   |              | 3,478       |        |  |  | 41    |     |  |   | 17.96       |      
|Continental Grand Plaza     |                                                    |               | 1.3     |         |   |            | 87.6       |           |   |              | 5,211       |        |  |  | 32    |     |  |   | 25.22       |      
|Grand Avenue Plaza (1970)   |                                                    |               | 0.4     |         |   |            | 46.2       |           |   |              | 810         |        |  |  | 7     |     |  |   | 21.52       |      
|5200 West Century           |                                                    |               | 1.7     |         |   |            | 94.8       |           |   |              | 5,298       |        |  |  | 32    |     |  |   | 17.98       |      
|Skyview Center              |                                                    |               | 2.1     |         |   |            | 73.1       |           |   |              | 4,519       |        |  |  | 49    |     |  |   | 15.78       |      
|South Bay Centre            |                                                    |               | 1.1     |         |   |            | 98.7       |           |   |              | 3,933       |        |  |  | 34    |     |  |   | 19.64       |      
|Pacific Gateway             |                                                    |               | 1.2     |         |   |            | 93.1       |           |   |              | 4,383       |        |  |  | 39    |     |  |   | 21.04       |      
|Mariner Court               |                                                    |               | 0.6     |         |   |            | 94.9       |           |   |              | 2,020       |        |  |  | 36    |     |  |   | 20.18       |      
|South Bay Tech              |                                                    |               | 0.6     |         |   |            | 55.3       |           |   |              | 1,040       |        |  |  | 6     |     |  |   | 17.96       |      
|Gateway Towers              |                                                    |               | 2.3     |         |   |            | 91.6       |           |   |              | 9,271       |        |  |  | 70    |     |  |   | 23.38       |      
|                            |                                                    |               |         |         |   |            |            |           |   |              |             |        |  |  |       |     |  |   |             |      
|                            | Subtotal/ Weighted Average  Los
    Angeles South |               |         | 16.4    | % |            |            | 87.7      | % |              | $           | 51,961 |  |  |       | 432 |  |   | $           | 19.39 | 
|Orange County               |                                                    |               | 0.7     | %       |   |            | 100.0      | %         |   | $            | 3,012       |        |  |  | 46    |     |  | $ | 22.19       |      
|Whittier                    |                                                    |               | 0.5     |         |   |            | 100.0      |           |   |              | 1,783       |        |  |  | 13    |     |  |   | 21.02       |      
|1370 Valley Vista           |                                                    |               | 0.3     |         |   |            | 100.0      |           |   |              | 799         |        |  |  | 1     |     |  |   | 16.20       |      
|5832 Bolsa                  |                                                    |               |         |         |   |            |            |           |   |              |             |        |  |  |       |     |  |   |             |      
|Huntington Beach Plaza      |                                                    |               | 0.3 0.1 |         |   |            | 81.6 100.0 |           |   |              | 739 221     |        |  |  | 17 2  |     |  |   | 17.35 7.96  |      
|5702 Bolsa                  |                                                    |               | 0.1     |         |   |            | 100.0      |           |   |              | 100         |        |  |  | 1     |     |  |   | 8.28        |      
|5672 Bolsa                  |                                                    |               | 0.1     |         |   |            | 100.0      |           |   |              | 179         |        |  |  | 1     |     |  |   | 8.28        |      
|5632 Bolsa                  |                                                    |               |         |         |   |            |            |           |   |              |             |        |  |  |       |     |  |   |             |      
|Huntington Commerce Center  |                                                    |               | 0.4 1.6 |         |   |            | 99.7 64.2  |           |   |              | 612 4,478   |        |  |  | 23 19 |     |  |   | 9.08 23.07  |      
|City Centre                 |                                                    |               |         |         |   |            |            |           |   |              |             |        |  |  |       |     |  |   |             |      
|Fountain Valley Plaza       |                                                    |               | 0.6 0.4 |         |   |            | 100.0 96.9 |           |   |              | 2,150 1,798 |        |  |  | 9 29  |     |  |   | 19.95 25.00 |      
|3300 Irvine Avenue          |                                                    |               | 0.6     |         |   |            | 100.0      |           |   |              | 1,549       |        |  |  | 4     |     |  |   | 12.14       |      
|1821 Dyer                   |                                                    |               |         |         |   |            |            |           |   |              |             |        |  |  |       |     |  |   |             |      
|Von Karman Corporate Center |                                                    |               | 2.4 0.7 |         |   |            | 96.1 97.3  |           |   |              | 9,221 2,241 |        |  |  | 32 16 |     |  |   | 21.25 18.85 |      
|Norwalk                     |                                                    |               | 0.5     |         |   |            | 94.9       |           |   |              | 1,753       |        |  |  | 37    |     |  |   | 19.81       |      
|91 Freeway Center           |                                                    |               | 0.3     |         |   |            | 77.4       |           |   |              | 884         |        |  |  | 21    |     |  |   | 18.85       |      
|1503 South Coast            |                                                    |               | 0.9     |         |   |            | 98.2       |           |   |              | 3,429       |        |  |  | 24    |     |  |   | 19.91       |      
|222 South Harbor(2)         |                                                    |               |         |         |   |            |            |           |   |              |             |        |  |  |       |     |  |   |             |      
|Crown Cabot Financial       |                                                    |               | 0.9 0.8 |         |   |            | 100.0 92.2 |           |   |              | 4,752 2,624 |        |  |  | 43 31 |     |  |   | 27.29 20.35 |      
|625 The City                |                                                    |               |         |         |   |            |            |           |   |              |             |        |  |  |       |     |  |   |             |      
|Orange Financial Center     |                                                    |               | 1.6     |         |   |            | 96.6       |           |   |              | 6,501       |        |  |  | 40    |     |  |   | 22.04       |      

13



---



##### Table of Contents



|                             |                                                   |                             |  |                   |  |              |  |              |         |           | 
|---------------------------- | ------------------------------------------------- | --------------------------- |  | ----------------- |  | ------------ |  | ------------ | ------- | --------- | 
|                             |                                                   |                             |  |                   |  | Year(s)      |  | Approximate 
|Property                     |                                                   |                             |  |                   |  | Built/       |  | Net Rentable
|Name                         |                                                   | Submarket                   |  | Location          |  | Renovated    |  | Square Feet 
|                             |                                                   |                             |  |                   |  |              |  |             
|Centerpointe La Palma        |                                                   | North County                |  | La Palma          |  | 1986/ 88/ 90 |  |              | 597,550 |          
|Savi Tech Center             |                                                   | North County                |  | Yorba Linda       |  | 1989         |  |              | 341,446 |          
|Yorba Linda Business Park    |                                                   | North County                |  | Yorba Linda       |  | 1988         |  |              | 167,142 |          
|                             |                                                   |                             |  |                   |  |              |  |              |         |          
|                             | Subtotal/ Weighted Average  Orange
    County    |                             |  |                   |  |              |  |              |         | 3,676,119 | 
|San Diego County             |                                                   |                             |  |                   |  |              |  |              |         |          
|701 B Street(2)              |                                                   | Downtown                    |  | San Diego         |  | 1982/ 96     |  |              | 540,413 |          
|Foremost Professional Plaza  |                                                   | I-15 Corridor               |  | San Diego         |  | 1992         |  |              | 60,534  |          
|Activity Business Center     |                                                   | I-15 Corridor               |  | San Diego         |  | 1987         |  |              | 167,045 |          
|Bernardo Regency             |                                                   | I-15 Corridor               |  | San Diego         |  | 1986         |  |              | 47,916  |          
|Carlsbad Corporate Center    |                                                   | North Coast                 |  | Carlsbad          |  | 1996         |  |              | 125,000 |          
|10180 Scripps Ranch          |                                                   | I-15 Corridor               |  | San Diego         |  | 1978/ 96     |  |              | 43,560  |          
|Cymer Technology Center      |                                                   | I-15 Corridor               |  | Rancho Bernardino |  | 1986         |  |              | 155,612 |          
|Via Frontera                 |                                                   | I-15 Corridor               |  | Rancho Bernardino |  | 1982/ 97     |  |              | 77,920  |          
|Poway Industrial             |                                                   | I-15 Corridor               |  | Poway             |  | 1991/ 96     |  |              | 112,000 |          
|Balboa Corporate Center      |                                                   | Mission Valley/ Kearny Mesa |  | San Diego         |  | 1990         |  |              | 69,890  |          
|Panorama Corporate Center    |                                                   | Mission Valley/ Kearny Mesa |  | San Diego         |  | 1991         |  |              | 133,149 |          
|Ruffin Corporate Center      |                                                   | Mission Valley/ Kearny Mesa |  | San Diego         |  | 1990         |  |              | 45,059  |          
|Skypark Office Plaza         |                                                   | Mission Valley/ Kearny Mesa |  | San Diego         |  | 1986         |  |              | 202,164 |          
|Governor Park Plaza          |                                                   | North City                  |  | San Diego         |  | 1986         |  |              | 104,065 |          
|Westridge                    |                                                   | North City                  |  | San Diego         |  | 1984/ 96     |  |              | 48,955  |          
|5120 Shoreham                |                                                   | North City                  |  | San Diego         |  | 1984         |  |              | 37,759  |          
|Morehouse Tech Center        |                                                   | North City                  |  | San Diego         |  | 1984         |  |              | 181,207 |          
|Torreyana Science Park       |                                                   | North City                  |  | La Jolla          |  | 1980/ 97     |  |              | 81,204  |          
|Waples Tech Center           |                                                   | North City                  |  | San Diego         |  | 1990         |  |              | 28,119  |          
|Genesee Executive Plaza      |                                                   | North City                  |  | San Diego         |  | 1984         |  |              | 155,820 |          
|10251 Vista Sorrento         |                                                   | North City                  |  | San Diego         |  | 1981/ 95     |  |              | 69,386  |          
|Carmel Valley Centre         |                                                   | Del Mar Heights             |  | San Diego         |  | 1987/ 89     |  |              | 107,197 |          
|Governor Executive Center    |                                                   | Governor Park               |  | San Diego         |  | 1988         |  |              | 52,195  |          
|Governor Executive Center II |                                                   | Governor Park               |  | San Diego         |  | 1989         |  |              | 101,433 |          
|Crossroads                   |                                                   | Mission Valley              |  | San Diego         |  | 1979         |  |              | 133,566 |          
|Carmel View Office Plaza     |                                                   | Rancho Bernardo/ Poway      |  | San Diego         |  | 1985         |  |              | 77,460  |          
|                             |                                                   |                             |  |                   |  |              |  |              |         |          
|                             | Subtotal/ Weighted Average 
    San Diego County |                             |  |                   |  |              |  |              |         | 2,958,628 | 

[Additional columns below]

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

|                             |                                                   |               |     |         |   |            |       |           |   |              |        |        |  |  |    |     |  |   |       |       | 
|---------------------------- | ------------------------------------------------- | ------------- | --- | ------- | - | ---------- | ----- | --------- | - | ------------ | ------ | ------ |  |  | -- | --- |  | - | ----- | ----- | 
|                             |                                                   |               |     |         |   |            |       |           |   | Annualized  
|                             |                                                   | Percentage of |     |         |   |            |       |           |   | Base Rent   
|                             |                                                   | Total         |     |         |   |            |       |           |   | per Leased  
|                             |                                                   | Portfolio Net |     |         |   | Annualized |       |           |   | Net Rentable
|Property                     |                                                   | Rentable      |     | Percent |   | Base Rent  |       | Number of |   | Square      
|Name                         |                                                   | Square Feet   |     | Leased  |   | ($000s)    |       | Leases    |   | Feet(1)     
|                             |                                                   |               |     |         |   |            |       |           |   |             
|Centerpointe La Palma        |                                                   |               | 3.2 |         |   |            | 94.1  |           |   |              | 10,310 |        |  |  | 93 |     |  |   | 18.33 |      
|Savi Tech Center             |                                                   |               | 1.8 |         |   |            | 100.0 |           |   |              | 3,074  |        |  |  | 4  |     |  |   | 9.00  |      
|Yorba Linda Business Park    |                                                   |               | 0.9 |         |   |            | 98.5  |           |   |              | 1,470  |        |  |  | 60 |     |  |   | 8.93  |      
|                             |                                                   |               |     |         |   |            |       |           |   |              |        |        |  |  |    |     |  |   |       |      
|                             | Subtotal/ Weighted Average  Orange
    County    |               |     | 19.7    | % |            |       | 94.4      | % |              | $      | 63,679 |  |  |    | 566 |  |   | $     | 18.35 | 
|San Diego County             |                                                   |               |     |         |   |            |       |           |   |              |        |        |  |  |    |     |  |   |       |      
|701 B Street(2)              |                                                   |               | 2.9 | %       |   |            | 84.9  | %         |   | $            | 10,563 |        |  |  | 70 |     |  | $ | 23.02 |      
|Foremost Professional Plaza  |                                                   |               | 0.3 |         |   |            | 98.7  |           |   |              | 1,472  |        |  |  | 36 |     |  |   | 24.64 |      
|Activity Business Center     |                                                   |               | 0.9 |         |   |            | 77.2  |           |   |              | 1,775  |        |  |  | 39 |     |  |   | 13.76 |      
|Bernardo Regency             |                                                   |               | 0.3 |         |   |            | 89.2  |           |   |              | 1,071  |        |  |  | 15 |     |  |   | 25.06 |      
|Carlsbad Corporate Center    |                                                   |               | 0.7 |         |   |            | 100.0 |           |   |              | 1,625  |        |  |  | 1  |     |  |   | 12.60 |      
|10180 Scripps Ranch          |                                                   |               | 0.2 |         |   |            | 100.0 |           |   |              | 463    |        |  |  | 1  |     |  |   | 10.63 |      
|Cymer Technology Center      |                                                   |               | 0.8 |         |   |            | 100.0 |           |   |              | 1,867  |        |  |  | 2  |     |  |   | 12.00 |      
|Via Frontera                 |                                                   |               | 0.4 |         |   |            | 100.0 |           |   |              | 855    |        |  |  | 6  |     |  |   | 10.84 |      
|Poway Industrial             |                                                   |               | 0.6 |         |   |            | 100.0 |           |   |              | 672    |        |  |  | 1  |     |  |   | 6.00  |      
|Balboa Corporate Center      |                                                   |               | 0.4 |         |   |            |      |           |   |              |       |        |  |  |   |     |  |   |      |      
|Panorama Corporate Center    |                                                   |               | 0.7 |         |   |            | 88.3  |           |   |              | 1,963  |        |  |  | 2  |     |  |   | 16.69 |      
|Ruffin Corporate Center      |                                                   |               | 0.2 |         |   |            | 100.0 |           |   |              | 351    |        |  |  | 1  |     |  |   | 7.80  |      
|Skypark Office Plaza         |                                                   |               | 1.1 |         |   |            | 75.9  |           |   |              | 2,364  |        |  |  | 20 |     |  |   | 15.40 |      
|Governor Park Plaza          |                                                   |               | 0.6 |         |   |            | 96.3  |           |   |              | 2,454  |        |  |  | 20 |     |  |   | 24.50 |      
|Westridge                    |                                                   |               | 0.3 |         |   |            | 100.0 |           |   |              | 780    |        |  |  | 4  |     |  |   | 15.92 |      
|5120 Shoreham                |                                                   |               | 0.2 |         |   |            | 100.0 |           |   |              | 826    |        |  |  | 7  |     |  |   | 21.79 |      
|Morehouse Tech Center        |                                                   |               | 1.0 |         |   |            | 100.0 |           |   |              | 3,171  |        |  |  | 8  |     |  |   | 17.46 |      
|Torreyana Science Park       |                                                   |               | 0.4 |         |   |            | 100.0 |           |   |              | 1,949  |        |  |  | 1  |     |  |   | 24.00 |      
|Waples Tech Center           |                                                   |               | 0.2 |         |   |            | 99.3  |           |   |              | 407    |        |  |  | 4  |     |  |   | 14.59 |      
|Genesee Executive Plaza      |                                                   |               | 0.8 |         |   |            | 88.2  |           |   |              | 3,378  |        |  |  | 23 |     |  |   | 24.57 |      
|10251 Vista Sorrento         |                                                   |               | 0.4 |         |   |            |      |           |   |              |       |        |  |  |   |     |  |   |      |      
|Carmel Valley Centre         |                                                   |               | 0.6 |         |   |            | 92.3  |           |   |              | 3,206  |        |  |  | 15 |     |  |   | 32.41 |      
|Governor Executive Center    |                                                   |               | 0.3 |         |   |            | 93.6  |           |   |              | 1,293  |        |  |  | 11 |     |  |   | 26.46 |      
|Governor Executive Center II |                                                   |               | 0.5 |         |   |            | 99.4  |           |   |              | 2,825  |        |  |  | 17 |     |  |   | 28.03 |      
|Crossroads                   |                                                   |               | 0.7 |         |   |            | 100.0 |           |   |              | 2,901  |        |  |  | 10 |     |  |   | 21.57 |      
|Carmel View Office Plaza     |                                                   |               | 0.4 |         |   |            | 100.0 |           |   |              | 1,901  |        |  |  | 15 |     |  |   | 24.50 |      
|                             |                                                   |               |     |         |   |            |       |           |   |              |        |        |  |  |    |     |  |   |       |      
|                             | Subtotal/ Weighted Average 
    San Diego County |               |     | 15.9    | % |            |       | 87.9      | % |              | $      | 50,132 |  |  |    | 329 |  |   | $     | 19.27 | 

14



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##### Table of Contents



|                            |                                                          |             |  |             |  |           |  |              |         |            | 
|--------------------------- | -------------------------------------------------------- | ----------- |  | ----------- |  | --------- |  | ------------ | ------- | ---------- | 
|                            |                                                          |             |  |             |  | Year(s)   |  | Approximate 
|Property                    |                                                          |             |  |             |  | Built/    |  | Net Rentable
|Name                        |                                                          | Submarket   |  | Location    |  | Renovated |  | Square Feet 
|                            |                                                          |             |  |             |  |           |  |             
|Ventura & Kern Counties     |                                                          |             |  |             |  |           |  |              |         |           
|Parkway Center I            |                                                          | Bakersfield |  | Bakersfield |  | 1992/95   |  |              | 61,333  |           
|4900 California             |                                                          | Bakersfield |  | Bakersfield |  | 1983      |  |              | 155,189 |           
|Center Promenade            |                                                          | West County |  | Ventura     |  | 1982      |  |              | 174,837 |           
|1000 Town Center            |                                                          | West County |  | Oxnard      |  | 1989      |  |              | 107,656 |           
|Solar Drive Business Center |                                                          | West County |  | Oxnard      |  | 1982      |  |              | 125,132 |           
|Camarillo Business Park     |                                                          | West County |  | Camarillo   |  | 1984/97   |  |              | 154,216 |           
|                            |                                                          |             |  |             |  |           |  |              |         |           
|                            | Subtotal/ Weighted Average 
    Ventura & Kern Counties |             |  |             |  |           |  |              |         | 778,363    | 
|Riverside County            |                                                          |             |  |             |  |           |  |              |         |           
|Tower Plaza Retail          |                                                          | Temecula    |  | Temecula    |  | 1970/97   |  |              | 133,481 |           
|                            |                                                          |             |  |             |  |           |  |              |         |           
|                            | Subtotal/ Weighted Average  Riverside
    County        |             |  |             |  |           |  |              |         | 133,481    | 
|                            |                                                          |             |  |             |  |           |  |              |         |           
|                            | Portfolio Total/
    Weighted Average                    |             |  |             |  |           |  |              |         | 18,635,706 | 
|                            |                                                          |             |  |             |  |           |  |              |         |           

[Additional columns below]

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

|                            |                                                          |               |     |         |   |            |       |           |   |              |       |         |  |  |    |       |  |   |       |       | 
|--------------------------- | -------------------------------------------------------- | ------------- | --- | ------- | - | ---------- | ----- | --------- | - | ------------ | ----- | ------- |  |  | -- | ----- |  | - | ----- | ----- | 
|                            |                                                          |               |     |         |   |            |       |           |   | Annualized  
|                            |                                                          | Percentage of |     |         |   |            |       |           |   | Base Rent   
|                            |                                                          | Total         |     |         |   |            |       |           |   | per Leased  
|                            |                                                          | Portfolio Net |     |         |   | Annualized |       |           |   | Net Rentable
|Property                    |                                                          | Rentable      |     | Percent |   | Base Rent  |       | Number of |   | Square      
|Name                        |                                                          | Square Feet   |     | Leased  |   | ($000s)    |       | Leases    |   | Feet(1)     
|                            |                                                          |               |     |         |   |            |       |           |   |             
|Ventura & Kern Counties     |                                                          |               |     |         |   |            |       |           |   |              |       |         |  |  |    |       |  |   |       |      
|Parkway Center I            |                                                          |               | 0.3 | %       |   |            | 95.6  | %         |   | $            | 1,070 |         |  |  | 13 |       |  | $ | 18.25 |      
|4900 California             |                                                          |               | 0.8 |         |   |            | 93.8  |           |   |              | 2,483 |         |  |  | 20 |       |  |   | 17.06 |      
|Center Promenade            |                                                          |               | 1.0 |         |   |            | 95.4  |           |   |              | 2,988 |         |  |  | 64 |       |  |   | 17.92 |      
|1000 Town Center            |                                                          |               | 0.6 |         |   |            | 100.0 |           |   |              | 2,293 |         |  |  | 11 |       |  |   | 21.23 |      
|Solar Drive Business Center |                                                          |               | 0.7 |         |   |            | 100.0 |           |   |              | 2,525 |         |  |  | 40 |       |  |   | 18.36 |      
|Camarillo Business Park     |                                                          |               | 0.8 |         |   |            | 94.6  |           |   |              | 2,945 |         |  |  | 28 |       |  |   | 20.20 |      
|                            |                                                          |               |     |         |   |            |       |           |   |              |       |         |  |  |    |       |  |   |       |      
|                            | Subtotal/ Weighted Average 
    Ventura & Kern Counties |               |     | 4.2     | % |            |       | 97.9      | % |              | $     | 14,304  |  |  |    | 176   |  |   | $     | 18.77 | 
|Riverside County            |                                                          |               |     |         |   |            |       |           |   |              |       |         |  |  |    |       |  |   |       |      
|Tower Plaza Retail          |                                                          |               | 0.7 | %       |   |            | 99.4  | %         |   | $            | 1,692 |         |  |  | 30 |       |  | $ | 12.76 |      
|                            |                                                          |               |     |         |   |            |       |           |   |              |       |         |  |  |    |       |  |   |       |      
|                            | Subtotal/ Weighted Average  Riverside
    County        |               |     | 0.7     | % |            |       | 99.4      | % |              | $     | 1,692   |  |  |    | 30    |  |   | $     | 12.76 | 
|                            |                                                          |               |     |         |   |            |       |           |   |              |       |         |  |  |    |       |  |   |       |      
|                            | Portfolio Total/
    Weighted Average                    |               |     | 100.0   | % |            |       | 92.1      | % |              | $     | 373,415 |  |  |    | 3,080 |  |   | $     | 21.76 | 
|                            |                                                          |               |     |         |   |            |       |           |   |              |       |         |  |  |    |       |  |   |       |      




|    |                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Calculated as monthly contractual base rent under
    existing leases as of December 31, 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) | We lease the land underlying these properties or
    their parking structures pursuant to long term ground leases.                                                                                                                                                                                                                                              

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##### Table of Contents



Tenant Information

As of December 31, 2003, we had
approximately 3,000 tenants, with no one tenant representing
more than 2.2% of the aggregate annualized base rent of our
properties, and only 4 tenants individually representing
more than 1.0% of our aggregate annualized base rent. Our
properties are leased to local, national and international
companies engaged in a variety of businesses including financial
services, entertainment, health care services, accounting, law,
education, publishing and local, state and federal government
entities.

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

The following table presents information as of
December 31, 2003 derived from our ten largest tenants
based on the percentage of aggregate portfolio annualized base
rent:

|                                  |                            |           |    |            |  |               |     |               |  |              |      |                |   |  |      |       |   |  |         |           |  |   |       |        | 
|--------------------------------- | -------------------------- | --------- | -- | ---------- |  | ------------- | --- | ------------- |  | ------------ | ---- | -------------- | - |  | ---- | ----- | - |  | ------- | --------- |  | - | ----- | ------ | 
|                                  |                            |           |    | Weighted   |  | Percentage of |     | Percentage of |  |              |      |               
|                                  |                            |           |    | Average    |  | Aggregate     |     | Aggregate     |  |              |      |               
|                                  |                            |           |    | Remaining  |  | Portfolio     |     | Portfolio     |  |              |      | Annualized    
|                                  |                            | Number of |    | Lease Term |  | Leased        |     | Annualized    |  | Net Rentable |      | Base Rent     
|Tenant                            |                            | Locations |    | in Months  |  | Square Feet   |     | Base Rent(1)  |  | Square Feet  |      | (in thousands)
|                                  |                            |           |    |            |  |               |     |               |  |              |      |               
|State of California               |                            |           | 25 |            |  |               | 48  |               |  |              | 2.25 | %              |   |  | 2.18 | %     |   |  | 386,808 |           |  | $ | 8,144 |       
|Vivendi Universal                 |                            |           | 2  |            |  |               | 76  |               |  |              | 1.35 |                |   |  | 2.09 |       |   |  | 231,681 |           |  |   | 7,803 |       
|University of Phoenix             |                            |           | 6  |            |  |               | 35  |               |  |              | 1.18 |                |   |  | 1.15 |       |   |  | 201,870 |           |  |   | 4,277 |       
|Univision Television Group        |                            |           | 1  |            |  |               | 214 |               |  |              | 0.97 |                |   |  | 1.14 |       |   |  | 166,363 |           |  |   | 4,246 |       
|Ceridian Corporation              |                            |           | 2  |            |  |               | 81  |               |  |              | 0.89 |                |   |  | 0.94 |       |   |  | 152,071 |           |  |   | 3,507 |       
|Atlantic Richfield                |                            |           | 1  |            |  |               | 32  |               |  |              | 0.79 |                |   |  | 0.77 |       |   |  | 135,609 |           |  |   | 2,887 |       
|Westfield Corporation             |                            |           | 1  |            |  |               | 92  |               |  |              | 0.61 |                |   |  | 0.75 |       |   |  | 104,874 |           |  |   | 2,802 |       
|State Compensation Insurance Fund |                            |           | 1  |            |  |               | 51  |               |  |              | 0.66 |                |   |  | 0.71 |       |   |  | 113,513 |           |  |   | 2,656 |       
|U.S. Government                   |                            |           | 15 |            |  |               | 30  |               |  |              | 0.66 |                |   |  | 0.70 |       |   |  | 112,945 |           |  |   | 2,618 |       
|Haight, Brown & Bonesteel, LLP    |                            |           | 1  |            |  |               | 91  |               |  |              | 0.36 |                |   |  | 0.69 |       |   |  | 61,399  |           |  |   | 2,579 |       
|                                  |                            |           |    |            |  |               |     |               |  |              |      |                |   |  |      |       |   |  |         |           |  |   |       |       
|                                  | Total/ Weighted Average(2) |           |    | 55         |  |               |     | 72            |  |              |      | 9.72           | % |  |      | 11.12 | % |  |         | 1,667,133 |  |   | $     | 41,519 | 
|                                  |                            |           |    |            |  |               |     |               |  |              |      |                |   |  |      |       |   |  |         |           |  |   |       |       




|    |                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Annualized base rent is calculated as monthly
    contractual base rent under existing leases as of
    December 31, 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.                                                                                                                                                                                                                                      

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##### Table of Contents



The following table presents the diversification
of the tenants occupying space in our portfolio by industry as
of December 31, 2003:

|                                                                             |                            |       |         |             |  |               |           |            |  |  |       |        |  
|---------------------------------------------------------------------------- | -------------------------- | ----- | ------- | ----------- |  | ------------- | --------- | ---------- |  |  | ----- | ------ | -
|                                                                             |                            |       |         |             |  | Percentage of
|                                                                             |                            |       |         |             |  | Total        
|                                                                             |                            | NAICS |         | Occupied    |  | Occupied     
|North American Industrial Classification System Description (NAICS)          |                            | Code  |         | Square Feet |  | Portfolio    
|                                                                             |                            |       |         |             |  |              
|Professional, Scientific, and Technical Services                             |                            |       | 541     |             |  |               | 4,496,237 |            |  |  | 26.71 | %     
|Finance and Insurance                                                        |                            |       | 521-525 |             |  |               | 2,675,992 |            |  |  | 15.89 |       
|Information                                                                  |                            |       | 511-519 |             |  |               | 1,957,019 |            |  |  | 11.62 |       
|Manufacturing                                                                |                            |       | 311-339 |             |  |               | 1,341,813 |            |  |  | 7.97  |       
|Health Care and Social Assistance                                            |                            |       | 621-624 |             |  |               | 1,057,784 |            |  |  | 6.28  |       
|Administrative and Support and Waste Management
    and Remediation Services |                            |       | 561-562 |             |  |               | 685,729   |            |  |  | 4.07  |       
|Public Administration                                                        |                            |       | 921-928 |             |  |               | 755,814   |            |  |  | 4.49  |       
|Educational Services                                                         |                            |       | 611     |             |  |               | 764,151   |            |  |  | 4.54  |       
|Real Estate, Rental and Leasing                                              |                            |       | 531-533 |             |  |               | 824,008   |            |  |  | 4.89  |       
|Wholesale Trade                                                              |                            |       | 423-425 |             |  |               | 547,385   |            |  |  | 3.25  |       
|Transportation and Warehousing                                               |                            |       | 481-493 |             |  |               | 396,205   |            |  |  | 2.35  |       
|Arts, Entertainment, and Recreation                                          |                            |       | 711-713 |             |  |               | 324,087   |            |  |  | 1.92  |       
|Construction                                                                 |                            |       | 236-238 |             |  |               | 255,239   |            |  |  | 1.52  |       
|Accommodation and Food Services                                              |                            |       | 721-722 |             |  |               | 194,866   |            |  |  | 1.16  |       
|Other Services (except Public Administration)                                |                            |       | 811-814 |             |  |               | 253,959   |            |  |  | 1.51  |       
|Retail Trade                                                                 |                            |       | 441-454 |             |  |               | 154,722   |            |  |  | 0.92  |       
|Mining                                                                       |                            |       | 211-213 |             |  |               | 54,399    |            |  |  | 0.32  |       
|Management of Companies and Enterprises                                      |                            |       | 551     |             |  |               | 21,970    |            |  |  | 0.13  |       
|Utilities                                                                    |                            |       | 221     |             |  |               | 8,975     |            |  |  | 0.05  |       
|Agriculture, Forestry, Fishing and Hunting                                   |                            |       | 111-115 |             |  |               | 6,065     |            |  |  | 0.04  |       
|Other  Uncategorized                                                        |                            |       |        |             |  |               | 61,515    |            |  |  | 0.37  |       
|                                                                             |                            |       |         |             |  |               |           |            |  |  |       |       
|                                                                             | Total Square Feet Occupied |       |         |             |  |               |           | 16,837,934 |  |  |       | 100.00 | %
|                                                                             |                            |       |         |             |  |               |           |            |  |  |       |       

Lease
Distribution

The following table presents information relating
to the distribution of the leases for our 129 stabilized
properties, based on leased net rentable square feet, as of
December 31, 2003:

|                        |                         |           |       |         |  |        |       |             |   |            |           |             |  |            |       |        |   |   |        |         |  |   |       |       |  |  |       |        |  
|----------------------- | ----------------------- | --------- | ----- | ------- |  | ------ | ----- | ----------- | - | ---------- | --------- | ----------- |  | ---------- | ----- | ------ | - | - | ------ | ------- |  | - | ----- | ----- |  |  | ----- | ------ | -
|                        |                         |           |       |         |  |        |       | Percent of  |   | Annualized |           |             |  | Percent of
|                        |                         |           |       |         |  | Total  |       | Aggregate   |   | Base Rent  |           | Avg. Base   |  | Aggregate 
|                        |                         |           |       | Percent |  | Leased |       | Portfolio   |   | of         |           | Rent per    |  | Portfolio 
|                        |                         | Number    |       | of All  |  | Square |       | Leased      |   | Leases(1)  |           | Leased      |  | Annualized
|Square Feet Under Lease |                         | of Leases |       | Leases  |  | Feet   |       | Square Feet |   | (000s)    |           | Square Foot |  | Base Rent 
|                        |                         |           |       |         |  |        |       |             |   |            |           |             |  |           
|2,500 and under         |                         |           | 1,549 |         |  |        | 50.29 | %           |   |            | 2,158,034 |             |  |            | 12.58 | %      |   | $ | 51,174 |         |  | $ | 23.71 |       |  |  | 12.67 | %     
|2,501  5,000           |                         |           | 702   |         |  |        | 22.79 |             |   |            | 2,434,315 |             |  |            | 14.19 |        |   |   | 59,871 |         |  |   | 24.59 |       |  |  | 14.83 |       
|5,001  7,500           |                         |           | 295   |         |  |        | 9.58  |             |   |            | 1,788,606 |             |  |            | 10.42 |        |   |   | 44,543 |         |  |   | 24.90 |       |  |  | 11.03 |       
|7,501  10,000          |                         |           | 173   |         |  |        | 5.62  |             |   |            | 1,509,474 |             |  |            | 8.80  |        |   |   | 36,786 |         |  |   | 24.37 |       |  |  | 9.11  |       
|10,001  20,000         |                         |           | 224   |         |  |        | 7.27  |             |   |            | 3,141,191 |             |  |            | 18.31 |        |   |   | 76,866 |         |  |   | 24.47 |       |  |  | 19.04 |       
|20,001  40,000         |                         |           | 81    |         |  |        | 2.63  |             |   |            | 2,248,167 |             |  |            | 13.10 |        |   |   | 52,550 |         |  |   | 23.37 |       |  |  | 13.02 |       
|40,001 and over         |                         |           | 56    |         |  |        | 1.82  |             |   |            | 3,877,858 |             |  |            | 22.60 |        |   |   | 81,971 |         |  |   | 21.14 |       |  |  | 20.30 |       
|                        |                         |           |       |         |  |        |       |             |   |            |           |             |  |            |       |        |   |   |        |         |  |   |       |       |  |  |       |       
|                        | Total/ Weighted Average |           |       | 3,080   |  |        |       | 100.00      | % |            |           | 17,157,645  |  |            |       | 100.00 | % |   | $      | 403,761 |  |   | $     | 23.53 |  |  |       | 100.00 | %
|                        |                         |           |       |         |  |        |       |             |   |            |           |             |  |            |       |        |   |   |        |         |  |   |       |       |  |  |       |       




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

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Lease
Expirations

The following table presents a summary schedule
of the total lease expirations for our 129 stabilized properties
for leases in place at December 31, 2003. This table
assumes that none of the tenants exercise renewal options or
termination rights, if any, at or prior to the scheduled
expirations:

|                         |                   |                         |     |            |       |               |           |              |            |            |       |              |        |   |        |        |         |   |       |       |       |  |       |       |        |  
|------------------------ | ----------------- | ----------------------- | --- | ---------- | ----- | ------------- | --------- | ------------ | ---------- | ---------- | ----- | ------------ | ------ | - | ------ | ------ | ------- | - | ----- | ----- | ----- |  | ----- | ----- | ------ | -
|                         |                   |                         |     |            |       |               |           |              |            | Average    |       |             
|                         |                   |                         |     |            |       |               |           |              |            | Annualized |       |             
|                         |                   |                         |     |            |       | Percentage of |           | Annualized   |            | Base Rent  |       | Percentage  
|                         |                   |                         |     | Square     |       | Aggregate     |           | Base Rent of |            | per Square |       | of Aggregate
|                         |                   | Number of               |     | Footage of |       | Portfolio     |           | Expiring     |            | Foot of    |       | Portfolio   
|                         |                   | Leases                  |     | Expiring   |       | Leased        |           | Leases(1)    |            | Expiring   |       | Annualized  
|Year of Lease Expiration |                   | Expiring                |     | Leases     |       | Square Feet   |           | ($000s)      |            | Leases     |       | Base Rent   
|                         |                   |                         |     |            |       |               |           |              |            |            |       |             
|Month-to-Month           |                   |                         | 115 |            |       |               | 387,672   |              |            |            | 2.26  | %            |        | $ | 7,345  |        |         | $ | 18.95 |       |       |  | 1.82  | %    
|Q1 2004                  |                   |                         | 177 |            |       |               | 777,830   |              |            |            | 4.53  |              |        |   | 15,363 |        |         |   | 19.75 |       |       |  | 3.81  |      
|Q2 2004                  |                   |                         | 164 |            |       |               | 536,229   |              |            |            | 3.13  |              |        |   | 11,929 |        |         |   | 22.25 |       |       |  | 2.95  |      
|Q3 2004                  |                   |                         | 183 |            |       |               | 875,113   |              |            |            | 5.10  |              |        |   | 19,425 |        |         |   | 22.20 |       |       |  | 4.81  |      
|Q4 2004                  |                   |                         | 178 |            |       |               | 968,647   |              |            |            | 5.64  |              |        |   | 18,987 |        |         |   | 19.60 |       |       |  | 4.70  |      
|                         |                   |                         |     |            |       |               |           |              |            |            |       |              |        |   |        |        |         |   |       |       |       |  |       |      
|                         | 2004 Sub-Total(2) |                         |     | 702        |       |               |           | 3,157,819    |            |            |       | 18.40        |        |   |        | 65,704 |         |   |       | 20.81 |       |  |       | 16.27 |       
|2005                     |                   |                         | 643 |            |       |               | 3,108,096 |              |            |            | 18.11 |              |        |   | 66,129 |        |         |   | 21.28 |       |       |  | 16.38 |      
|2006                     |                   |                         | 548 |            |       |               | 2,660,416 |              |            |            | 15.51 |              |        |   | 62,144 |        |         |   | 23.36 |       |       |  | 15.39 |      
|2007                     |                   |                         | 370 |            |       |               | 1,983,663 |              |            |            | 11.56 |              |        |   | 47,029 |        |         |   | 23.71 |       |       |  | 11.65 |      
|2008                     |                   |                         | 347 |            |       |               | 2,072,137 |              |            |            | 12.08 |              |        |   | 51,495 |        |         |   | 24.85 |       |       |  | 12.75 |      
|2009                     |                   |                         | 125 |            |       |               | 1,032,902 |              |            |            | 6.02  |              |        |   | 25,799 |        |         |   | 24.98 |       |       |  | 6.39  |      
|2010                     |                   |                         | 73  |            |       |               | 912,939   |              |            |            | 5.32  |              |        |   | 24,075 |        |         |   | 26.37 |       |       |  | 5.96  |      
|2011                     |                   |                         | 34  |            |       |               | 555,322   |              |            |            | 3.24  |              |        |   | 18,086 |        |         |   | 32.57 |       |       |  | 4.48  |      
|2012                     |                   |                         | 33  |            |       |               | 473,347   |              |            |            | 2.76  |              |        |   | 13,192 |        |         |   | 27.87 |       |       |  | 3.27  |      
|2013                     |                   |                         | 27  |            |       |               | 342,583   |              |            |            | 2.00  |              |        |   | 9,647  |        |         |   | 28.16 |       |       |  | 2.39  |      
|2014+                    |                   |                         | 63  |            |       |               | 470,749   |              |            |            | 2.74  |              |        |   | 13,116 |        |         |   | 27.86 |       |       |  | 3.25  |      
|                         |                   |                         |     |            |       |               |           |              |            |            |       |              |        |   |        |        |         |   |       |       |       |  |       |      
|                         |                   | Total/ Weighted Average |     |            | 3,080 |               |           |              | 17,157,645 |            |       |              | 100.00 | % |        | $      | 403,761 |   |       | $     | 23.53 |  |       |       | 100.00 | %
|                         |                   |                         |     |            |       |               |           |              |            |            |       |              |        |   |        |        |         |   |       |       |       |  |       |      




|    |                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Base rent is determined as of the date of lease
    expiration, including all fixed contractual base rent increases;
    increases tied to indices such as the Consumer Price Index are
    not included.
|   
|(2) | Excludes month-to-month leases.                                                                                                                                                                          






|        |                  
|------- | -----------------
|ITEM 3. | Legal Proceedings

We are presently subject to various lawsuits,
claims and proceedings arising in the ordinary course of
business none of which if determined unfavorably to us is
expected to have a material adverse effect on our cash flows,
financial condition or results of operations during the year
ended December 31, 2003.






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

No matters were submitted to a vote of our
stockholders during the fourth quarter of the year ended
December 31, 2003.




PART II






|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|ITEM 5. | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

Our common stock is traded on the New York
Stock Exchange, or NYSE, under the symbol ARI. On
March 11, 2004, the last reported sales price per share of
common stock on the NYSE was $31.82 and there

18



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##### Table of Contents



were approximately 192 registered holders of
record of our common stock. The table below sets forth the
quarterly high and low closing sales price per share of our
common stock as reported on the NYSE and the cash dividends per
share we declared with respect to each period.


|               |  |      |       |     |  |           |       |  |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | --------- | ----- |  |  | - | ----- | 
|               |  |      |       |     |  | Dividends
|               |  | High |       | Low |  | Declared 
|               |  |      |       |     |  |          
|2002           |  |      |       |     |  |           |       |  |  |   |       | 
|First Quarter  |  | $    | 28.75 |     |  | $         | 25.47 |  |  | $ | 0.505 | 
|Second Quarter |  | $    | 29.56 |     |  | $         | 26.04 |  |  | $ | 0.505 | 
|Third Quarter  |  | $    | 27.23 |     |  | $         | 22.22 |  |  | $ | 0.505 | 
|Fourth Quarter |  | $    | 22.99 |     |  | $         | 20.52 |  |  | $ | 0.505 | 
|2003           |  |      |       |     |  |           |       |  |  |   |       | 
|First Quarter  |  | $    | 23.69 |     |  | $         | 20.18 |  |  | $ | 0.505 | 
|Second Quarter |  | $    | 26.23 |     |  | $         | 22.68 |  |  | $ | 0.505 | 
|Third Quarter  |  | $    | 27.92 |     |  | $         | 26.15 |  |  | $ | 0.505 | 
|Fourth Quarter |  | $    | 30.34 |     |  | $         | 27.49 |  |  | $ | 0.505 | 

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

19



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|        |                        
|------- | -----------------------
|ITEM 6. | Selected Financial Data

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

|                                                                                              |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |      | 
|--------------------------------------------------------------------------------------------- | ----------------------------------- | -------------------------------------------------- | -------- | ---- |  | ---- | -------- | ---- |  | ---- | -------- | ---- |  | - | -------- | ---- |  | - | -------- | ---- | 
|                                                                                              |                                     |                                                   
|                                                                                              |                                     | Year Ended December 31,                           
|                                                                                              |                                     |                                                   
|                                                                                              |                                     | 2003                                               |          | 2002 |  | 2001 |          | 2000 |  | 1999
|                                                                                              |                                     |                                                    |          |      |  |      |          |      |  |     
|                                                                                              |                                     |                                                   
|                                                                                              |                                     | (in thousands, except ratio and per share amounts)
|Operating Data:                                                                               |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |     
|Revenues                                                                                      |                                     | $                                                  | 414,269  |      |  | $    | 397,029  |      |  | $    | 406,717  |      |  | $ | 374,821  |      |  | $ | 328,250  |     
|Property operating expenses                                                                   |                                     |                                                    | (132,753 | )    |  |      | (123,650 | )    |  |      | (117,165 | )    |  |   | (106,517 | )    |  |   | (97,158  | )   
|General and administrative expense                                                            |                                     |                                                    | (18,123  | )    |  |      | (13,166  | )    |  |      | (12,143  | )    |  |   | (9,336   | )    |  |   | (7,393   | )   
|Depreciation and amortization                                                                 |                                     |                                                    | (118,114 | )    |  |      | (106,182 | )    |  |      | (98,136  | )    |  |   | (83,244  | )    |  |   | (67,428  | )   
|Interest expense                                                                              |                                     |                                                    | (93,767  | )    |  |      | (88,516  | )    |  |      | (86,651  | )    |  |   | (79,211  | )    |  |   | (60,867  | )   
|                                                                                              |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |     
|Income from continuing operations before gain on
    sale of properties and minority interest |                                     |                                                    | 51,512   |      |  |      | 65,515   |      |  |      | 92,622   |      |  |   | 96,513   |      |  |   | 95,404   |     
|Gain on sale of operating properties                                                          |                                     |                                                    |         |      |  |      | 1,967    |      |  |      | 4,591    |      |  |   | 2,132    |      |  |   |         |     
|                                                                                              |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |     
|Income from continuing operations before minority
    interest                                |                                     |                                                    | 51,512   |      |  |      | 67,482   |      |  |      | 97,213   |      |  |   | 98,645   |      |  |   | 95,404   |     
|Minority interest                                                                             |                                     |                                                    | (5,536   | )    |  |      | (5,999   | )    |  |      | (7,304   | )    |  |   | (7,426   | )    |  |   | (5,041   | )   
|                                                                                              |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |     
|Income from continuing operations                                                             |                                     |                                                    | 45,976   |      |  |      | 61,483   |      |  |      | 89,909   |      |  |   | 91,219   |      |  |   | 90,363   |     
|Discontinued operations, net of minority interest                                             |                                     |                                                    | 6,596    |      |  |      | 8,692    |      |  |      | 7,850    |      |  |   | 5,491    |      |  |   | 6,263    |     
|Gain on sale of discontinued properties                                                       |                                     |                                                    | 5,937    |      |  |      |         |      |  |      |         |      |  |   |         |      |  |   |         |     
|                                                                                              |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |     
|Net income                                                                                    |                                     | $                                                  | 58,509   |      |  | $    | 70,175   |      |  | $    | 97,759   |      |  | $ | 96,710   |      |  | $ | 96,626   |     
|                                                                                              |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |     
|Basic net income per common share:                                                            |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |     
|                                                                                              | Income from continuing operations   |                                                    | $        | 0.72 |  |      | $        | 0.96 |  |      | $        | 1.41 |  |   | $        | 1.44 |  |   | $        | 1.43 | 
|                                                                                              | Income from discontinued operations |                                                    |          | 0.20 |  |      |          | 0.13 |  |      |          | 0.12 |  |   |          | 0.09 |  |   |          | 0.10 | 
|                                                                                              |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |     
|Net income per common share-basic                                                             |                                     | $                                                  | 0.92     |      |  | $    | 1.09     |      |  | $    | 1.53     |      |  | $ | 1.53     |      |  | $ | 1.53     |     
|                                                                                              |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |     
|Weighed average number of common shares-basic                                                 |                                     |                                                    | 63,553   |      |  |      | 64,151   |      |  |      | 63,754   |      |  |   | 63,408   |      |  |   | 63,106   |     
|                                                                                              |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |     
|Diluted net income per common share:                                                          |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |     
|                                                                                              | Income from continuing operations   |                                                    | $        | 0.72 |  |      | $        | 0.96 |  |      | $        | 1.41 |  |   | $        | 1.43 |  |   | $        | 1.43 | 
|                                                                                              | Income from discontinued operations |                                                    |          | 0.20 |  |      |          | 0.13 |  |      |          | 0.12 |  |   |          | 0.09 |  |   |          | 0.10 | 
|                                                                                              |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |     
|Net income per common share-diluted                                                           |                                     | $                                                  | 0.92     |      |  | $    | 1.09     |      |  | $    | 1.53     |      |  | $ | 1.52     |      |  | $ | 1.53     |     
|                                                                                              |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |     
|Weighed average number of common shares-diluted                                               |                                     | $                                                  | 63,815   |      |  | $    | 64,351   |      |  | $    | 64,014   |      |  | $ | 63,598   |      |  | $ | 63,072   |     
|                                                                                              |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |     
|Cash dividends declared per common share                                                      |                                     | $                                                  | 2.02     |      |  | $    | 2.02     |      |  | $    | 1.96     |      |  | $ | 1.86     |      |  | $ | 1.78     |     
|                                                                                              |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |     
|Other Data:                                                                                   |                                     |                                                    |          |      |  |      |          |      |  |      |          |      |  |   |          |      |  |   |          |     
|Cash provided by operating activities                                                         |                                     | $                                                  | 181,482  |      |  | $    | 199,922  |      |  | $    | 204,667  |      |  | $ | 192,152  |      |  | $ | 170,354  |     
|Cash used in investing activities                                                             |                                     |                                                    | (20,355  | )    |  |      | (213,002 | )    |  |      | (115,854 | )    |  |   | (216,024 | )    |  |   | (283,574 | )   
|Cash (used in) provided by financing activities                                               |                                     |                                                    | (160,483 | )    |  |      | (19,898  | )    |  |      | (57,204  | )    |  |   | 22,248   |      |  |   | 115,698  |     
|Funds from Operations(1)                                                                      |                                     |                                                    | 174,458  |      |  |      | 181,549  |      |  |      | 198,240  |      |  |   | 185,146  |      |  |   | 170,405  |     



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Selected financial data continues on next
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|                              |  |                         |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |           | 
|----------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- |  |  | - | --------- | 
|                              |  |                        
|                              |  | Year Ended December 31,
|                              |  |                        
|                              |  | 2003                    |           | 2002 |  | 2001 |           | 2000 |  | 1999
|                              |  |                         |           |      |  |      |           |      |  |     
|Balance Sheet Data:           |  |                         |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |           | 
|Net investment in real estate |  | $                       | 2,646,699 |      |  | $    | 2,741,624 |      |  | $    | 2,622,980 |  |  | $ | 2,603,566 |  |  | $ | 2,479,111 | 
|Total assets                  |  |                         | 2,741,433 |      |  |      | 2,832,409 |      |  |      | 2,761,443 |  |  |   | 2,705,597 |  |  |   | 2,570,458 | 
|Total indebtedness            |  |                         | 1,349,781 |      |  |      | 1,402,304 |      |  |      | 1,251,483 |  |  |   | 1,177,769 |  |  |   | 1,029,656 | 
|Other liabilities(2)          |  |                         | 76,638    |      |  |      | 76,350    |      |  |      | 62,685    |  |  |   | 56,885    |  |  |   | 50,555    | 
|Minority interests            |  |                         | 72,194    |      |  |      | 74,571    |      |  |      | 78,661    |  |  |   | 86,176    |  |  |   | 86,294    | 
|Total Stockholders Equity    |  |                         | 1,210,285 |      |  |      | 1,247,377 |      |  |      | 1,337,206 |  |  |   | 1,355,171 |  |  |   | 1,375,758 | 



---

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



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We believe that FFO, by excluding depreciation
    costs, the gains or losses from the sale of operating real
    estate properties and extraordinary items as defined by GAAP,
    provides an additional perspective on our operating results.
    However, because these items have real economic effect, FFO is a
    limited measure of performance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | FFO captures trends in occupancy rates, rental
    rates and operating costs. FFO excludes depreciation and
    amortization costs and it does not capture the changes in value
    in our properties that result from use or changes in market
    conditions or the level of capital expenditures and leasing
    costs necessary to maintain the operating performance of our
    properties, all of which are significant economic costs.
    Therefore, its ability to measure performance is limited.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | Because FFO excludes significant economic
    components of net income determined in accordance with GAAP, FFO
    should be used as an adjunct to net income and not as an
    alternative to net income. FFO should also not be used as an
    indicator of our financial performance, or as a substitute for
    cash flow from operating activities determined in accordance
    with GAAP or as a measure of our liquidity. FFO is not by itself
    indicative of funds available to fund our cash needs, including
    our ability to pay dividends or service our debt. Therefore, FFO
    only provides investors with an additional performance measure
    that when combined with measures computed in accordance with
    GAAP such as net income, cash flow from operating activities,
    investing activities and financing activities provides investors
    with an indication of our ability to service debt and to fund
    acquisitions and other expenditures.
|
| | FFO is used by investors to compare our
    performance with other REITs. Other REITs may use different
    methodologies for calculating FFO and, accordingly, our FFO may
    not be comparable to other REITs. See a reconciliation of FFO to
    Net income in Item 7 Managements Discussion and
    Analysis of Financial Condition and Results of Operations
    of this report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



|    |                            
|--- | ---------------------------
|(2) | Excludes dividends payable.

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations



| |         
| | --------
| | Overview

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

We are a self-administered and self-managed real
estate investment trust that owns, manages, leases, develops,
renovates and acquires commercial properties located in Southern
California. We are a full-service real estate organization
managed by 7 senior executive officers who have experience
in the real estate industry ranging from 13 to 34 years and
who collectively have an average of 18 years of experience.
We perform all property management, construction management,
accounting, finance and acquisition and disposition activities
and a majority of our leasing transactions with our staff of
approximately 300 employees.

As of December 31, 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 consisted of 130 primarily suburban
office properties and 215 buildings containing approximately
18.9 million net rentable square feet including one
development property with approximately 283,000 net
rentable square feet under lease-up. As of December 31,
2003, our operating portfolio was 90.4% occupied.

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



| |                             
| | ----------------------------
| | Critical Accounting Policies

Revenue Recognition

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

Allowance for Rents and Other
Receivables

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

Commercial Properties

Our properties are stated at depreciated cost.
Write-downs to estimated fair value are recognized whenever a
propertys estimated undiscounted future cash flows are
less than its book value. We carry properties held for
disposition at the lower of their depreciated cost or fair value
less cost to sell. Based on our assessment, no write-downs to
estimated fair value were necessary as of December 31, 2003
and 2002.

Property acquisitions have been accounted for in
accordance with Statement of Financial Accounting Standards
No. 141, Business Combinations since
June 30, 2001, the effective date of this pronouncement.
The fair value of the real estate acquired is allocated to the
acquired tangible assets, consisting of land, building and
tenant improvements, and identified intangible assets and
liabilities, consisting of the value of above-market and
below-market leases, other value of in-place leases and value of
tenant relationships, if any, based in each case on their fair
values.

The fair value of the tangible assets of an
acquired property (which includes land, building and tenant
improvements) is determined by valuing the property as if it
were vacant, and the as-if-vacant value is then

22



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allocated to land, building and tenant
improvements based on managements determination of the
relative fair values of these assets. We determine the
as-if-vacant fair value of a property using methods similar to
those used by independent appraisers. Factors considered by
management in performing these analyses include an estimate of
carrying costs during the expected lease-up periods considering
current market conditions and costs to execute similar leases.
In estimating carrying costs, management includes estimates of
lost rental revenue, real estate taxes, insurance and other
operating expenses during the expected lease-up periods based on
current market demand. We also estimate costs to execute similar
leases including leasing commissions, concessions, legal and
other related costs.


In allocating the fair value of the identified
intangible assets and liabilities of an acquired property,
above-market and below-market in-place lease values are recorded
based on the present value (using an interest rate which
reflects the risks associated with the leases acquired) of the
difference between (i) the contractual amounts to be paid
pursuant to the in-place leases and (ii) managements
estimate of fair market lease rates for the corresponding
in-place leases, measured over a period equal to the remaining
non-cancelable term of the lease. The capitalized above-market
and below-market lease values are amortized into rental income
over the remaining non-cancelable terms of the respective leases.

The aggregate value of other acquired intangible
assets, consisting of in-place leases and tenant relationships,
if any, is measured by the excess of (i) the purchase price
paid for a property after adjusting existing in-place leases to
market rental rates over (ii) the estimated fair value of
the property as if vacant, determined as set forth above. This
aggregate value is allocated between in-place lease values and
tenant relationships based on managements evaluation of
the specific characteristics of each tenants lease. Should
acquisitions of properties result in allocating material amounts
to the value of tenant relationships, an amount would be
separately allocated and amortized over the estimated life of
the relationship.

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

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

Depreciation

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

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

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

Qualification as a REIT

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

23



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##### Table of Contents



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

Off-Balance Sheet Arrangements

There are no off-balance sheet transactions,
arrangements or obligations (including contingent obligations)
that have, or are reasonably likely to have a current or future
material effect on the Companys financial condition,
changes in the financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or
capital resources.



| |                      
| | ---------------------
| | Results Of Operations

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

24



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##### Table of Contents



Comparison of the year ended December 31,
2003 to the year ended December 31, 2002

(In thousands, except number of properties and
percentages)


|                                |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |        |  |     |    |   | 
|------------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------------- | ------------------------------------ | ------- | ------ | --------- | - | ------- | ------ | ------- | - | ------- | - | ------ |  | --- | -- | - | 
|                                |                                                                                               |                                               |                                      |         |        |          
|                                |                                                                                               | Year Ended December 31,                       |                                      |         |        |          
|                                |                                                                                               |                                               |                                      |         |        | Percent  
|                                |                                                                                               | 2003                                          |                                      | 2002    |        | Change(1) |   | Change 
|                                |                                                                                               |                                               |                                      |         |        |           |   |        
|Revenue from rental operations: |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |        |  |    
|                                | Scheduled cash rents                                                                          |                                               | $                                    | 356,804 |        |           | $ | 339,292 |        |         | $ | 17,512  |   |        |  | 5   | % 
|                                | Straight-line rents                                                                           |                                               |                                      | 986     |        |           |   | 4,214   |        |         |   | (3,228  | ) |        |  | (77 | ) 
|                                | Tenant reimbursements                                                                         |                                               |                                      | 24,683  |        |           |   | 22,135  |        |         |   | 2,548   |   |        |  | 12  |   
|                                | Parking, net of expense                                                                       |                                               |                                      | 22,084  |        |           |   | 20,805  |        |         |   | 1,279   |   |        |  | 6   |   
|                                | Other rental operations                                                                       |                                               |                                      | 8,978   |        |           |   | 8,041   |        |         |   | 937     |   |        |  | 12  |   
|                                |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |        |  |    
|                                |                                                                                               |                                               | Total revenue from rental operations |         |        | 413,535   |   |         |        | 394,487 |   |         |   | 19,048 |  |     |    | 5 | 
|                                |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |        |  |    
|Property expenses:              |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |        |  |    
|                                | Repairs and maintenance                                                                       |                                               |                                      | 42,859  |        |           |   | 37,250  |        |         |   | 5,609   |   |        |  | 15  |   
|                                | Utilities                                                                                     |                                               |                                      | 34,253  |        |           |   | 34,209  |        |         |   | 44      |   |        |  |    |   
|                                | Real estate taxes                                                                             |                                               |                                      | 29,488  |        |           |   | 28,616  |        |         |   | 872     |   |        |  | 3   |   
|                                | Insurance                                                                                     |                                               |                                      | 8,431   |        |           |   | 7,787   |        |         |   | 644     |   |        |  | 8   |   
|                                | Ground rent                                                                                   |                                               |                                      | 961     |        |           |   | 895     |        |         |   | 66      |   |        |  | 7   |   
|                                | Administrative                                                                                |                                               |                                      | 16,761  |        |           |   | 14,893  |        |         |   | 1,868   |   |        |  | 13  |   
|                                |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |        |  |    
|                                |                                                                                               |                                               | Total property expenses              |         |        | 132,753   |   |         |        | 123,650 |   |         |   | 9,103  |  |     |    | 7 | 
|                                |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |        |  |    
|                                |                                                                                               |                                               | Property operating results(2)        |         |        | 280,782   |   |         |        | 270,837 |   |         |   | 9,945  |  |     |    | 4 | 
|                                | General and administrative                                                                    |                                               |                                      | 18,123  |        |           |   | 13,166  |        |         |   | 4,957   |   |        |  | 38  |   
|                                | Interest                                                                                      |                                               |                                      | 93,767  |        |           |   | 88,516  |        |         |   | 5,251   |   |        |  | 6   |   
|                                | Depreciation and amortization                                                                 |                                               |                                      | 118,114 |        |           |   | 106,182 |        |         |   | 11,932  |   |        |  | 11  |   
|                                | Interest and other income                                                                     |                                               |                                      | (734    | )      |           |   | (2,542  | )      |         |   | (1,808  | ) |        |  | (71 | ) 
|                                |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |        |  |    
|                                | Income from continuing operations before gain on
    sale of properties and minority interest |                                               | $                                    | 51,512  |        |           | $ | 65,515  |        |         | $ | (14,003 | ) |        |  | (21 | )%
|                                |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |        |  |    
|                                | Discontinued operations, net of minority
    interest(3)                                      |                                               | $                                    | 6,596   |        |           | $ | 8,692   |        |         | $ | (2,096  | ) |        |  | (24 | )%
|                                |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |        |  |    
|Other Data:                     |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |        |  |    
|                                | Number of properties:                                                                         |                                               |                                      |         |        |           |   |         |        |         |   |         |   |        |  |     |   
|                                |                                                                                               | Acquired during period                        |                                      |         | 1      |           |   |         | 5      |         |   |         |   |        |  |     |    |  
|                                |                                                                                               | Completed and placed in service during period |                                      |         |       |           |   |         | 1      |         |   |         |   |        |  |     |    |  
|                                |                                                                                               | Disposed of during period                     |                                      |         | (8     | )         |   |         | (3     | )       |   |         |   |        |  |     |    |  
|                                |                                                                                               | Owned at end of period                        |                                      |         | 129    | (4)       |   |         | 136    |         |   |         |   |        |  |     |    |  
|                                | Net rentable square feet:                                                                     |                                               |                                      |         |        |           |   |         |        |         |   |         |   |        |  |     |   
|                                |                                                                                               | Acquired during period                        |                                      |         | 101    |           |   |         | 803    |         |   |         |   |        |  |     |    |  
|                                |                                                                                               | Completed and placed in service during period |                                      |         |       |           |   |         | 287    |         |   |         |   |        |  |     |    |  
|                                |                                                                                               | Disposed of during period                     |                                      |         | 598    |           |   |         | (205   | )       |   |         |   |        |  |     |    |  
|                                |                                                                                               | Owned at end of period                        |                                      |         | 18,636 | (4)       |   |         | 19,132 |         |   |         |   |        |  |     |    |  




|    |                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Variances for Revenue from Rental Operations and
    Property Operating Expenses are discussed as part of
    Properties Owned for all of 2002 and 2003 below.
|   
|(2) | Property Operating Results are discussed as part
    of Variances for Revenue from Rental Operations and
    Property Operating Expenses below.               
|   
|(3) | Discontinued operations for 2002 and 2003 are
    discussed below.                                                                                              
|   
|(4) | Excludes one development property containing
    approximately 283,000 net rentable square feet currently
    under lease-up.                                   

General and administrative expenses increased
approximately $5.0 million, or 38%, in 2003 as compared to
2002. This increase was primarily due to employee compensation
costs, including employee separation costs in the current year
and non-cash compensation costs associated with annual
restricted stock grants issued in 2003 as well as higher
corporate governance costs in 2003.

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Interest expense increased approximately
$5.3 million, or 6%, in 2003 as compared to 2002. This
increase was primarily due to an increase in borrowings in the
last half of 2002 for property acquisitions, lower interest
capitalized in 2003 and costs associated with interest rate
swaps entered into at the end of 2002 to fix approximately
$175 million of floating rate debt. Capitalized interest in
2003 was lower as we ceased capitalizing interest on our
6100 Center Drive property in May 2003.

Depreciation and amortization expense increased
by approximately $11.9 million, or 11%, in 2003 as compared
to 2002. The increase was 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 in 2002 and 2003.

Interest and other income decreased by
approximately $1.8 million, or 71%, in 2003 as compared to
2002, primarily due to the repayment by the borrower of a
$13.7 million mortgage note receivable in the fourth
quarter of 2002.

Variances for Revenue from Rental Operations
and Property Operating Expenses

The decrease in revenue from rental operations
and increase in property operating expenses in 2003 as compared
to 2002 was partially due to a 1.1% reduction in the average
occupancy and the timing of lease termination settlements and
other non-recurring items in our portfolio of 122 properties
that we owned as part of continuing operations for all of 2002
and 2003.

Following is a summary of the increase in revenue
from rental operations and property operating expenses that
relates to the 18 properties that were either sold,
acquired or placed in service after January 1, 2002, and
for the 122 non-development properties we owned for all of
2002 and 2003 (in thousands, except number of properties).

|                                |                          |                   |        |                       |   |                  |        |        |   |   |       |        |  
|------------------------------- | ------------------------ | ----------------- | ------ | --------------------- | - | ---------------- | ------ | ------ | - | - | ----- | ------ | -
|                                |                          |                   |        | Properties Sold,      |   | Non-Development 
|                                |                          |                   |        | Acquired or           |   | Properties Owned
|                                |                          |                   |        | Placed in Service     |   | for all of      
|                                |                          | Total Variance(1) |        | after January 1, 2002 |   | 2002 and 2003(2)
|                                |                          |                   |        |                       |   |                 
|Revenue from Rental Operations: |                          |                   |        |                       |   |                  |        |        |   |   |       |       
|                                | Scheduled cash rents     |                   | $      | 17,512                |   |                  | $      | 11,545 |   |   | $     | 5,967  |  
|                                | Straight-line rents      |                   |        | (3,228                | ) |                  |        | 366    |   |   |       | (3,594 | )
|                                | Tenant reimbursements    |                   |        | 2,548                 |   |                  |        | 251    |   |   |       | 2,297  |  
|                                | Parking, net of expense  |                   |        | 1,279                 |   |                  |        | 356    |   |   |       | 923    |  
|                                | Other rental operations  |                   |        | 937                   |   |                  |        | 1,396  |   |   |       | (459   | )
|                                |                          |                   |        |                       |   |                  |        |        |   |   |       |       
|                                |                          | $                 | 19,048 |                       |   | $                | 13,914 |        |   | $ | 5,134 |       
|                                |                          |                   |        |                       |   |                  |        |        |   |   |       |       
|Property Expenses:              |                          |                   |        |                       |   |                  |        |        |   |   |       |       
|                                | Repairs and maintenance  |                   |        | 5,609                 |   |                  |        | 2,022  |   |   |       | 3,587  |  
|                                | Utilities                |                   |        | 44                    |   |                  |        | (52    | ) |   |       | 96     |  
|                                | Real estate taxes        |                   |        | 872                   |   |                  |        | 1,655  |   |   |       | (783   | )
|                                | Insurance                |                   |        | 644                   |   |                  |        | 260    |   |   |       | 384    |  
|                                | Ground rent              |                   |        | 66                    |   |                  |        |       |   |   |       | 66     |  
|                                | Administrative           |                   |        | 1,868                 |   |                  |        | 289    |   |   |       | 1,579  |  
|                                |                          |                   |        |                       |   |                  |        |        |   |   |       |       
|                                |                          | $                 | 9,103  |                       |   | $                | 4,174  |        |   | $ | 4,929 |       
|                                |                          |                   |        |                       |   |                  |        |        |   |   |       |       
|Other Data:                     |                          |                   |        |                       |   |                  |        |        |   |   |       |       
|                                | Number of properties     |                   |        |                       |   |                  |        | 18     |   |   |       | 122    |  
|                                | Net rentable square feet |                   |        |                       |   |                  |        | 1,993  |   |   |       | 17,444 |  

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---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The components outlined above comprise our
    Property Operating Results. Property Operating Results is a
    non-GAAP measure of performance. Property Operating Results is
    used by investors and our management to evaluate and compare the
    performance of our office properties and to determine trends in
    earnings. Property Operating Results is also employed by
    investors as one of the components used to estimate the value of
    our properties. Property Operating Results is used for the
    purposes noted above because it is not affected by (1) the
    cost of funds of the property owner, (2) the impact of
    depreciation and amortization expense 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 or (3) general and
    administrative expenses and other specific costs such as
    permanent impairments to carrying costs. The cost of funds is
    eliminated from net income because it is specific to the
    particular financing capabilities and constraints of the owner.
    The cost of funds is also eliminated because it is dependent on
    historical interest rates and other costs of capital as well as
    past decisions made by us regarding the appropriate mix of
    capital, which may have changed or may change in the future.
    Depreciation and amortization expenses as well as gains or
    losses from the sale of operating real estate assets are
    eliminated because they may not accurately represent the actual
    change in value in our office properties that result from use of
    the properties or changes in market conditions. While certain
    aspects of real property do decline in value over time in a
    manner that is reasonably captured by depreciation and
    amortization, the value of the properties as a whole have
    historically increased or decreased in value as a result of
    changes in overall economic conditions as well as the actual use
    of the property or the passage of time. Gains and losses from
    the sale of real property vary from property to property and are
    affected by market conditions at the time of sale which will
    usually change from period to period. These gains and losses can
    create distortions when comparing one period to another or when
    comparing our operating results to the operating results of
    other real estate companies that have not made similarly timed
    purchases and subsequent sales. General and administrative
    expenses and other owner specific costs such as impairment
    losses are eliminated because these costs are also in large part
    specific to the ownership structure and timing of purchases of
    the owner. We believe that eliminating these costs from net
    income is useful because the resulting measure captures the
    actual revenue generated and actual expenses incurred in
    operating our office properties as well as trends in occupancy
    rates, rental rates and operating costs.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | However, the usefulness of Property Operating
    Results is limited because it 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. Property Operating Results may fail
    to capture significant trends in these components of net income
    which further limits its usefulness.                                                                                                                                                                                                              
|
| | Property Operating Results is a measure of the
    operating performance of our office properties but does not
    measure our performance as a whole. Property Operating Results
    is therefore not a substitute for net income as computed in
    accordance with GAAP. This measure should be analyzed in
    conjunction with net income computed in accordance with GAAP and
    discussions elsewhere in Managements Discussion and
    Analysis of Financial Condition and Results of Operations
    regarding the components of net income that are eliminated in
    the calculation of Property Operating Results. 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 Property
    Operating Results to net income computed in accordance with GAAP
    (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                           |                                                   |                         |         |         |   |      |         |         |   |   |         |        |  
|-------------------------- | ------------------------------------------------- | ----------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------ | -
|                           |                                                   |                        
|                           |                                                   | Year Ended December 31,
|                           |                                                   |                        
|                           |                                                   | 2003                    |         | 2002    |   | 2001
|                           |                                                   |                         |         |         |   |     
|Net Income                 |                                                   | $                       | 58,509  |         |   | $    | 70,175  |         |   | $ | 97,759  |       
|Add:                       |                                                   |                         |         |         |   |      |         |         |   |   |         |       
|                           | General and administrative expense                |                         |         | 18,123  |   |      |         | 13,166  |   |   |         | 12,143 |  
|                           | Interest expense                                  |                         |         | 93,767  |   |      |         | 88,516  |   |   |         | 86,651 |  
|                           | Depreciation and amortization                     |                         |         | 118,114 |   |      |         | 106,182 |   |   |         | 98,136 |  
|                           | Minority interest                                 |                         |         | 5,536   |   |      |         | 5,999   |   |   |         | 7,304  |  
|Less:                      |                                                   |                         |         |         |   |      |         |         |   |   |         |       
|                           | Interest and other income                         |                         |         | (734    | ) |      |         | (2,542  | ) |   |         | (2,941 | )
|                           | Gain on sale of discontinued properties           |                         |         | (5,937  | ) |      |         |        |   |   |         |       |  
|                           | Discontinued operations, net of minority interest |                         |         | (6,596  | ) |      |         | (8,692  | ) |   |         | (7,850 | )
|                           | Gain on sale of operating properties              |                         |         |        |   |      |         | (1,967  | ) |   |         | (4,591 | )
|                           |                                                   |                         |         |         |   |      |         |         |   |   |         |       
|Property Operating Results |                                                   | $                       | 280,782 |         |   | $    | 270,837 |         |   | $ | 286,611 |       
|                           |                                                   |                         |         |         |   |      |         |         |   |   |         |       



|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The operating results for properties included in
    continuing and discontinued operations that were owned for all
    of 2002 and 2003 are discussed below.

Discontinued Operations

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

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operating results of our two properties
classified as held for disposition as of December 31, 2003
as well as eight properties sold during 2003.


The results of operations for the two properties
held for disposition as of December 31, 2003 and eight
properties sold during 2003 for the years ended
December 31, 2003 and 2002 are as follows (in thousands,
except number of properties):

|                         |                                                   |              |       |        |  |         |        |        |  |  |        |        |   |  |     |     |   
|------------------------ | ------------------------------------------------- | ------------ | ----- | ------ |  | ------- | ------ | ------ |  |  | ------ | ------ | - |  | --- | --- | --
|                         |                                                   |              |       |        |  |        
|                         |                                                   | Year Ended   |       |        |  |        
|                         |                                                   | December 31, |       |        |  |        
|                         |                                                   |              |       |        |  | Percent
|                         |                                                   | 2003         |       | 2002   |  | Change  |        | Change
|                         |                                                   |              |       |        |  |         |        |       
|Discontinued Operations: |                                                   |              |       |        |  |         |        |        |  |  |        |        |   |  |     |    
|                         | Revenues                                          |              | $     | 14,108 |  |         | $      | 21,732 |  |  | $      | (7,624 | ) |  |     | (35 | )%
|                         | Property operating expenses                       |              |       | 4,964  |  |         |        | 7,568  |  |  |        | (2,604 | ) |  |     | (34 | ) 
|                         |                                                   |              |       |        |  |         |        |        |  |  |        |        |   |  |     |    
|                         |                                                   |              | 9,144 |        |  |         | 14,164 |        |  |  | (5,020 | )      |   |  | (35 | )  
|                         | Depreciation and amortization                     |              |       | 2,210  |  |         |        | 5,235  |  |  |        | (3,025 | ) |  |     | (58 | ) 
|                         | Minority interest                                 |              |       | 338    |  |         |        | 237    |  |  |        | 101    |   |  |     | 43  |   
|                         |                                                   |              |       |        |  |         |        |        |  |  |        |        |   |  |     |    
|                         | Discontinued operations, net of minority interest |              | $     | 6,596  |  |         | $      | 8,692  |  |  | $      | (2,096 | ) |  |     | (24 | )%
|                         |                                                   |              |       |        |  |         |        |        |  |  |        |        |   |  |     |    
|Other Data:              |                                                   |              |       |        |  |         |        |        |  |  |        |        |   |  |     |    
|                         | Number of properties                              |              |       | 10     |  |         |        | 10     |  |  |        |        |   |  |     |     |   
|                         | Net rentable square feet                          |              |       | 893    |  |         |        | 893    |  |  |        |        |   |  |     |     |   

The variances in operating results for the two
properties held for disposition as of December 31, 2003
included in discontinued operations above and which were owned
for all of 2002 and 2003 are discussed as part of
Properties Owned for all of 2002 and 2003
immediately below.

Properties Owned for all of 2002 and
2003

Following is a comparison of property operating
data for the 122 non-development properties we owned for all of
2002 and 2003 reported in continuing and discontinued operations
(in thousands, except number of properties and percentages):

|                               |  |                         |         |        |  |         |         |        |  |   |       |  |  |  |   |  
|------------------------------ |  | ----------------------- | ------- | ------ |  | ------- | ------- | ------ |  | - | ----- |  |  |  | - | -
|                               |  |                         |         |        |  |        
|                               |  | Year Ended December 31, |         |        |  |        
|                               |  |                         |         | Dollar |  | Percent
|                               |  | 2003                    |         | 2002   |  | Change  |         | Change
|                               |  |                         |         |        |  |         |         |       
|Revenue from rental operations |  | $                       | 391,960 |        |  | $       | 386,826 |        |  | $ | 5,134 |  |  |  | 1 | %
|Property expenses              |  |                         | 126,041 |        |  |         | 121,112 |        |  |   | 4,929 |  |  |  | 4 |  
|                               |  |                         |         |        |  |         |         |        |  |   |       |  |  |  |   |  
|                               |  | $                       | 265,919 |        |  | $       | 265,714 |        |  | $ | 205   |  |  |  |  | %
|                               |  |                         |         |        |  |         |         |        |  |   |       |  |  |  |   |  
|Straight-line rents            |  | $                       | 721     |        |  | $       | 4,315   |        |  |   |       |  |  |  |   |  
|                               |  |                         |         |        |  |         |         |        |  |   |       |  |  |  |   |  
|Number of properties           |  |                         | 122     |        |  |         | 122     |        |  |   |       |  |  |  |   |  
|Average occupancy              |  |                         | 90.2    | %      |  |         | 91.3    | %      |  |   |       |  |  |  |   |  
|Net rentable square feet       |  |                         | 17,444  |        |  |         | 17,444  |        |  |   |       |  |  |  |   |  

Revenue from rental operations for these
properties increased by approximately $5.1 million, or
1.3%, in 2003 as compared to 2002. The increase was due to an
approximate $6.0 million increase in scheduled cash rents,
a $2.3 million increase in tenant reimbursements and a
$923,000 increase in parking income, which were partially offset
by an approximate $3.6 million decrease in straight line
rents and a $459,000 decrease in other rental operations. The
increase in scheduled cash rents was primarily attributable to
scheduled rent bumps in existing leases that were partially
offset by the 1.1% decrease in average occupancy for these
properties. Tenant reimbursements increased primarily due to
recovery billings for higher operating expenses in 2003 as
discussed below. Parking income increased 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. Other rental operations
decreased primarily due to decreases in lease termination
settlements in 2003.

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Property expenses for these properties increased
by approximately $4.9 million, or 4.1%, in 2003 as compared
to 2002. The increase was primarily due to an approximate
$3.6 million increase in repairs and maintenance, a
$1.6 million increase in property administrative expenses
and a $384,000 increase in insurance expense, partially offset
by a $783,000 decrease in real estate taxes. The increase in
repairs and maintenance expense was primarily due to higher
contractual costs for janitorial and other contract services as
well as the timing of certain projects. The increase in property
administrative expense was primarily due to higher employee
compensation costs, higher property legal expenses and costs
associated with training programs implemented in 2003. The
increase in insurance expense was due to increases in
industry-wide rates and premiums related to a $100 million
terrorism insurance policy entered into in the second quarter of
2002. Real estate taxes decreased due to the timing of final
reassessments of some properties in 2002.

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##### Table of Contents



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

(In thousands, except number of properties and
percentages)


|                                |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |         |   |     |    |    |  
|------------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------------- | ------------------------------------ | ------- | ------ | --------- | - | ------- | ------ | ------- | - | ------- | - | ------- | - | --- | -- | -- | -
|                                |                                                                                               |                                               |                                      |         |        |          
|                                |                                                                                               | Year Ended December 31,                       |                                      |         |        |          
|                                |                                                                                               |                                               |                                      |         |        | Percent  
|                                |                                                                                               | 2002                                          |                                      | 2001    |        | Change(1) |   | Change 
|                                |                                                                                               |                                               |                                      |         |        |           |   |        
|Revenue from rental operations: |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |         |   |    
|                                | Scheduled cash rents                                                                          |                                               | $                                    | 339,292 |        |           | $ | 335,202 |        |         | $ | 4,090   |   |         |   | 1   | % 
|                                | Straight-line rents                                                                           |                                               |                                      | 4,214   |        |           |   | 8,780   |        |         |   | (4,566  | ) |         |   | (52 | ) 
|                                | Tenant reimbursements                                                                         |                                               |                                      | 22,135  |        |           |   | 21,715  |        |         |   | 420     |   |         |   | 2   |   
|                                | Parking, net of expense                                                                       |                                               |                                      | 20,805  |        |           |   | 21,248  |        |         |   | (443    | ) |         |   | (2  | ) 
|                                | Other rental operations                                                                       |                                               |                                      | 8,041   |        |           |   | 16,831  |        |         |   | (8,790  | ) |         |   | (52 | ) 
|                                |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |         |   |    
|                                |                                                                                               |                                               | Total revenue from rental operations |         |        | 394,487   |   |         |        | 403,776 |   |         |   | (9,289  | ) |     |    | (2 | )
|                                |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |         |   |    
|Property expenses:              |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |         |   |    
|                                | Repairs and maintenance                                                                       |                                               |                                      | 37,250  |        |           |   | 34,939  |        |         |   | 2,311   |   |         |   | 7   |   
|                                | Utilities                                                                                     |                                               |                                      | 34,209  |        |           |   | 32,518  |        |         |   | 1,691   |   |         |   | 5   |   
|                                | Real estate taxes                                                                             |                                               |                                      | 28,616  |        |           |   | 28,329  |        |         |   | 287     |   |         |   | 1   |   
|                                | Insurance                                                                                     |                                               |                                      | 7,787   |        |           |   | 5,492   |        |         |   | 2,295   |   |         |   | 42  |   
|                                | Ground rent                                                                                   |                                               |                                      | 895     |        |           |   | 1,884   |        |         |   | (989    | ) |         |   | (52 | ) 
|                                | Administrative                                                                                |                                               |                                      | 14,893  |        |           |   | 14,003  |        |         |   | 890     |   |         |   | 6   |   
|                                |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |         |   |    
|                                |                                                                                               |                                               | Total property expenses              |         |        | 123,650   |   |         |        | 117,165 |   |         |   | 6,485   |   |     |    | 6  |  
|                                |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |         |   |    
|                                |                                                                                               |                                               | Property operating results(2)        |         |        | 270,837   |   |         |        | 286,611 |   |         |   | (15,774 | ) |     |    | (6 | )
|                                | General and administrative                                                                    |                                               |                                      | 13,166  |        |           |   | 12,143  |        |         |   | 1,023   |   |         |   | 8   |   
|                                | Interest                                                                                      |                                               |                                      | 88,516  |        |           |   | 86,651  |        |         |   | 1,865   |   |         |   | 2   |   
|                                | Depreciation and amortization                                                                 |                                               |                                      | 106,182 |        |           |   | 98,136  |        |         |   | 8,046   |   |         |   | 8   |   
|                                | Interest and other income                                                                     |                                               |                                      | (2,542  | )      |           |   | (2,941  | )      |         |   | (399    | ) |         |   | (14 | ) 
|                                |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |         |   |    
|                                | Income from continuing operations before gain on
    sale of properties and minority interest |                                               | $                                    | 65,515  |        |           | $ | 92,622  |        |         | $ | (27,107 | ) |         |   | (29 | )%
|                                |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |         |   |    
|                                | Discontinued operations, net of minority
    interest(3)                                      |                                               | $                                    | 8,692   |        |           | $ | 7,850   |        |         | $ | 842     |   |         |   | 11  | % 
|                                |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |         |   |    
|Other Data:                     |                                                                                               |                                               |                                      |         |        |           |   |         |        |         |   |         |   |         |   |    
|                                | Number of properties:                                                                         |                                               |                                      |         |        |           |   |         |        |         |   |         |   |         |   |     |   
|                                |                                                                                               | Acquired during period                        |                                      |         | 5      |           |   |         |       |         |   |         |   |         |   |     |    |   
|                                |                                                                                               | Completed and placed in service during period |                                      |         | 1      |           |   |         | 1      |         |   |         |   |         |   |     |    |   
|                                |                                                                                               | Disposed of during period                     |                                      |         | (3     | )         |   |         | (10    | )       |   |         |   |         |   |     |    |   
|                                |                                                                                               | Owned at end of period                        |                                      |         | 136    | (4)       |   |         | 133    |         |   |         |   |         |   |     |    |   
|                                | Net rentable square feet:                                                                     |                                               |                                      |         |        |           |   |         |        |         |   |         |   |         |   |     |   
|                                |                                                                                               | Acquired during period                        |                                      |         | 803    |           |   |         |       |         |   |         |   |         |   |     |    |   
|                                |                                                                                               | Completed and placed in service during period |                                      |         | 287    |           |   |         | 162    |         |   |         |   |         |   |     |    |   
|                                |                                                                                               | Disposed of during period                     |                                      |         | (205   | )         |   |         | (573   | )       |   |         |   |         |   |     |    |   
|                                |                                                                                               | Owned at end of period                        |                                      |         | 19,132 | (4)       |   |         | 18,247 |         |   |         |   |         |   |     |    |   




|    |                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Variances for Revenues from Rental Operations and
    Property Operating Expenses are discussed as part of
    Properties Owned for all of 2001 and 2002 below.
|   
|(2) | Property Operating Results are discussed as part
    of Variance for Revenue from Rental Operations and
    Property Operating Expenses below.                 
|   
|(3) | Discontinued operations for 2001 and 2002 are
    discussed below.                                                                                               
|   
|(4) | Excludes one development property containing
    approximately 283,000 net rentable square feet under
    lease-up.                                              

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

Interest expense increased approximately
$1.9 million, or 2%, in 2002 as compared to 2001. This
increase was primarily due to an increase in borrowings in 2002
for property acquisitions and lower interest capitalized in
2002. Capitalized interest in 2002 was lower as we ceased
capitalizing interest on our 6080 Center Drive in May 2002. The
increase in interest expense was partially offset by lower
effective interest rates in 2002.

Depreciation and amortization expense increased
by approximately $8.0 million, or 8%, in 2002 as compared
to 2001. The increase was primarily due to depreciation related
to two newly developed properties placed in service since the
fourth quarter of 2001, five properties acquired during 2002 and
depreciation expense recorded in 2002 related to properties
previously held for sale in 2001 for which no depreciation
expense was recorded in 2001 while classified as held for sale.

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

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Variances for Revenue from Rental Operations
and Property Operating Expenses

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

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

|                                |                          |                   |        |                            |   |                  |       |        |   |   |        |        |  
|------------------------------- | ------------------------ | ----------------- | ------ | -------------------------- | - | ---------------- | ----- | ------ | - | - | ------ | ------ | -
|                                |                          |                   |        | Properties Sold, Acquired, |   | Non-Development 
|                                |                          |                   |        | Placed in Service or       |   | Properties Owned
|                                |                          |                   |        | Under Development after    |   | for all of 2001 
|                                |                          | Total Variance(1) |        | January 1, 2001            |   | and 2002(2)     
|                                |                          |                   |        |                            |   |                 
|Revenue from Rental Operations: |                          |                   |        |                            |   |                  |       |        |   |   |        |       
|                                | Scheduled cash rents     |                   | $      | 4,090                      |   |                  | $     | 2,359  |   |   | $      | 1,731  |  
|                                | Straight-line rents      |                   |        | (4,566                     | ) |                  |       | 96     |   |   |        | (4,662 | )
|                                | Tenant reimbursements    |                   |        | 420                        |   |                  |       | (51    | ) |   |        | 471    |  
|                                | Parking, net of expense  |                   |        | (443                       | ) |                  |       | (53    | ) |   |        | (390   | )
|                                | Other rental operations  |                   |        | (8,790                     | ) |                  |       | (1,947 | ) |   |        | (6,843 | )
|                                |                          |                   |        |                            |   |                  |       |        |   |   |        |       
|                                |                          | $                 | (9,289 | )                          |   | $                | 404   |        |   | $ | (9,693 | )     
|                                |                          |                   |        |                            |   |                  |       |        |   |   |        |       
|Property Expenses:              |                          |                   |        |                            |   |                  |       |        |   |   |        |       
|                                | Repairs and maintenance  |                   |        | 2,311                      |   |                  |       | 589    |   |   |        | 1,722  |  
|                                | Utilities                |                   |        | 1,691                      |   |                  |       | 74     |   |   |        | 1,617  |  
|                                | Real estate taxes        |                   |        | 287                        |   |                  |       | 690    |   |   |        | (403   | )
|                                | Insurance                |                   |        | 2,295                      |   |                  |       | 14     |   |   |        | 2,281  |  
|                                | Ground rent              |                   |        | (989                       | ) |                  |       |       |   |   |        | (989   | )
|                                | Administrative           |                   |        | 890                        |   |                  |       | 179    |   |   |        | 711    |  
|                                |                          |                   |        |                            |   |                  |       |        |   |   |        |       
|                                |                          | $                 | 6,485  |                            |   | $                | 1,546 |        |   |   | 4,939  |       
|                                |                          |                   |        |                            |   |                  |       |        |   |   |        |       
|Other Data:                     |                          |                   |        |                            |   |                  |       |        |   |   |        |       
|                                | Number of properties     |                   |        |                            |   |                  |       | 20     |   |   |        | 129    |  
|                                | Net rentable square feet |                   |        |                            |   |                  |       | 2,030  |   |   |        | 17,880 |  




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The components outlined above comprise our
    Property Operating Results. Property Operating Results is a
    non-GAAP measure of performance. Property Operating Results is
    used by investors and our management to evaluate and compare the
    performance of our office properties and to determine trends in
    earnings. Property Operating Results is also employed by
    investors as one of the components used to estimate the value of
    our properties. Property Operating Results is used for the
    purposes noted above because it is not affected by (1) the
    cost of funds of the property owner, (2) the impact of
    depreciation and amortization expense 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 or (3) general and
    administrative expenses and other specific costs such as
    permanent impairments to carrying costs. The cost of funds is
    eliminated from net income because it is specific to the
    particular financing capabilities and constraints of the owner.
    The cost of funds is also eliminated because it is dependent on
    historical interest rates and other costs of capital as well as
    past decisions made by us regarding the appropriate mix of
    capital, which may have changed or may change in the future.
    Depreciation and amortization expenses as well as gains or
    losses from the sale of operating real estate assets are
    eliminated because they may not accurately represent the actual
    change in value in our office properties that result from use of
    the properties or changes in market conditions. While certain
    aspects of real property do decline in value over time in a
    manner that is reasonably captured by depreciation and
    amortization, the value of the properties as a whole have
    historically increased or decreased in value as a result of
    changes in overall economic conditions as well as the actual use
    of the property or the passage of time. Gains and losses from
    the sale of real property vary from property to property and are
    affected by market conditions at the time of sale which will
    usually change from period to period. These gains and losses can
    create distortions when comparing one period to another or when
    comparing our operating results to the operating results of
    other real estate companies that have not made similarly timed
    purchases and subsequent sales. General and administrative
    expenses and other owner specific costs such as impairment
    losses are eliminated because these costs are also in large part
    specific to the ownership structure and timing of purchases of
    the owner. We

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| |                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | believe that eliminating these costs from net
    income is useful because the resulting measure captures the
    actual revenue generated and actual expenses incurred in
    operating our office properties as well as trends in occupancy
    rates, rental rates and operating costs.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | However, the usefulness of Property Operating
    Results is limited because it 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. Property Operating Results may fail
    to capture significant trends in these components of net income
    which further limits its usefulness.                                                                                                                                                                                                              
|
| | Property Operating Results is a measure of the
    operating performance of our office properties but does not
    measure our performance as a whole. Property Operating Results
    is therefore not a substitute for net income as computed in
    accordance with GAAP. This measure should be analyzed in
    conjunction with net income computed in accordance with GAAP and
    discussions elsewhere in Managements Discussion and
    Analysis of Financial Condition and Results of Operations
    regarding the components of net income that are eliminated in
    the calculation of Property Operating Results. 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 Property
    Operating Results to net income computed in accordance with GAAP
    (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                           |                                                   |                         |         |         |   |      |         |        |   |   |         |        |  
|-------------------------- | ------------------------------------------------- | ----------------------- | ------- | ------- | - | ---- | ------- | ------ | - | - | ------- | ------ | -
|                           |                                                   |                        
|                           |                                                   | Year Ended December 31,
|                           |                                                   |                        
|                           |                                                   | 2002                    |         | 2001    |   | 2000
|                           |                                                   |                         |         |         |   |     
|Net Income                 |                                                   | $                       | 70,175  |         |   | $    | 97,759  |        |   | $ | 96,710  |       
|Add:                       |                                                   |                         |         |         |   |      |         |        |   |   |         |       
|                           | General and administrative expense                |                         |         | 13,166  |   |      |         | 12,143 |   |   |         | 9,336  |  
|                           | Interest expense                                  |                         |         | 88,516  |   |      |         | 86,651 |   |   |         | 79,211 |  
|                           | Depreciation and amortization                     |                         |         | 106,182 |   |      |         | 98,136 |   |   |         | 83,244 |  
|                           | Minority interest                                 |                         |         | 5,999   |   |      |         | 7,304  |   |   |         | 7,426  |  
|Less:                      |                                                   |                         |         |         |   |      |         |        |   |   |         |       
|                           | Interest and other income                         |                         |         | (2,542  | ) |      |         | (2,941 | ) |   |         | (3,527 | )
|                           | Discontinued operations, net of minority interest |                         |         | (8,692  | ) |      |         | (7,850 | ) |   |         | (5,491 | )
|                           | Gain on sale of operating properties              |                         |         | (1,967  | ) |      |         | (4,591 | ) |   |         | (2,132 | )
|                           |                                                   |                         |         |         |   |      |         |        |   |   |         |       
|Property Operating Results |                                                   | $                       | 270,837 |         |   | $    | 286,611 |        |   | $ | 264,777 |       
|                           |                                                   |                         |         |         |   |      |         |        |   |   |         |       



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

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Discontinued Operations

SFAS 144, effective January 1, 2002,
requires, among other things, that the operating results of real
estate properties classified as held for disposition subsequent
to January 1, 2002 be included in discontinued operations
in the statements of income for all periods presented. The table
below summarizes the operating results of two properties
classified as held for disposition as of December 31, 2003
as well as eight properties sold during 2003.

The results of operations for the two properties
classified as held for disposition as of December 31, 2003
and eight properties sold during 2003 for the years ended
December 31, 2002 and 2001 are as follows (in thousands,
except number of properties):

|                         |                                                   |              |        |        |  |         |       |        |   |  |       |       |   |  |    |     |  
|------------------------ | ------------------------------------------------- | ------------ | ------ | ------ |  | ------- | ----- | ------ | - |  | ----- | ----- | - |  | -- | --- | -
|                         |                                                   |              |        |        |  |        
|                         |                                                   | Year Ended   |        |        |  |        
|                         |                                                   | December 31, |        |        |  |        
|                         |                                                   |              |        |        |  | Percent
|                         |                                                   | 2002         |        | 2001   |  | Change  |       | Change
|                         |                                                   |              |        |        |  |         |       |       
|Discontinued Operations: |                                                   |              |        |        |  |         |       |        |   |  |       |       |   |  |    |    
|                         | Revenues                                          |              | $      | 21,732 |  |         | $     | 14,749 |   |  | $     | 6,983 |   |  |    | 47  | %
|                         | Property operating expenses                       |              |        | 7,568  |  |         |       | 5,411  |   |  |       | 2,157 |   |  |    | 40  |  
|                         |                                                   |              |        |        |  |         |       |        |   |  |       |       |   |  |    |    
|                         |                                                   |              | 14,164 |        |  |         | 9,338 |        |   |  | 4,826 |       |   |  | 52 |    
|                         | Depreciation and amortization                     |              |        | 5,235  |  |         |       | 3,683  |   |  |       | 1,552 |   |  |    | 42  |  
|                         | Interest expense                                  |              |        |       |  |         |       | (2,456 | ) |  |       | 2,456 |   |  |    | 100 |  
|                         | Minority interest                                 |              |        | 237    |  |         |       | 261    |   |  |       | (24   | ) |  |    | (9  | )
|                         |                                                   |              |        |        |  |         |       |        |   |  |       |       |   |  |    |    
|                         | Discontinued operations, net of minority interest |              | $      | 8,692  |  |         | $     | 7,850  |   |  | $     | 842   |   |  |    | 11  | %
|                         |                                                   |              |        |        |  |         |       |        |   |  |       |       |   |  |    |    
|Other Data:              |                                                   |              |        |        |  |         |       |        |   |  |       |       |   |  |    |    
|                         | Number of properties                              |              |        | 10     |  |         |       | 10     |   |  |       |       |   |  |    |     |  
|                         | Net rentable square feet                          |              |        | 893    |  |         |       | 893    |   |  |       |       |   |  |    |     |  

The variances in operating results for the two
properties held for disposition as of December 31, 2003
included in discontinued operations above and which were owned
for all of 2001 and 2002 are discussed as part of
Properties Owned for all of 2001 and 2002
immediately below.

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Properties Owned for all of 2001 and
2002

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

|                               |  |                         |         |        |  |         |         |        |  |   |         |   |  |  |    |   
|------------------------------ |  | ----------------------- | ------- | ------ |  | ------- | ------- | ------ |  | - | ------- | - |  |  | -- | --
|                               |  |                         |         |        |  |        
|                               |  | Year Ended December 31, |         |        |  |        
|                               |  |                         |         | Dollar |  | Percent
|                               |  | 2002                    |         | 2001   |  | Change  |         | Change
|                               |  |                         |         |        |  |         |         |       
|Revenue from rental operations |  | $                       | 391,893 |        |  | $       | 401,586 |        |  | $ | (9,693  | ) |  |  | (2 | )%
|Property expenses              |  |                         | 123,700 |        |  |         | 118,761 |        |  |   | 4,939   |   |  |  | 4  |   
|                               |  |                         |         |        |  |         |         |        |  |   |         |   |  |  |    |   
|                               |  |                         | 268,193 |        |  | $       | 282,825 |        |  | $ | (14,632 | ) |  |  | (5 | )%
|                               |  |                         |         |        |  |         |         |        |  |   |         |   |  |  |    |   
|Straight-line rents            |  |                         | 3,412   |        |  | $       | 8,074   |        |  |   |         |   |  |  |    |   
|                               |  |                         |         |        |  |         |         |        |  |   |         |   |  |  |    |   
|Number of properties           |  |                         | 129     |        |  |         | 129     |        |  |   |         |   |  |  |    |   
|Average occupancy              |  |                         | 91.1    | %      |  |         | 93.3    | %      |  |   |         |   |  |  |    |   
|Net rentable square feet       |  |                         | 17,880  |        |  |         | 17,880  |        |  |   |         |   |  |  |    |   

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

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

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Liquidity and Capital Resources

Cash
Flows

Cash provided by operating activities decreased
by approximately $18.4 million to $181.5 million in
2003 as compared to $199.9 million in 2002. This decrease
was primarily due to the loss of operating cash flows on eleven
properties sold since the beginning of 2002 as part of our
capital recycling program, which have been only partially offset
by the increased cash flows on five properties acquired in the
third quarter of 2002 and cash flows for one development
property placed in service subsequent to January 1, 2002.
In addition, in 2002, as a result of collection efforts
implemented, we reduced our outstanding trade receivables by
approximately $6.7 million.

Cash used in investing activities decreased by
approximately $192.6 million to $20.4 million in 2003
as compared to $213.0 million in 2002. The decrease was
primarily due to the acquisition of five properties for
approximately $135 million in the third quarter of 2002 and
the sale of eight properties in 2003 for approximately
$91.0 million in net proceeds. In 2002, we sold three
properties for approximately $24.3 million in net proceeds.

Cash used in financing activities increased by
approximately $140.6 million to an outflow of
$160.5 million in 2003 as compared to an outflow of
$19.9 million 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.

Capital
Commitments

As of December 31, 2003, we had
approximately $9.1 million outstanding in capital
commitments related to tenant improvements, development and
property-related capital expenditures. We expect to fund short
term capital commitments through cash flow generated by
operating activities, proceeds from asset sales or our unsecured
lines of credit.

Available
Borrowings, Cash Balances and Capital Resources

Our Operating Partnership has an unsecured line
of credit with a total commitment of $20 million from City
National Bank. This line of credit accrues interest at
LIBOR + 1.00% or the City National Bank Prime Rate
less 1.875% 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 December 31, 2003, there was
$3.0 million outstanding on this line of credit and
$17.0 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. The
line of credit provides for borrowings up to $310 million
with an option to increase the amount to $350 million and
bears interest at a rate ranging between LIBOR + 0.80%
and LIBOR + 1.25% (including an annual facility fee
ranging from 0.15% to 0.40% based on the aggregate amount of the
line of credit) depending on the Operating Partnerships
unsecured debt rating. This new line of credit amends the
previous $275 million unsecured line of credit that was
scheduled to mature in April 2003. This line of credit matures
in April 2006. In addition, as long as the Operating Partnership
maintains an unsecured debt rating of BBB-/ Baa3 or better, the
agreement contains a competitive bid option, whereby the lenders
may bid on the interest rate to be charged for up to
$150 million of the unsecured line of credit. The Operating
Partnership also has the option to convert the interest rate on
this line of credit to the higher of Wells Fargos prime
rate or the Federal Funds rate plus 0.5%. As of
December 31, 2003, $158.0 million was outstanding on
this line of credit and $152.0 million was available for
additional borrowings.

As of December 31, 2003, we had
approximately $24.4 million in cash and cash equivalents,
including $19.7 million in restricted cash. Restricted cash
consisted of $13.7 million in interest bearing cash
deposits required by five of our mortgage loans payable and
$6.0 million in cash impound accounts for real estate taxes
and insurance as required by several of our mortgage loans
payable.

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We have entered into $150 million of
forward-starting hedges 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 hedges 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 hedge 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 hedges, we will receive interest at a fixed rate
of 7.00% and pay interest at a variable rate averaging the
six-month LIBOR in arrears plus 3.10%. These interest rate
hedges mature at the same time the notes are due. Including
these hedges, our floating-rate debt ratio as of
December 31, 2003 was approximately 16%.

Capital
Recycling Program

During 2003 we sold eight properties pursuant to
our capital recycling program totaling approximately
598,000 square feet for approximately $93.5 million in
gross sales proceeds as follows:

|                             |  |        |                |           |  |              |                    |               |  |             |                   |             |  |  |        |  |  |  |         |  |  |   |        | 
|---------------------------- |  | ------ | -------------- | --------- |  | ------------ | ------------------ | ------------- |  | ----------- | ----------------- | ----------- |  |  | ------ |  |  |  | ------- |  |  | - | ------ | 
|                             |  |        |                |           |  |              |                    |               |  |             |                   | Gross Sales
|Property                     |  | County |                | Submarket |  | Date of Sale |                    | Property Type |  | Square Feet |                   | Price      
|                             |  |        |                |           |  |              |                    |               |  |             |                   |            
|                             |  |        |                |           |  |              |                    |               |  |             |                   | ($000s)   
|9201 Sunset                  |  |        | Los Angeles    |           |  |              | West Hollywood     |               |  |             | March 11, 2003    |             |  |  | Office |  |  |  | 139,711 |  |  | $ | 32,350 | 
|Centrelake Plaza             |  |        | San Bernardino |           |  |              | Inland Empire West |               |  |             | April 11, 2003    |             |  |  | Office |  |  |  | 110,763 |  |  |   | 14,395 | 
|Havengate Center             |  |        | San Bernardino |           |  |              | Inland Empire East |               |  |             | April 11, 2003    |             |  |  | Office |  |  |  | 80,557  |  |  |   | 10,521 | 
|HDS Plaza                    |  |        | San Bernardino |           |  |              | Inland Empire East |               |  |             | April 11, 2003    |             |  |  | Office |  |  |  | 104,178 |  |  |   | 12,371 | 
|Chicago Avenue Business Park |  |        | Riverside      |           |  |              | Inland Empire East |               |  |             | April 11, 2003    |             |  |  | Office |  |  |  | 47,482  |  |  |   | 6,113  | 
|Lambert Plaza                |  |        | Orange         |           |  |              | North County       |               |  |             | May 22, 2003      |             |  |  | Office |  |  |  | 32,807  |  |  |   | 5,000  | 
|Pennsfield Plaza             |  |        | Los Angeles    |           |  |              | Simi/Conejo Valley |               |  |             | November 5, 2003  |             |  |  | Office |  |  |  | 21,202  |  |  |   | 3,555  | 
|Lyons Plaza                  |  |        | Los Angeles    |           |  |              | Simi/Conejo Valley |               |  |             | December 11, 2003 |             |  |  | Office |  |  |  | 61,203  |  |  |   | 9,200  | 
|                             |  |        |                |           |  |              |                    |               |  |             |                   |             |  |  |        |  |  |  |         |  |  |   |        | 
|                             |  |        |                |           |  |              |                    |               |  |             |                   |             |  |  |        |  |  |  | 597,903 |  |  | $ | 93,505 | 
|                             |  |        |                |           |  |              |                    |               |  |             |                   |             |  |  |        |  |  |  |         |  |  |   |        | 

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

On December 23, 2003, we acquired Governor
Executive Centre II, a 101,433 square foot, 96%
leased, office property located in the Governor Park submarket
of San Diego County for approximately $23.4 million.

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| |             
| | ------------
| | Debt Summary

Following is a summary of scheduled principal
payments for our total outstanding indebtedness as of
December 31, 2003 (in thousands):

|           |  |        |           |    
|---------- |  | ------ | --------- | ---
|Year       |  | Amount
|           |  |       
|2004       |  | $      | 184,466   |    
|2005       |  |        | 207,470   |    
|2006       |  |        | 297,859   | (1)
|2007       |  |        | 158,961   |    
|2008       |  |        | 230,985   |    
|2009       |  |        | 112,550   |    
|2010       |  |        | 150,565   |    
|2011       |  |        | 710       |    
|2012       |  |        | 768       |    
|2013       |  |        | 845       |    
|Thereafter |  |        | 4,602     |    
|           |  |        |           |    
|Total      |  | $      | 1,349,781 |    
|           |  |        |           |    




|    |                                                                                   
|--- | ----------------------------------------------------------------------------------
|(1) | Includes $158 million outstanding on the
    Wells Fargo unsecured line of credit.

Following is other information related to our
indebtedness as of December 31, 2003 (in thousands, except
percentage and interest rate data):



| |                            
| | ---------------------------
| | Unsecured and Secured Debt:

|               |  |         |           |         |  |                  |     |   |  |  |      |  
|-------------- |  | ------- | --------- | ------- |  | ---------------- | --- | - |  |  | ---- | -
|               |  |         |           |         |  | Weighted Average
|               |  | Balance |           | Percent |  | Interest Rate(1)
|               |  |         |           |         |  |                 
|               |  | (000s) |           |         |  |                 
|Unsecured Debt |  | $       | 784,952   |         |  |                  | 58  | % |  |  | 6.58 | %
|Secured Debt   |  |         | 564,829   |         |  |                  | 42  |   |  |  | 7.37 |  
|               |  |         |           |         |  |                  |     |   |  |  |      |  
|Total Debt     |  | $       | 1,349,781 |         |  |                  | 100 | % |  |  | 6.91 | %
|               |  |         |           |         |  |                  |     |   |  |  |      |  



| |                              
| | -----------------------------
| | Floating and Fixed Rate Debt:

|                      |  |         |           |         |  |                  |     |   |  |  |      |  
|--------------------- |  | ------- | --------- | ------- |  | ---------------- | --- | - |  |  | ---- | -
|                      |  |         |           |         |  | Weighted Average
|                      |  | Balance |           | Percent |  | Interest Rate(1)
|                      |  |         |           |         |  |                 
|                      |  | (000s) |           |         |  |                 
|Floating Rate Debt(2) |  | $       | 211,000   |         |  |                  | 16  | % |  |  | 3.93 | %
|Fixed Debt(3)         |  |         | 1,138,781 |         |  |                  | 84  |   |  |  | 7.46 |  
|                      |  |         |           |         |  |                  |     |   |  |  |      |  
|Total Debt            |  | $       | 1,349,781 |         |  |                  | 100 | % |  |  | 6.91 | %
|                      |  |         |           |         |  |                  |     |   |  |  |      |  




|    |                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes amortization of prepaid financing costs.                                                                                
|   
|(2) | Includes $100 million of fixed rate debt
    that has been converted to floating rate through interest rate
    hedge agreements.
|   
|(3) | Includes $175 million of floating rate debt
    that has been fixed through interest rate swap agreements.                       



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Consolidated Income Available for Debt Service
    and Compliance with Principal Financial Covenants

Consolidated Income Available for Debt Service is
a non-GAAP measurement of our performance and liquidity.
Consolidated Income Available for Debt Service is presented
below because this data is used by investors and our management
as a supplemental measure to (a) evaluate our operating
performance and compare it to other real estate companies,
(b) determine trends in earnings, (c) determine our
ability to service debt and (d) determine our ability to
fund future capital expenditure requirements. As discussed more

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fully below, Consolidated Income Available for
Debt Service is also used in several financial covenants we are
required to satisfy each quarter under the terms of our
principal debt agreements.


Consolidated Income Available for Debt Service
permits investors and management to view income from our
operations on an unleveraged basis before the effects of
non-cash depreciation and amortization expense. By excluding
interest expense, Consolidated Income Available for Debt Service
measures our operating performance independent of our capital
structure and indebtedness and, therefore, allows for a more
meaningful comparison of our operating performance between
quarters as well as annual periods and to compare our operating
performance to that of other companies, and to more readily
identify and evaluate trends in earnings.

The usefulness of Consolidated Income Available
for Debt Service is limited because it does not reflect 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.
These costs have been or may in the future be incurred by us,
each of which affects or could effect our operating performance
and ability to finance our investments at competitive borrowing
costs, successfully maintain our REIT status, and acquire and
dispose of real estate properties at favorable prices to us.
Some of these costs 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. Due to the significance of the net income components
excluded from Consolidated Income Available for Debt Service,
this measure should not be considered an alternative to (and
should be considered in conjunction with) net income, cash flow
from operations, and other performance or liquidity measures
prescribed by GAAP. This measure should also be analyzed in
conjunction with discussions elsewhere in
Managements Discussion and Analysis of Financial
Condition and Results of Operations regarding the items
eliminated in the calculation of Consolidated Income Available
for Debt Service.

The reader is cautioned that Consolidated Income
Available for Debt Service, as calculated by us, may not be
comparable to similar measures reported by other companies
(under names such as or similar to Consolidated Income Available
for Debt Service, EBITDA or adjusted EBITDA) that do not define
this measure exactly the same as we do.

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##### Table of Contents



We calculate Consolidated Income Available for
Debt Service as follows:

|                                               |                                                    |                         |         |        |   |      |         |        |   |      |         |        |   |   |         |         |   |   |         |        |  
|---------------------------------------------- | -------------------------------------------------- | ----------------------- | ------- | ------ | - | ---- | ------- | ------ | - | ---- | ------- | ------ | - | - | ------- | ------- | - | - | ------- | ------ | -
|                                               |                                                    |                        
|                                               |                                                    | Year Ended December 31,
|                                               |                                                    |                        
|                                               |                                                    | 2003                    |         | 2002   |   | 2001 |         | 2000   |   | 1999
|                                               |                                                    |                         |         |        |   |      |         |        |   |     
|Net cash provided by operating activities      |                                                    | $                       | 181,482 |        |   | $    | 199,922 |        |   | $    | 204,667 |        |   | $ | 192,152 |         |   | $ | 170,354 |       
|Add:                                           |                                                    |                         |         |        |   |      |         |        |   |      |         |        |   |   |         |         |   |   |         |       
|                                               | Interest expense                                   |                         |         | 93,767 |   |      |         | 88,516 |   |      |         | 86,651 |   |   |         | 79,211  |   |   |         | 60,867 |  
|                                               | Interest expense from discontinued operations      |                         |         |       |   |      |         |       |   |      |         | (2,456 | ) |   |         | (805    | ) |   |         | (628   | )
|                                               | Gain on repayment of mortgage note receivable      |                         |         |       |   |      |         | 750    |   |      |         |       |   |   |         |        |   |   |         |       |  
|Less:                                          |                                                    |                         |         |        |   |      |         |        |   |      |         |        |   |   |         |         |   |   |         |       
|                                               | Amortization of loan costs and fees                |                         |         | (3,972 | ) |      |         | (3,807 | ) |      |         | (3,568 | ) |   |         | (3,568  | ) |   |         | (2,868 | )
|                                               | Amortization of deferred compensation              |                         |         | (2,251 | ) |      |         | (1,199 | ) |      |         | (1,938 | ) |   |         | (586    | ) |   |         |       |  
|Changes in operating assets and liabilities:   |                                                    |                         |         |        |   |      |         |        |   |      |         |        |   |   |         |         |   |   |         |       
|                                               | Rent and other receivables                         |                         |         | 771    |   |      |         | (6,768 | ) |      |         | (3,775 | ) |   |         | 1,080   |   |   |         | 2,279  |  
|                                               | Deferred rent                                      |                         |         | 557    |   |      |         | 4,657  |   |      |         | 7,401  |   |   |         | 7,656   |   |   |         | 6,928  |  
|                                               | Prepaid financing costs, expenses and other assets |                         |         | 1,494  |   |      |         | 2,997  |   |      |         | 4,366  |   |   |         | 7,480   |   |   |         | 1,456  |  
|                                               | Accounts payable and accrued expenses              |                         |         | 2,365  |   |      |         | (9,729 | ) |      |         | (4,388 | ) |   |         | (11,359 | ) |   |         | (4,250 | )
|                                               | Security deposits                                  |                         |         | (1,676 | ) |      |         | (962   | ) |      |         | (213   | ) |   |         | (3,397  | ) |   |         | (2,140 | )
|                                               |                                                    |                         |         |        |   |      |         |        |   |      |         |        |   |   |         |         |   |   |         |       
|Consolidated Income Available for Debt Service |                                                    | $                       | 272,537 |        |   |      | 274,377 |        |   | $    | 286,747 |        |   | $ | 267,864 |         |   | $ | 231,998 |       
|                                               |                                                    |                         |         |        |   |      |         |        |   |      |         |        |   |   |         |         |   |   |         |       

|                                               |                                                |                         |         |         |   |      |         |         |   |      |         |        |   |   |         |        |   |   |         |        |  
|---------------------------------------------- | ---------------------------------------------- | ----------------------- | ------- | ------- | - | ---- | ------- | ------- | - | ---- | ------- | ------ | - | - | ------- | ------ | - | - | ------- | ------ | -
|                                               |                                                |                        
|                                               |                                                | Year Ended December 31,
|                                               |                                                |                        
|                                               |                                                | 2003                    |         | 2002    |   | 2001 |         | 2000    |   | 1999
|                                               |                                                |                         |         |         |   |      |         |         |   |     
|Net Income                                     |                                                | $                       | 58,509  |         |   |      | 70,175  |         |   | $    | 97,759  |        |   | $ | 96,710  |        |   | $ | 96,626  |       
|Add:                                           |                                                |                         |         |         |   |      |         |         |   |      |         |        |   |   |         |        |   |   |         |       
|                                               | Interest expense                               |                         |         | 93,767  |   |      |         | 88,516  |   |      |         | 86,651 |   |   |         | 79,211 |   |   |         | 60,867 |  
|                                               | Interest expense from discontinued operations  |                         |         |        |   |      |         |        |   |      |         | (2,456 | ) |   |         | (805   | ) |   |         | (629   | )
|                                               | Depreciation and amortization                  |                         |         | 118,114 |   |      |         | 106,182 |   |      |         | 98,136 |   |   |         | 83,244 |   |   |         | 67,428 |  
|                                               | Minority interest                              |                         |         | 5,536   |   |      |         | 5,999   |   |      |         | 7,304  |   |   |         | 7,426  |   |   |         | 5,041  |  
|                                               | Minority interest from discontinued operations |                         |         | 338     |   |      |         | 237     |   |      |         | 261    |   |   |         | 187    |   |   |         | 255    |  
|                                               | Depreciation from discontinued operations      |                         |         | 2,210   |   |      |         | 5,235   |   |      |         | 3,683  |   |   |         | 4,023  |   |   |         | 2,410  |  
|Less:                                          |                                                |                         |         |         |   |      |         |         |   |      |         |        |   |   |         |        |   |   |         |       
|                                               | Gain on sale of discontinued properties        |                         |         | (5,937  | ) |      |         |        |   |      |         |       |   |   |         |       |   |   |         |       |  
|                                               | Gain on sale of operating properties           |                         |         |        |   |      |         | (1,967  | ) |      |         | (4,591 | ) |   |         | (2,132 | ) |   |         |       |  
|                                               |                                                |                         |         |         |   |      |         |         |   |      |         |        |   |   |         |        |   |   |         |       
|Consolidated Income Available for Debt Service |                                                | $                       | 272,537 |         |   |      | 274,377 |         |   | $    | 286,747 |        |   | $ | 267,864 |        |   | $ | 231,998 |       
|                                               |                                                |                         |         |         |   |      |         |         |   |      |         |        |   |   |         |        |   |   |         |       

Consolidated Income Available for Debt Service is
also presented because it is used in ratios contained in the
principal financial covenants of the Indenture governing our
publicly traded senior unsecured notes and our Credit Agreement
with a syndicate of banks led by Wells Fargo. As of
December 31, 2003, our senior unsecured notes represented
37% of our total outstanding debt and amounts outstanding under
our Wells Fargo unsecured line of credit represented 12% of our
total outstanding debt. The Consolidated Income Available for
Debt Service ratios and the other ratios reported below are part
of financial covenants we are required to satisfy each fiscal
quarter. We believe information about these ratios is useful to
(1) confirm that

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we are in compliance with the financial 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, including other REITs, that present
the same ratios.


If we were to fail to satisfy these financial
covenants, we would be in default under the terms of the
Indenture for the senior unsecured notes and/or the Wells Fargo
Credit Agreement. A default under those agreements could
accelerate the obligation to repay such debt and could cause us
to be in default under our other debt agreements. Depending on
the circumstances surrounding such acceleration, we might not be
able to repay the debt on terms that are favorable to us, or at
all, which could have a material adverse affect on our financial
condition and our ability to raise capital in the future.

The reader is cautioned that these ratios, as
calculated by us, may not be comparable to similarly entitled
ratios reported by other companies that do not calculate these
ratios exactly the same as we do. These ratios should not be
considered as alternatives to the ratio of earnings to fixed
charges.

The following table summarizes the principal
ratios contained in the financial covenants of our senior
unsecured notes and Wells Fargo unsecured line of credit as of
December 31, 2003 (in thousands, except percentage and
covenant ratio data):

|                                               |                           |   |           |           | 
|---------------------------------------------- | ------------------------- | - | --------- | --------- | 
|Net investment in real estate                  |                           | $ | 2,646,699 |          
|Cash and cash equivalents                      |                           |   | 4,707     |          
|Restricted cash                                |                           |   | 19,694    |          
|Accumulated depreciation and amortization(1)   |                           |   | 456,432   |          
|                                               |                           |   |           |          
|                                               | Total Assets              |   | $         | 3,127,532 | 
|                                               |                           |   |           |          
|                                               | Total unencumbered assets |   | $         | 1,793,226 | 
|                                               |                           |   |           |          
|Mortgage loans payable(2)                      |                           | $ | 564,829   |          
|Unsecured lines of credit                      |                           |   | 161,000   |          
|Unsecured term loan                            |                           |   | 125,000   |          
|Unsecured senior notes, net of discount        |                           |   | 498,952   |          
|                                               |                           |   |           |          
|                                               | Total Outstanding Debt    |   | $         | 1,349,781 | 
|                                               |                           |   |           |          
|Consolidated Income Available for Debt Service |                           | $ | 272,537   |          
|                                               |                           |   |           |          
|Interest incurred(3)                           |                           | $ | 96,263    |          
|Loan fee amortization(3)                       |                           |   | (3,589    | )        
|                                               |                           |   |           |          
|Debt Service(3)                                |                           | $ | 92,674    |          
|                                               |                           |   |           |          

|                                                                                |  |      |                   |        |  |  |     |  
|------------------------------------------------------------------------------- |  | ---- | ----------------- | ------ |  |  | --- | -
|Covenant Ratios                                                                 |  | Test |                   | Actual
|                                                                                |  |      |                   |       
|Ratio of Consolidated Income Available for Debt
    Service to Debt Service     |  |      | Greater than 1.5  |        |  |  | 2.9 |  
|Ratio of Consolidated Income Available for Debt
    Service to interest expense |  |      | Greater than 2.0  |        |  |  | 3.0 |  
|Ratio of Consolidated Income Available for Debt
    Service to fixed charges(4) |  |      | Greater than 1.75 |        |  |  | 2.2 |  
|Total Outstanding Debt/ Total Assets                                            |  |      | Less than 60%     |        |  |  | 43  | %
|Secured Debt/ Total Assets                                                      |  |      | Less than 40%     |        |  |  | 18  | %
|Unencumbered Assets/ Unsecured Debt                                             |  |      | Greater than 150% |        |  |  | 228 | %



---



|    |                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes accumulated depreciation related to a
    property currently held for disposition.                                                              
|   
|(2) | Represents 10 secured loans that are secured by
    71 properties in our portfolio.                                                                      
|   
|(3) | Represents amounts for the most recent four
    consecutive quarters. Loan fee amortization excludes discount
    amortization on senior unsecured notes.

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|    |                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Fixed charges consist of interest costs, whether
    expensed or capitalized, principal payments on all debt, an
    amount equal to $0.3125 per quarter multiplied by the
    weighted average gross leaseable square feet of the portfolio at
    the end of the period and preferred unit distributions.

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

|                        |  |                         |        |      |  |      |        |   |  |   |        |     
|----------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | ----
|                        |  |                        
|                        |  | Year Ended December 31,
|                        |  |                        
|                        |  | 2003                    |        | 2002 |  | 2001
|                        |  |                         |        |      |  |     
|Total interest incurred |  | $                       | 96,263 |      |  | $    | 94,162 |   |  | $ | 93,290 |     
|Amount capitalized      |  |                         | (2,496 | )    |  |      | (5,646 | ) |  |   | (9,095 | )(1)
|                        |  |                         |        |      |  |      |        |   |  |   |        |     
|Amount expensed         |  | $                       | 93,767 |      |  | $    | 88,516 |   |  | $ | 84,195 |     
|                        |  |                         |        |      |  |      |        |   |  |   |        |     



---



|    |                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes approximately $2.5 million of
    interest capitalized on an office property that was classified
    as part of discontinued operations for the year ended
    December 31, 2001.



| |                         
| | ------------------------
| | Future Capital Resources

We may sell assets over the next twelve to
twenty-four months. Due to market conditions beyond our control,
it is difficult to predict the actual period and amount of these
asset sales. Also depending on market conditions, at the time
any such sales proceeds are realized, we expect to place such
amounts into investments that we believe will generate higher
long-term value, which may include development or redevelopment
of office buildings, acquisitions of existing buildings or
repurchases of our common stock. In addition, we expect to use a
portion of any proceeds to pay down portions of our debt in
order to maintain our conservative leverage and coverage ratios.

We expect to continue meeting our short-term
liquidity and capital requirements generally through net cash
provided by operating activities, proceeds from our lines of
credit or from asset sales. We believe that the net cash
provided by operating activities will continue to be sufficient
to pay any distributions necessary to enable us to continue
qualifying as a REIT. We also believe the foregoing sources of
liquidity will be sufficient to fund our short-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, proceeds from
asset sales and/or the issuance of long-term debt and equity
securities.

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

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

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

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| |                        
| | -----------------------
| | Contractual Obligations

As of December 21, 2003, we were subject to
certain contractual payment obligations as described in the
table below.

|                              |                        |                        |           |         |  |      |         |      |  |      |         |         |  |            |         |         |  |   |         |         |  |   |         |   |  |   |         |         | 
|----------------------------- | ---------------------- | ---------------------- | --------- | ------- |  | ---- | ------- | ---- |  | ---- | ------- | ------- |  | ---------- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | - |  | - | ------- | ------- | 
|                              |                        |                       
|                              |                        | Payments Due by Period
|                              |                        |                       
|                              |                        | Total                  |           | 2004    |  | 2005 |         | 2006 |  | 2007 |         | 2008    |  | Thereafter
|                              |                        |                        |           |         |  |      |         |      |  |      |         |         |  |           
|                              |                        |                       
|                              |                        | (in thousands)        
|Contractual Obligations:      |                        |                        |           |         |  |      |         |      |  |      |         |         |  |            |         |         |  |   |         |         |  |   |         |   |  |   |         |        
|Long-term debt Mortgage debt  |                        | $                      | 564,829   |         |  | $    | 181,850 |      |  | $    | 7,776   |         |  | $          | 15,140  |         |  | $ | 8,710   |         |  | $ | 231,109 |   |  | $ | 120,244 |        
|                              | Unsecured senior notes |                        |           | 500,270 |  |      |         |     |  |      |         | 199,974 |  |            |         |        |  |   |         | 150,376 |  |   |         |  |  |   |         | 149,920 | 
|                              | Unsecured term loan    |                        |           | 125,000 |  |      |         |     |  |      |         |        |  |            |         | 125,000 |  |   |         |        |  |   |         |  |  |   |         |        | 
|Unsecured line of credit      |                        |                        | 161,000   |         |  |      | 3,000   |      |  |      |        |         |  |            | 158,000 |         |  |   |        |         |  |   |        |   |  |   |         |        
|Ground leases                 |                        |                        | 120,092   |         |  |      | 1,785   |      |  |      | 1,815   |         |  |            | 1,840   |         |  |   | 1,865   |         |  |   | 1,865   |   |  |   | 110,922 |        
|Capital commitments           |                        |                        | 9,089     |         |  |      | 9,089   |      |  |      |        |         |  |            |        |         |  |   |        |         |  |   |        |   |  |   |        |        
|                              |                        |                        |           |         |  |      |         |      |  |      |         |         |  |            |         |         |  |   |         |         |  |   |         |   |  |   |         |        
|Total Contractual Obligations |                        | $                      | 1,480,280 |         |  | $    | 195,724 |      |  | $    | 209,565 |         |  | $          | 299,980 |         |  | $ | 160,951 |         |  | $ | 232,974 |   |  | $ | 381,086 |        
|                              |                        |                        |           |         |  |      |         |      |  |      |         |         |  |            |         |         |  |   |         |         |  |   |         |   |  |   |         |        

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##### Table of Contents



Funds From Operations

The following table reflects the calculation of
our funds from operations for the years ended December 31,
2003, 2002, 2001, 2000 and 1999 (in thousands, except
percentages):

|                          |                                                                                          |                                                    |         |         |   |      |         |         |   |      |         |         |   |  |         |         |   |  |         |         |  
|------------------------- | ---------------------------------------------------------------------------------------- | -------------------------------------------------- | ------- | ------- | - | ---- | ------- | ------- | - | ---- | ------- | ------- | - |  | ------- | ------- | - |  | ------- | ------- | -
|                          |                                                                                          |                                                   
|                          |                                                                                          | Year Ended December 31,                           
|                          |                                                                                          |                                                   
|                          |                                                                                          | 2003                                               |         | 2002    |   | 2001 |         | 2000    |   | 1999
|                          |                                                                                          |                                                    |         |         |   |      |         |         |   |     
|                          |                                                                                          |                                                   
|                          |                                                                                          | (in thousands, except ratio and per share amounts)
|Funds from Operations(1): |                                                                                          |                                                    |         |         |   |      |         |         |   |      |         |         |   |  |         |         |   |  |         |        
|                          | Net income                                                                               |                                                    | $       | 58,509  |   |      | $       | 70,175  |   |      | $       | 97,759  |   |  | $       | 96,710  |   |  | $       | 96,626  |  
|                          | Depreciation and minority interest from
    discontinued operations                      |                                                    |         | 2,548   |   |      |         | 5,472   |   |      |         | 3,944   |   |  |         | 4,210   |   |  |         | 2,664   |  
|                          | Gain on sale of discontinued properties                                                  |                                                    |         | (5,937  | ) |      |         |        |   |      |         |        |   |  |         |        |   |  |         |        |  
|                          | Depreciation and amortization                                                            |                                                    |         | 118,114 |   |      |         | 106,182 |   |      |         | 98,136  |   |  |         | 83,244  |   |  |         | 67,428  |  
|                          | Gain on sale of operating properties                                                     |                                                    |         |        |   |      |         | (1,967  | ) |      |         | (4,591  | ) |  |         | (2,132  | ) |  |         |        |  
|                          | Minority interest                                                                        |                                                    |         | 5,536   |   |      |         | 5,999   |   |      |         | 7,304   |   |  |         | 7,426   |   |  |         | 5,041   |  
|                          | Income allocated to Preferred Operating
    Partnership Units                            |                                                    |         | (4,312  | ) |      |         | (4,312  | ) |      |         | (4,312  | ) |  |         | (4,312  | ) |  |         | (1,354  | )
|                          |                                                                                          |                                                    |         |         |   |      |         |         |   |      |         |         |   |  |         |         |   |  |         |        
|Funds from Operations(2)  |                                                                                          |                                                    | 174,458 |         |   |      | 181,549 |         |   |      | 198,240 |         |   |  | 185,146 |         |   |  | 170,405 |        
|                          | Arden Realtys percentage share(3)                                                       |                                                    |         | 97.4    | % |      |         | 97.3    | % |      |         | 96.8    | % |  |         | 96.7    | % |  |         | 96.2    | %
|                          |                                                                                          |                                                    |         |         |   |      |         |         |   |      |         |         |   |  |         |         |   |  |         |        
|                          | Arden Realtys share of Funds from Operations                                            |                                                    | $       | 169,922 |   |      | $       | 176,647 |   |      | $       | 191,896 |   |  | $       | 179,036 |   |  | $       | 163,930 |  
|                          |                                                                                          |                                                    |         |         |   |      |         |         |   |      |         |         |   |  |         |         |   |  |         |        
|                          | Weighted average common shares and operating
    partnership units outstanding  Diluted |                                                    |         | 65,513  |   |      |         | 66,098  |   |      |         | 66,132  |   |  |         | 65,759  |   |  |         | 65,566  |  
|                          |                                                                                          |                                                    |         |         |   |      |         |         |   |      |         |         |   |  |         |         |   |  |         |        




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



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We believe that FFO, by excluding depreciation
    costs, the gains or losses from the sale of operating real
    estate properties and the extraordinary items as defined by
    GAAP, provides an additional perspective on our operating
    results. However, because these excluded items have a real
    economic effect, FFO is a limited measure of performance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | FFO captures trends in occupancy rates, rental
    rates and operating costs. FFO excludes depreciation and
    amortization costs and it does not capture the changes in value
    in our properties that result from use or changes in market
    conditions or the level of capital expenditures and leasing
    costs necessary to maintain the operating performance of our
    properties, all of which are significant economic costs.
    Therefore, its ability to measure performance is limited.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | Because FFO excludes significant economic
    components of net income determined in accordance with GAAP, FFO
    should be used as an adjunct to net income and not as an
    alternative to net income. FFO should also not be used as an
    indicator of our financial performance, or as a substitute for
    cash flow from operating activities determined in accordance
    with GAAP or as a measure of our liquidity. FFO is not by itself
    indicative of funds available to fund our cash needs, including
    our ability to pay dividends or service our debt. Therefore, FFO
    only provides investors with an additional performance measure
    that when combined with measures computed in accordance with
    GAAP such as net income, cash flow from operating activities,
    investing activities and financing activities provides investors
    with an indication of our ability to service debt and to fund
    acquisitions and other expenditures.
|
| | FFO is used by investors to compare our
    performance with other REITs. Other REITs may use different
    methods for calculating FFO and, accordingly, our FFO may not be
    comparable to other REITs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



|    |                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes approximately $2.2 million,
    $1.2 million, $1.9 million and $586,000 in non-cash
    compensation expense for the years ended December 31, 2003,
    2002, 2001 and 2000, respectively.
|   
|(3) | Represents Arden Realtys weighted average
    ownership percentage during the respective twelve month period.                                                                                     

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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 expecting
continued downward pressures on occupancy and rental rates and
upward pressures on leasing costs due to several factors,
including, among others, the following:



| |   |                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Non-farm job growth in Southern California, which
    we believe to be a leading indicator of office demand, was
    negative in 2003 and is largely dependent on improved economic
    activity;
|
| |  | Rental rates decreased in 2003 and are expected
    to decrease further in 2004 due to the state of the local
    economy and competition from other office landlords;                           
|
| |  | Tenant concessions for new and renewal leases
    increased in some submarkets in 2003 and are expected to further
    increase in 2004 due to competition from other office landlords;          
|
| |  | 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.                                                                                                                                

Although these factors were present during 2003,
the occupancy of our portfolio increased 0.3% from 90.1% as of
December 31, 2002 to 90.4% as of December 31, 2003.

According to published reports, overall market
rental rates in Southern California declined 1% to 2% during
2003. Given the current trends, including the expected continued
occupancy pressures and more aggressive pricing from competing
landlords and sublease space, we expect market rates may decline
by up to an additional 2% in 2004. Concessions also rose during
2003. As occupancy pressures continue, we expect concessions in
either free rent or higher tenant improvement allowances to
continue until vacancies decline to a level where landlords
regain pricing power.

The timing and extent of future changes in the
national and local economy and their effects on our properties
and results of operations are difficult to accurately predict.
It is possible, however, that these national and regional issues
may more directly affect us and our operating results in the
future, making it more difficult for us to lease and renew
available space, to increase or maintain rental rates as leases
expire and to collect amounts due from our tenants. For
additional information, see Risk Factors 
Further declines in the economic activity of Southern California
will adversely affect our operating results,
 The financial condition and solvency of our
tenants may reduce our cash flow, and
 Rising energy costs and power outages in
California may have an adverse effect on our operations and
revenue.




ITEM
7A.     Quantitative and Qualitative
Disclosure About Market Risk

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

Interest
Rate Risk

In order to modify and manage the interest
characteristics of our outstanding debt and limit the effects of
interest rates on our operations, we may use a variety of
financial instruments, including interest rate hedges, caps,
floors and other interest rate exchange contracts. The use of
these types of instruments to hedge our exposure to changes in
interest rates carries additional risks such as counter-party
credit risk and legal

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##### Table of Contents



enforceability of hedging contracts. We do not
enter into any transactions for speculative or trading purposes.
During 2003, we entered into $150 million of
forward-starting interest rate hedge agreements effectively
fixing the 10-year Treasury Rate at approximately 4.1% 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 hedge
agreements to float $100 million of the fixed interest rate
associated with the 7.00% senior unsecured notes due in
November 2007. Under these reverse hedges, we will receive
interest at a fixed rate of 7.00% and pay interest at a variable
rate averaging the six-month LIBOR in arrears plus 3.10%.


Some of our future earnings, cash flows and fair
values relating to financial instruments are dependent upon
prevailing market rates of interest, such as LIBOR. Based on
interest rates and outstanding balances as of December 31,
2003, a 1% increase in interest rates on our $211.0 million
of floating rate debt would decrease annual future earnings and
cash flows by approximately $2.1 million and would not have
an impact on the fair value of the floating rate debt. A 1%
decrease in interest rates on our $211.0 million of
floating rate debt would increase annual future earnings and
cash flows by approximately $2.1 million and would not have
an impact on the fair value of the floating rate debt. The
weighted average interest rate on our floating debt as of
December 31, 2003 was 3.93%.

Our fixed rate debt, including
$175.0 million in floating rate debt swapped to fixed
through interest rate hedges, totaled $1,138.8 million as
of December 31, 2003 with a weighted average interest rate
of 7.46% and a total fair value of approximately
$1,198.5 million. A 1% decrease in interest rates on our
$1,138.8 million of fixed rate debt would increase its fair
value by approximately $55.2 million and would not have an
impact on annual future earnings and cash flows. A 1% increase
in interest rates on our $1,138.8 million of fixed rate
debt would decrease its fair value by approximately
$52.1 million and would not have an impact of annual future
earnings and cash flows.

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

RISK FACTORS

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

Real Estate Investment Risks



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

Through 2008, 2,725 leases, including
month-to-month leases, comprising approximately 78% of our
leased net rentable square footage and approximately 74% of our
annualized base rents at December 31, 2003 will expire as
follows:

|     |  |                 |     |                     |  |                     |      |   |  |  |      |  
|---- |  | --------------- | --- | ------------------- |  | ------------------- | ---- | - |  |  | ---- | -
|     |  |                 |     | Percentage of       |  | Percentage of      
|     |  |                 |     | Aggregate Portfolio |  | Aggregate Portfolio
|     |  | Number of       |     | Leased Square       |  | Annualized Base    
|Year |  | Leases Expiring |     | Feet                |  | Rent               
|     |  |                 |     |                     |  |                    
|2004 |  |                 | 817 |                     |  |                     | 20.7 | % |  |  | 18.1 | %
|2005 |  |                 | 643 |                     |  |                     | 18.1 |   |  |  | 16.4 |  
|2006 |  |                 | 548 |                     |  |                     | 15.5 |   |  |  | 15.4 |  
|2007 |  |                 | 370 |                     |  |                     | 11.6 |   |  |  | 11.7 |  
|2008 |  |                 | 347 |                     |  |                     | 12.1 |   |  |  | 12.8 |  

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



| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Lack of non-farm job growth in Southern
    California or a deterioration of the local and national economy
    will adversely affect our operating results.

All of our properties are located in Southern
California. In 2003, the Southern California economy experienced
negative job growth. We believe non-farm job growth to be a
leading indicator of office demand for the region. During 2004,
a total of approximately 3.5 million square feet of
occupied space, representing approximately 19.0% of our total
net rentable space, including month-to-month leases, will
expire. Further negative non-farm job growth in our submarkets
or a deterioration of the local and/or national economy may
result in further erosion of occupancy and rental rates and may
cause tenant concessions to increase and would most likely
negatively affect our operating performance and property values.



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

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



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

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



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

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



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

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

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Approximately 27% of our buildings and 21% of the
total rentable square footage of our portfolio are subject to
leases that require our tenants to pay all utility costs. The
remainder of our leases provide that tenants will reimburse us
for utility costs in excess of a base year amount.

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



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

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



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

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



| |   |                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our partners or co-venturers might become
    bankrupt;                                                                                                                   
|
| |  | our partners or co-venturers might at any time
    have economic or other business interests or goals which are
    inconsistent with our business interests or goals; and
|
| |  | our partners or co-venturers may be in a position
    to take action contrary to our instructions or requests contrary
    to our policies or objectives.                 

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



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

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

48



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##### Table of Contents





| |                                                                  
| | -----------------------------------------------------------------
| | Our acquisitions and renovations may not
    perform as expected.

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



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

We currently have one development property under
lease-up at the Howard Hughes Center in Los Angeles, California.
The estimated total costs for this property is approximately
$81.5 million. In addition, we have preliminary
architectural designs completed for an additional
475,000 net rentable square feet and have completed
preliminary designs on a build-to-suit office building at our
Long Beach Airport Business Park. We have entitlements for up to
600 hotel rooms at the Howard Hughes Center. Also, as part of
our Gateway Towers acquisition in August 2002, we acquired a
5-acre developable land parcel in Torrance, California that we
are also marketing for a build-to-suit building. We do not
intend to commence construction on any of these projects until
development plans and budgets are finalized and build-to-suit
tenant leases are signed with terms allowing us to achieve
yields commensurate with each projects development risk.
We also intend to review, from time to time, other opportunities
for developing and constructing office buildings and other
commercial properties in accordance with our development and
underwriting policies.

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

Risks associated with our development activities
may include:



| |   |                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | abandonment of development opportunities due to a
    lack of financing or other reasons;                                                                                                                                                     
|
| |  | construction costs of a property exceeding
    original estimates, possibly making the property uneconomical;                                                                                                                                 
|
| |  | occupancy rates and rents at a newly completed
    property may not be sufficient to make the property profitable;                                                                                                                            
|
| |  | construction and lease-up may not be completed on
    schedule, resulting in increased debt service expense and
    construction costs; and                                                                                                   
|
| |  | development activities would also be subject to
    risks relating to the inability to obtain, or delays in
    obtaining, all necessary zoning, land-use, building, occupancy
    and other required governmental permits and authorizations.



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

Our governing documents do not restrict the
amount or percentage of our assets that we may invest in a
single property or geographic area. All of our properties are
currently in Southern California and we have no immediate plans
to invest outside of Southern California. Although the overall
Southern California economy is diverse and well balanced, the
geographic concentration of our portfolio may make us more
susceptible to changes affecting the Southern California economy
and real estate markets or damages from regional events such as
earthquakes.

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

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

Financing Risks



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

As of December 31, 2003, we had total debt
of approximately $1.3 billion, consisting of approximately
$564.8 million in secured debt and approximately
$785.0 million of unsecured debt. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and
Capital Resources.

Our indebtedness could:



| |   |                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | require us to dedicate a substantial portion of
    our cash flow to pay our debt, thereby reducing the availability
    of our cash flow to fund distributions, working capital, capital
    expenditures, acquisition and development activity and other
    business purposes;
|
| |  | make it more difficult for us to satisfy our debt
    obligations;                                                                                                                                                                                                               
|
| |  | limit our ability to refinance our debt and
    obtain additional debt financing; and                                                                                                                                                                                            
|
| |  | increase our vulnerability to general adverse
    economic and real estate industry conditions and limit our
    flexibility in planning for, or reacting to, changes in our
    business and the real estate industry.                                                          

Despite current indebtedness levels, we may still
be able to incur substantially more debt in the future, which
would increase the risks associated with our substantial
leverage. Neither the partnership agreement of our Operating
Partnership nor our governing documents limit the amount or the
percentage of indebtedness that we may incur. We may borrow up
to a maximum of $330 million under our two lines of credit.
As of December 31, 2003, we had the ability to borrow an
additional $169.0 million under these two lines of credit.
If new debt is added to our current debt levels, the related
risks that we now face could intensify and could increase the
risk of default on our indebtedness.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Scheduled debt payments could adversely affect
    our financial condition.

Our cash flow could be insufficient to meet
required payments of principal and interest when due. In
addition, we may not be able to refinance existing indebtedness,
which in virtually all cases requires substantial principal
payments at maturity, and, if we can refinance, the terms of the
refinancing might not be as favorable as the terms of our
existing indebtedness. As of December 31, 2003,
approximately $184.5 million of principal will be coming
due over the next twelve months. If principal payments cannot be
refinanced, extended or paid with proceeds of other capital
transactions, such as new equity capital, our cash flow will not
be sufficient in all years to repay all maturing debt and
continue to service and repay our debt obligations.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Rises in interest rates could adversely affect
    our financial condition.

An increase in prevailing interest rates would
have an immediate effect on the interest rates charged on our
variable rate debt which rise and fall upon changes in interest
rates. At December 31, 2003, approximately 16% of our debt
was variable rate debt. Increases in interest rates would also
impact the refinancing of our fixed rate debt. If interest rates
are higher when our fixed debt becomes due, we may be forced to
borrow at the higher rates. If prevailing interest rates or
other factors result in higher interest rates, the increased
interest expense would adversely affect our cash flow and our
ability to service our debt. As a protection against rising
interest rates, we may enter into agreements such as interest
rate hedges, caps, floors and other interest rate exchange
contracts. These agreements, however, increase our risks as to
the other parties to the agreements

50



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not performing or that the agreements could be
unenforceable. During 2003, we entered into $150 million of
forward-starting interest rate hedge agreements effectively
fixing the 10-year Treasury Rate at approximately 4.1% 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 hedge
agreements to float $100 million of the fixed interest rate
associated with the 7.00% senior unsecured notes due in
November 2007. Under these reverse hedges, we will receive
interest at a fixed rate of 7.00% and pay interest at a variable
rate averaging the six-month LIBOR in arrears plus 3.10%.




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

We currently have outstanding five mortgage
financings totaling $547.0 million that are secured by 67
of our properties. The properties in each of these financings
are fully cross-collateralized and cross-defaulted. To the
extent two or more mortgages are cross-defaulted, a default in
one mortgage will trigger a default in the other mortgages. The
cross-defaults can give the lender a number of remedies
depending on the circumstances such as the right to increase the
interest rate, demand additional collateral, accelerate the
maturity date of the mortgages or foreclose on and sell the
properties. To the extent two or more mortgages are
cross-collateralized, a default in one mortgage will allow the
mortgage lender to foreclose upon and sell the properties that
are not the primary collateral for the loan in default. Four
additional properties are subject to single property mortgages
totaling approximately $17.8 million at December 31,
2003. If we are unable to meet our obligations under these
mortgages, we could be forced to pay higher interest rates or
provide additional collateral or the properties subject to the
mortgages could be foreclosed upon and sold, which could have a
material adverse effect on us and our ability to pay or
refinance our debt obligations.

Tax Risks



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

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



| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | Our Operating Partnership intends to qualify
    as a partnership, but we cannot guarantee that it will
    qualify.

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



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

We believe that since our taxable year ended
December 31, 1996, we have been organized and operated, and
intend to continue to operate, so as to qualify for taxation as
a REIT under the Internal Revenue Code.

51



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


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

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

Other Risks



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

Certain provisions of our charter and bylaws may
delay, defer or prevent a third party from making offers to
acquire us or assume control over us. For example, such
provisions may:



| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | deter tender offers for our common stock, which
    offers may be attractive to the stockholders; and                                                                                         
|
| |  | deter purchases of large blocks of common stock,
    thereby limiting the opportunity for stockholders to receive a
    premium for their common stock over then-prevailing market
    prices.

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

52



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

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

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



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

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



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

Our current terrorism insurance policy, which
expires in March 2005, specifically excludes biological,
chemical or nuclear terrorist acts. We have been notified by our
insurance broker that in the aftermath of the
September 11th attacks, insurance carriers will continue to
exclude these types of attacks from terrorism insurance policies
or offer coverage for biological, chemical or nuclear attacks
coverages at prohibitive costs. Although we did not derive more
than 4.0% of our 2003 net operating income from any one of
the properties in our portfolio, a biological, chemical or
nuclear terrorist attack damaging several of our properties or
negatively impacting the financial condition of our tenants
could materially deteriorate our operating results and overall
financial condition.



| |                                                       
| | ------------------------------------------------------
| | An earthquake could adversely affect our
    business.

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

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| |                                                                
| | ---------------------------------------------------------------
| | Our properties may be subject to environmental
    liabilities.

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

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

In the past few years, independent environmental
consultants have conducted or updated Phase I environmental
assessments and other environmental investigations as
appropriate at some of our properties. The environmental site
assessments and investigations have identified a total of 30
properties in our portfolio, representing approximately 32% of
the total rentable square feet in the portfolio, affected by
environmental concerns. These environmental concerns include
properties that may be impacted by known or suspected
(a) contamination caused by third party sources or
(b) soil and/or groundwater contamination which has been
remediated, and (c) those containing underground storage
tanks or asbestos.

Of these properties, two are believed to be
affected by contamination caused by third party sources and also
houses an underground storage tank, three contain friable
asbestos, sixteen contain non-friable asbestos, and nine house
underground storage tanks only. The properties affected by
contamination are primarily affected by petroleum and solvent
substances, and in each case a third party has indemnified us
for any and all problems associated with this contamination.
With regard to those properties affected by asbestos, asbestos
does not pose a health hazard if it is not disturbed in such a
way to cause an airborne release of asbestos. Asbestos is
friable when it can be crumbled, pulverized or reduced to powder
by hand pressure, and non-friable when hand pressure cannot
release encapsulated asbestos fibers. Friable asbestos is more
likely to be released into the air than non-friable asbestos. We
manage all asbestos in ways that minimize its potential to
become airborne or otherwise threaten human health. Regarding
underground storage tanks, subsurface leakage of the materials
contained within the tank constitutes the primary risk posed by
these devices. We comply with all applicable laws, including
double-wall construction, testing protocols, placement of tanks
within bermed areas, and the installation of leak and spill
detection equipment, to minimize the risks posed by underground
storage tanks.

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

We believe that our properties are in compliance
in all material respects with all federal, state and local laws
regarding hazardous or toxic substances or petroleum products,
except as noted above. We have not been

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




| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | We may incur increased costs as a result of
    recently enacted and proposed changes in laws and
    regulations.

Recently enacted and proposed changes in the law
and regulations affecting public companies, including the
provisions of the Sarbanes-Oxley Act of 2002 and rules proposed
by the SEC and by the New York Stock Exchange, could result
in increased costs to us as we evaluate the implications of any
new rules and respond to their requirements. The new rules could
make it more difficult or more costly for us to obtain certain
types of insurance, including director and officer liability
insurance, and we may be forced to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the
same or similar coverage. The impact of these events could also
make it more difficult for us to attract and retain qualified
persons to serve on our board of directors, our board committees
or as executive officers. We are presently evaluating and
monitoring developments with respect to new and proposed rules
and cannot predict or estimate the amount of additional costs we
may incur or the timing of such costs.






|        |                                                
|------- | -----------------------------------------------
|ITEM 8. | Financial Statements and Supplementary
    Data

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

55



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

None.






|         |                        
|-------- | -----------------------
|ITEM 9A. | Controls and Procedures

We maintain disclosure controls and procedures
that are designed to ensure that information required to be
disclosed in our Exchange Act 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 was required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Our disclosure controls and procedures
are designed to provide a reasonable level of assurance of
reaching our desired disclosure control objectives. 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 entity is necessarily
substantially more limited than those we maintain with respect
to our consolidated subsidiaries.

As required by SEC Rule 13a-15(b), we
carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures
as of the end of the fourth quarter of the year ended
December 31, 2003 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 and were operating at the reasonable assurance
level.

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




PART III

The information required by Part III is
incorporated by reference from our definitive proxy statement
for our 2004 Annual Meeting of Stockholders.






|         |                                                       
|-------- | ------------------------------------------------------
|ITEM 10. | Directors and Executive Officers of the
    Registrant

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






|         |                       
|-------- | ----------------------
|ITEM 11. | Executive Compensation

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

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|         |                                                                   
|-------- | ------------------------------------------------------------------
|ITEM 12. | Security Ownership of Certain Beneficial
    Owners and Management

Equity Compensation Plan Information

The following table provides information as of
December 31, 2003 with respect to shares of our common
stock that may be issued under our existing equity compensation
plans (in thousands, except per share amounts):

|                                                           |  |                           |       |                           |  |                                      |       |  |  |  |     | 
|---------------------------------------------------------- |  | ------------------------- | ----- | ------------------------- |  | ------------------------------------ | ----- |  |  |  | --- | 
|                                                           |  | Number of shares of       |       |                           |  | Number of shares of common stock    
|                                                           |  | common stock to be issued |       | Weighted-average exercise |  | remaining available for future      
|                                                           |  | upon exercise of          |       | price of outstanding      |  | issuance under equity compensation  
|                                                           |  | outstanding options,      |       | options, warrants and     |  | plans (excluding shares reflected in
|Plan Category                                              |  | warrants and rights       |       | rights                    |  | column (a))(1)                      
|                                                           |  |                           |       |                           |  |                                     
|                                                           |  | (a)                       |       | (b)                       |  | (c)                                 
|Equity Compensation plans approved by shareholders         |  |                           | 3,236 |                           |  | $                                    | 22.05 |  |  |  | 746 | 
|Equity Compensation plans not approved by
    shareholders |  |                           | 190   | (2)                       |  |                                      | 23.36 |  |  |  |    | 
|                                                           |  |                           |       |                           |  |                                      |       |  |  |  |     | 
|Total                                                      |  |                           | 3,426 |                           |  | $                                    | 22.10 |  |  |  | 746 | 
|                                                           |  |                           |       |                           |  |                                      |       |  |  |  |     | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes shares available for issuance under
    restricted stock grants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(2) | On October 15, 1997, 10,000 options with an
    exercise price of $32.25, on December 15, 1998, 40,000
    options with an exercise price of $22.50, and on
    November 30, 1999, 10,000 options with an exercise
    price of $19.25 were granted to each of our non-employee
    directors: Carl D. Covitz, Larry S. Flax,
    Steven C. Good and Kenneth B. Roath; Peter S.
    Gold participated only in the 1998 and 1999 grants. All of these
    options were granted with an exercise price equal to fair market
    value on the date of grant, vest during the non-employee
    directors continued service with Arden over a three-year
    period, with one third of the options vesting on each
    anniversary of the grant date and expire ten years from the
    anniversary of the grant date, subject to earlier termination
    upon the happening of certain events. From these grants,
    Mr. Roath and Mr. Good exercised 50,000 and 40,000
    options, respectively, during 2003. In addition, Mr. Roath
    forfeited 10,000 options upon his retirement in 2003.

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






|         |                                                   
|-------- | --------------------------------------------------
|ITEM 13. | Certain Relationships and Related
    Transactions

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






|         |                                           
|-------- | ------------------------------------------
|ITEM 14. | Principal Accountant Fees and
    Services

The information contained in the section
captioned Principal Accountant Fees and Services of
the definitive proxy statement is incorporated herein by
reference.

57



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##### Table of Contents






PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|ITEM 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a) Financial Statements

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

|                                                                                                             |  |      |     | 
|------------------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|                                                                                                             |  | Page
|                                                                                                             |  | No. 
|                                                                                                             |  |     
|Report of Independent Auditors                                                                               |  |      | F-1 | 
|Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                             |  |      | F-2 | 
|Consolidated Statements of Income for the years
    ended December 31, 2003, 2002 and 2001                   |  |      | F-3 | 
|Consolidated Statements of Stockholders
    Equity for the years ended December 31, 2003, 2002
    and 2001 |  |      | F-4 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002 and 2001               |  |      | F-5 | 
|Notes to Financial Statements                                                                                |  |      | F-6 | 

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

(b) Reports on Form 8-K

Form 8-K filed on October 29, 2003,
furnishing a press release announcing the registrants
earnings for the third quarter of 2003 (Item 12).

(c) Exhibits

|        |   |             |  |                                                                                                                                                                                                                                               
|------- | - | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |            
|Number  |   | Description
|        |   |            
|        | 3 | .1*         |  | Amended and Restated Articles of Incorporation as
    filed as an exhibit to Arden Realtys registration
    statement on Form S-11 (No. 333-08163).                                                                                          
|        | 3 | .2*         |  | Articles Supplementary of Class A Junior
    Participating Preferred Stock as filed as an exhibit to the
    current report on Form 8-K, dated August 26, 1998.                                                                               
|        | 3 | .3*         |  | Articles Supplementary of the 8 5/8
    Series B Cumulative Redeemable Preferred Stock dated
    September 7, 1999, filed as an exhibit to Arden
    Realtys annual report on Form 10-K dated
    March 27, 2000.                            
|        | 3 | .4*         |  | Bylaws of Registrant as filed as an exhibit to
    Arden Realtys registration statement on Form S-11
    (No. 333-08163).                                                                                                                    
|        | 3 | .5*         |  | Certificate of Amendment of the Bylaws of Arden
    Realty dated July 14, 1998, filed as an exhibit to Arden
    Realtys quarterly report on Form 10-Q dated
    August 14, 1998.                                                            
|        | 3 | .6*         |  | Certificate of Amendment of the Bylaws of Arden
    Realty dated March 17, 2000, filed as an exhibit on Arden
    Realtys quarterly report on Form 10-Q dated
    May 11, 2000.                                                              
|        | 4 | .1*         |  | Rights Agreement, dated August 14, 1998,
    between Arden Realty and The Bank of New York, as filed as
    an exhibit to Arden Realtys current report on
    Form 8-K dated August 26, 1998.                                                
|        | 4 | .2*         |  | Indenture between Arden Realty Limited
    Partnership and The Bank of New York, as trustee, dated
    March 14, 2000 as filed as an exhibit to Arden Realty
    Limited Partnerships registration statement on
    Form S-4 (No. 333-35406).
|        | 4 | .3*         |  | Form of Arden Realty Limited Partnerships
    unsecured 8.875% senior note due 2005, dated March 17,
    2000 filed as an exhibit to Arden Realty Limited
    Partnerships registration statement on Form S-4
    (No. 333-35406).          
|        | 4 | .4*         |  | Form of Arden Realty Limited Partnerships
    unsecured 9.150% senior note due 2010, dated March 17,
    2000 filed as an exhibit to Arden Realty Limited
    Partnerships registration statement on Form S-4
    (No. 333-35406).          

58



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|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 4  | .5*         |  | Form of Arden Realty Limited Partnerships
    unsecured 8.50% senior note due 2010, dated
    November 20, 2000 as filed as an exhibit to Arden Realty
    Limited Partnerships registration statement on
    Form S-4 (No. 333-53376).                                                                                                                                                                                                                                            
|        | 4  | .6*         |  | Form of Arden Realty Limited Partnerships
    7.00% Note due 2007, dated November 9, 2002 as filed
    as an exhibit to Arden Realty Limited Partnerships current
    report on Form 8-K filed on November 9, 2001.                                                                                                                                                                                                                                                                
|        | 4  | .7*         |  | Officers certificate dated March 17,
    2000 with respect to the terms of Arden Realty Limited
    Partnerships 8.875% senior note due 2005 and
    9.150% Senior Notes due 2010 as filed as an exhibit to
    Arden Realtys annual report on Form 10-K filed on
    April 1, 2002.                                                                                                                                                                                              
|        | 4  | .8*         |  | Officers certificate dated
    November 20, 2000 with respect to the terms of Arden Realty
    Limited Partnerships 8.50% Senior Notes due 2010 as
    filed as an exhibit to Arden Realtys annual report on
    Form 10-K filed on April 1, 2002.                                                                                                                                                                                                                                
|        | 4  | .9*         |  | Officers certificate dated November 9,
    2001 with respect to the terms of Arden Realty Limited
    Partnerships 7.00% Note due 2007, filed as an exhibit
    to Arden Realty Limited Partnerships current report on
    Form 8-K filed on November 9, 2001.                                                                                                                                                                                                                    
|        | 4  | .10*        |  | Second Amendment to Rights Agreement, dated as of
    June 19, 2003, between Arden Realty and The Bank of New
    York, as filed as an exhibit to Arden Realtys current
    report on Form 8-K dated July 1, 2003.                                                                                                                                                                                                                                                                  
|        | 10 | .1*( 7/8)   |  | 1996 Stock Option and Incentive Plan of Arden
    Realty, Inc. and Arden Realty Limited Partnership as filed
    as an exhibit to Arden Realtys registration statement on
    Form S-11 (No. 333-08163).                                                                                                                                                                                                                                                                            
|        | 10 | .2*( 7/8)   |  | Amendment Number 1 to the 1996 Stock Option
    and Incentive Plan of Arden Realty, Inc. and Arden Realty
    Limited Partnership as filed as an exhibit to Arden
    Realtys Schedule 14A filed on June 23, 1998.                                                                                                                                                                                                                                                                  
|        | 10 | .3*( 7/8)   |  | Form of Officers and Directors Indemnification
    Agreement as filed as an exhibit to Arden Realtys
    registration statement on Form S-11 (No. 333-08163).                                                                                                                                                                                                                                                                                                                       
|        | 10 | .4*         |  | Loan Agreement dated June 8, 1998 by and
    between Arden Realty Finance III, L.L.C., a Delaware
    limited liability company and Lehman Brothers Realty
    Corporation, a Delaware corporation filed as an exhibit to Arden
    Realtys quarterly report on Form 10-Q filed on
    August 14, 1998.                                                                                                                                                                             
|        | 10 | .5*         |  | Mortgage Note, dated June 8, 1998 for
    $136,100,000 by and between Arden Realty Finance III,
    L.L.C., a Delaware limited liability company, and Lehman
    Brothers Realty Corporation, a Delaware corporation.
    (Exhibit B. to Exhibit 10.4 above).                                                                                                                                                                                                                        
|        | 10 | .6*         |  | Tenant Estoppel Certificate (Exhibit C. to
    Exhibit 10.4 above).                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10 | .7*         |  | Subordination, Non-Disturbance and Attornment
    Agreement (Exhibit D. to Exhibit 10.4 above).                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10 | .8*         |  | Deed of Trust, Assignment of Rents and Leases,
    Security Agreement, and Fixture Filing dated as of June 8,
    1998 made by Arden Realty Finance III, L.L.C. as Grantor,
    to Commonwealth Land Title Company as Trustee for the benefit of
    Lehman Brothers Realty Corporation as Beneficiary, filed as an
    exhibit to Arden Realtys quarterly report on
    Form 10-Q filed on August 14, 1998.                                                                        
|        | 10 | .9*         |  | Assignment of Leases and Rents dated June 8,
    1998, by and between Arden Realty Finance III, L.L.C., a
    Delaware limited liability company and Lehman Brothers Realty
    Corporation, a Delaware corporation, its successors and assigns
    filed as an exhibit to Arden Realtys quarterly report on
    Form 10-Q filed on August 14, 1998.                                                                                                                                
|        | 10 | .10*        |  | Collateral Assignment of Management Agreement and
    Subordination Agreement dated as of June 8, 1998 among
    Arden Realty Finance III, L.L.C., a Delaware limited liability
    company (Borrower), Lehman Brothers Realty
    Corporation, a Delaware corporation, (Lender), and
    Arden Realty Limited Partnership, a Maryland limited partnership
    (Manager), filed as an exhibit to Arden
    Realtys quarterly report on Form 10-Q filed on
    August 14, 1998.
|        | 10 | .11         |  | Security Agreement entered into as of
    June 8, 1998 by and between Arden Realty Finance III,
    L.L.C., a Delaware limited liability company and Lehman Brothers
    Realty Corporation, a Delaware corporation, filed as an exhibit
    to Arden Realtys quarterly report on Form 10-Q filed
    on August 14, 1998.                                                                                                                                                           

59



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|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .12*        |  | Environmental Indemnity Agreement dated
    June 8, 1998 by Arden Realty Finance III, L.L.C., a
    Delaware limited liability company, in favor of Lehman Brothers
    Realty Corporation, a Delaware corporation, filed as an exhibit
    to Arden Realtys quarterly report on Form 10-Q filed
    on August 14, 1998.                                                                                                           
|        | 10 | .13*        |  | Letter Agreement dated June 8, 1998 between
    Lehman Brothers Realty Corporation, Arden Realty
    Finance III, L.L.C., Arden Realty and Arden Realty Limited
    Partnership, filed as an exhibit to Arden Realtys
    quarterly report on Form 10-Q filed on August 14, 1998.                                                                                                                                                  
|        | 10 | .14*        |  | Loan Agreement by and between Arden Realty
    Finance IV, LLC, a Delaware limited liability company and Lehman
    Brothers Realty Corporation, a Delaware corporation, filed as an
    exhibit to Arden Realtys quarterly report on
    Form 10-Q filed on August 14, 1998.                                                                                                                                                      
|        | 10 | .15*        |  | Mortgage Note, dated June 8, 1998 for
    $100,600,000 by and between Arden Realty Finance IV, L.L.C., a
    Delaware limited liability company (Maker), and
    Lehman Brothers Realty Corporation, a Delaware corporation
    (Exhibit B to Exhibit 10.14 above).                                                                                                                                                               
|        | 10 | .16*        |  | Tenant Estoppel Certificate (Exhibit C. to
    Exhibit 10.14 above).                                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .17*        |  | Subordination, Non-Disturbance and Attornment
    Agreement (Exhibit D. to Exhibit 10.14 above).                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .18*        |  | Deed of Trust, Assignment of Rents and Leases,
    Security Agreement, and Fixture Filing dated as of June 8,
    1998 made by Arden Realty Finance IV, L.L.C. as Grantor, to
    Commonwealth Land Title Company as Trustee for the benefit of
    Lehman Brothers Realty Corporation as Beneficiary, filed as an
    exhibit to Arden Realtys quarterly report on
    Form 10-Q filed on August 14, 1998.                        
|        | 10 | .19*        |  | Assignment of Leases and Rents dated June 8,
    1998, by and between Arden Realty Finance IV, L.L.C., a Delaware
    limited liability company (Assignor), and Lehman
    Brothers Realty Corporation, a Delaware corporation, its
    successors and assigns (Assignee), filed as an
    exhibit to Arden Realtys quarterly report on
    Form 10-Q filed on August 14, 1998.                                                
|        | 10 | .20*        |  | Collateral Assignment of Management Agreement and
    Subordination Agreement dated as of June 8, 1998 among
    Arden Realty Finance IV, L.L.C., a Delaware limited liability
    company (Borrower), Lehman Brothers Realty
    Corporation, a Delaware corporation, (Lender), and
    Arden Realty Limited Partnership, filed as an exhibit to Arden
    Realtys quarterly report on Form 10-Q filed on
    August 14, 1998.
|        | 10 | .21*        |  | Security Agreement entered into as of
    June 8, 1998 by and between Arden Realty Finance IV,
    L.L.C., a Delaware limited liability company
    (Debtor), and Lehman Brothers Realty Corporation, a
    Delaware corporation (Secured Party), filed as an
    exhibit to Arden Realtys quarterly report on
    Form 10-Q filed on August 14, 1998.                                                                         
|        | 10 | .22*        |  | Environmental Indemnity Agreement dated
    June 8, 1998 by Arden Realty Finance IV, L.L.C., a Delaware
    limited liability company (Indemnitor), in favor of
    Lehman Brothers Realty Corporation, a Delaware corporation
    (Lender), filed as an exhibit to Arden Realtys
    quarterly report on Form 10-Q filed on August 14, 1998.                                                                                  
|        | 10 | .23*        |  | Letter Agreement dated June 8, 1998 between
    Lehman Brothers Realty Corporation, Arden Realty Finance IV,
    L.L.C., Arden Realty and Arden Realty Limited Partnership, filed
    as an exhibit to Arden Realtys quarterly report on
    Form 10-Q filed on August 14, 1998.                                                                                                                                                   
|        | 10 | .24*( 7/8)  |  | Amended and Restated Employment Agreement dated
    January 1, 1999, between Arden Realty and Mr. Robert
    Peddicord, filed as a exhibit to Arden Realtys quarterly
    report on Form 10-Q filed on August 8, 2000.                                                                                                                                                                                                             
|        | 10 | .25*        |  | Miscellaneous Rights Agreement among Arden
    Realty, Arden Realty Limited Partnership, NAMIZ, Inc. and
    Mr. Ziman, filed as an exhibit to Arden Realtys
    registration statement on Form S-11 (No. 333-08163).                                                                                                                                                                                                              
|        | 10 | .26*        |  | Credit Facility documentation consisting of
    Second Amended and Restated Revolving Credit Agreement by and
    among Arden Realty Limited Partnership and a group of banks led
    by Wells Fargo Bank as filed as an exhibit to Arden
    Realtys quarterly report on Form 10-Q filed on
    May 12, 2000.                                                                                                                     

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|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .27*        |  | Mortgage Financing documentation consisting of
    Loan Agreement by and between Arden Realtys special
    purpose financing subsidiary and Lehman Brothers Realty
    Corporation (the Loan Agreement includes the Mortgage Note,
    Deed of Trust, and form of Tenant Estoppel Certificate and
    Agreement as exhibits) as filed as an exhibit to Arden
    Realtys registration statement on Form S-11
    (No. 333-30059).
|        | 10 | .28*        |  | Promissory Note, dated as of March 30, 1999,
    between Massachusetts Mutual Life Insurance Company and Arden
    Realty Finance V, L.L.C. filed as an exhibit to Arden
    Realtys current report on Form 8-K filed on
    April 20, 1999.                                                                                                                                                                                      
|        | 10 | .29*        |  | Deed of Trust and Security Agreement, dated as of
    March 30, 1999, with Arden Realty Finance V, L.L.C. as
    the Trustor and Massachusetts Mutual Life Insurance Company as
    the Beneficiary filed as an exhibit to Arden Realtys
    current report on Form 8-K filed on April 20, 1999.                                                                                                                                  
|        | 10 | .30*        |  | Assignment of Leases and Rents, dated as of
    March 30, 1999, between Massachusetts Mutual Life Insurance
    Company and Arden Realty Finance V, L.L.C. filed as an
    exhibit to Arden Realtys current report on Form 8-K
    filed on April 20, 1999.                                                                                                                                                                       
|        | 10 | .31*        |  | Subordination of Management Agreement, dated as
    of March 30, 1999, between Massachusetts Mutual Life
    Insurance Company and Arden Realty Finance V. L.L.C. filed as an
    exhibit to Arden Realtys current report on Form 8-K
    filed on April 20, 1999.                                                                                                                                                                
|        | 10 | .32*        |  | Environmental Indemnification and Hold Harmless
    Agreement, dated as of March 30, 1999, between
    Massachusetts Mutual Life Insurance Company and Arden Realty
    Finance V, L.L.C. filed as an exhibit to Arden
    Realtys current report on Form 8-K filed on
    April 20, 1999.                                                                                                                                        
|        | 10 | .33*( 7/8)  |  | Amended and Restated Employment Agreement dated
    May 27, 1999, between Arden Realty and Mr. Randy J.
    Noblitt as filed as an exhibit to Arden Realty Limited
    Partnerships registration statement on Form S-4
    (No. 333-53376).                                                                                                                                                                                       
|        | 10 | .34*( 7/8)  |  | Amended and Restated Employment Agreement dated
    July 27, 2000, by and between Arden Realty and
    Mr. Richard S. Ziman as filed as an exhibit to Arden Realty
    Limited Partnerships registration statement on
    Form S-4 (No. 333-53376).                                                                                                                                                                               
|        | 10 | .35*( 7/8)  |  | Amended and Restated Employment Agreement dated
    July 27, 2000, by and between Arden Realty and
    Mr. Victor J. Coleman as filed as an exhibit to Arden
    Realty Limited Partnerships registration statement on
    Form S-4 (No. 333-53376).                                                                                                                                                                              
|        | 10 | .36*( 7/8)  |  | Amendment to the 1996 Stock Option and Incentive
    Plan of Arden Realty, Inc. and Arden Realty Limited
    Partnership as filed as an exhibit to Arden Realtys
    Schedule 14A filed on April 25, 2000.                                                                                                                                                                                                                        
|        | 10 | .37*( 7/8)  |  | Second Amended and Restated 1996 Stock Option and
    Incentive Plan of Arden Realty, Inc. and Arden Realty
    Limited Partnership dated September 20, 2001 as filed as an
    exhibit to Arden Realty, Inc.s quarterly report on
    Form 10-Q filed on November 14, 2001.                                                                                                                                                      
|        | 10 | .38*( 7/8)  |  | Form of Promissory Note entered on July 19,
    2001 and September 28, 2001 between Arden Realty Limited
    Partnership and Andrew Sobel and Robert Peddicord, respectively,
    as filed as an exhibit to Arden Realty Limited
    Partnerships quarterly report on Form 10-Q filed on
    November 14, 2001.                                                                                                                   
|        | 10 | .39*( 7/8)  |  | Amended and Restated Employment Agreement dated
    June 2, 1999, between Arden Realty and Mr. Richard
    Davis as filed on an exhibit to Arden Realty Limited
    Partnerships annual report on Form 10-K filed on
    April 1, 2002.                                                                                                                                                                                           
|        | 10 | .40*( 7/8)  |  | Amended and Restated Employment Agreement dated
    March 29, 2002, between Mr. Andrew Sobel and Arden
    Realty, Inc. as filed as an exhibit to Arden
    Realty, Inc.s quarterly report on Form 10-Q
    filed on August 14, 2002.                                                                                                                                                                                             
|        | 10 | .41*( 7/8)  |  | Form of Promissory Note entered into on
    February 18, 2002 between Arden Realty, Inc. and
    Mr. Andrew Sobel as filed as on exhibit to Arden
    Realty, Inc.s quarterly report on Form 10-Q
    filed on August 14, 2002.                                                                                                                                                                                                   
|        | 10 | .42*        |  | Term Loan Agreement between Arden Realty Limited
    Partnership and Wells Fargo Bank, National Association dated as
    of June 12, 2002 as filed as an exhibit to Arden Realty
    Limited Partnerships quarterly report on Form 10-Q
    filed on August 14, 2002.                                                                                                                                                             

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|        |    |             |  |                                                                                                                                                                                                                                                                                                                                   
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .43*        |  | Third Amended and Restated Revolving Credit
    Agreement between Arden Realty Limited Partnership and a group
    of lenders led by Wells Fargo Bank dated as of August 9,
    2002 as filed as an exhibit to Arden Realty Limited
    Partnerships quarterly report on Form 10-Q filed on
    November 12, 2002.               
|        | 10 | .44*        |  | Amendment to Term Loan Agreement between Arden
    Realty Limited Partnership and Wells Fargo Bank, National
    Association dated as of September 19, 2002 as filed as an
    exhibit to Arden Realty Limited Partnerships quarterly
    report on Form 10-Q filed on November 12, 2002.                                        
|        | 10 | .45*( 7/8)  |  | Amended and Restated Employment Agreement dated
    May 27, 1999, by and between Arden Realty Limited
    Partnership and Mr. David Swartz as filed as an exhibit to
    Arden Realty Limited Partnerships annual report on
    Form 10-K filed on March 27, 2003.                                                               
|        | 12 | .1          |  | Statement regarding computation of ratios.                                                                                                                                                                                                                                                                                        
|        | 21 | .1*         |  | Subsidiaries of Arden Realty Limited Partnership
    as filed as an exhibit to Arden Realty Limited
    Partnerships annual report on Form 10-K filed on
    March 27, 2003 are incorporated here by reference and in
    addition, Arden Realty Limited Partnership is included herein as
    a subsidiary of Arden Realty, Inc.
|        | 23 | .1          |  | Consent of independent auditors.                                                                                                                                                                                                                                                                                                  
|        | 31 | .1          |  | Certification of Chief Executive Officer,
    pursuant to Rule 13a-14 promulgated under the Exchange Act,
    as created by Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                        
|        | 31 | .2          |  | Certification of Chief Financial Officer,
    pursuant to Rule 13a-14 promulgated under the Exchange Act,
    as created by Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                        
|        | 32 | .1          |  | Certification of Chief Executive Officer,
    pursuant to 18 U.S.C. Section 1350, as created by
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                
|        | 32 | .2          |  | Certification of Chief Financial Officer,
    pursuant to 18 U.S.C. Section 1350, as created by
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                



---



|    |                           
|--- | --------------------------
|(*) | Incorporated by reference.



|         |                                                                                                      
|-------- | -----------------------------------------------------------------------------------------------------
|(( 7/8)) | Management contract or compensatory plan or
    arrangement required to be identified by Item 15(a)3.

62



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SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 11, 2004.



| |                   
| | ------------------
| | ARDEN REALTY, INC.



| |     |                     
| | --- | --------------------
| | By: | /s/ RICHARD S. ZIMAN

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

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

|                                       |  |                                                                     |  |               
|-------------------------------------- |  | ------------------------------------------------------------------- |  | --------------
|Name                                   |  | Title                                                               |  | Date          
|                                       |  |                                                                     |  |               
|                                      
|/s/ RICHARD S. ZIMANRichard S. Ziman   |  | Chairman of the Board,
    Chief Executive Officer
    and Director |  | March 11, 2004
|                                      
|/s/ VICTOR J. COLEMANVictor J. Coleman |  | President, Chief Operating Officer and Director                     |  | March 11, 2004
|                                      
|/s/ ANDREW J. SOBELAndrew J. Sobel     |  | Executive Vice President Strategic Planning and
    Operations      |  | March 11, 2004
|                                      
|/s/ RICHARD S. DAVISRichard S. Davis   |  | Senior Vice President, and Chief Financial Officer                  |  | March 11, 2004
|                                      
|/s/ CARL D. COVITZCarl D. Covitz       |  | Director                                                            |  | March 11, 2004
|                                      
|/s/ PETER S. GOLDPeter S. Gold         |  | Director                                                            |  | March 11, 2004
|                                      
|/s/ STEVEN C. GOODSteven C. Good       |  | Director                                                            |  | March 11, 2004

63



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REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders

Arden Realty, Inc.


We have audited the accompanying consolidated
balance sheets of Arden Realty, Inc. as of
December 31, 2003 and 2002 and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the three years in the period ended
December 31, 2003. These financial statements are the
responsibility of the management of Arden Realty, Inc. Our
responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Arden Realty, Inc. at
December 31, 2003 and 2002 and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States.

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



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Los Angeles, California

February 3, 2004


F-1



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##### Table of Contents



ARDEN REALTY, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


|                                                                                                                                                               |                                                 |                                            |           |           |           |   |           |           |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------------ | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                                                                                                                               |                                                 |                                           
|                                                                                                                                                               |                                                 | December 31,                              
|                                                                                                                                                               |                                                 |                                           
|                                                                                                                                                               |                                                 | 2003                                       |           | 2002     
|                                                                                                                                                               |                                                 |                                            |           |          
|Assets                                                                                                                                                         |                                                 |                                            |           |           |           |   |           |          
|Investment in real estate:                                                                                                                                     |                                                 |                                            |           |           |           |   |           |          
|                                                                                                                                                               | Land                                            |                                            | $         | 469,055   |           |   | $         | 467,096   |          
|                                                                                                                                                               | Buildings and improvements                      |                                            |           | 2,129,666 |           |   |           | 2,102,500 |          
|                                                                                                                                                               | Tenant improvements and leasing commissions     |                                            |           | 345,636   |           |   |           | 314,556   |          
|                                                                                                                                                               |                                                 |                                            |           |           |           |   |           |          
|                                                                                                                                                               |                                                 |                                            | 2,944,357 |           |           |   | 2,884,152 |          
|                                                                                                                                                               | Less: accumulated depreciation and amortization |                                            |           | (456,432  | )         |   |           | (377,005  | )        
|                                                                                                                                                               |                                                 |                                            |           |           |           |   |           |          
|                                                                                                                                                               |                                                 |                                            | 2,487,925 |           |           |   | 2,507,147 |          
|                                                                                                                                                               | Properties under development                    |                                            |           | 75,627    |           |   |           | 65,296    |          
|                                                                                                                                                               | Land available for development                  |                                            |           | 23,723    |           |   |           | 23,731    |          
|                                                                                                                                                               | Properties held for disposition, net            |                                            |           | 59,424    |           |   |           | 145,450   |          
|                                                                                                                                                               |                                                 |                                            |           |           |           |   |           |          
|                                                                                                                                                               | Net investment in real estate                   |                                            |           | 2,646,699 |           |   |           | 2,741,624 |          
|Cash and cash equivalents                                                                                                                                      |                                                 |                                            | 4,707     |           |           |   | 4,063     |          
|Restricted cash                                                                                                                                                |                                                 |                                            | 19,694    |           |           |   | 20,498    |          
|Rent and other receivables, net of allowance of
    $4,041 and $4,001 at December 31, 2003 and 2002,
    respectively                                          |                                                 |                                            | 3,688     |           |           |   | 2,917     |          
|Deferred rent, net of allowance of $2,216 and
    $1,627 at December 31, 2003 and 2002, respectively                                                           |                                                 |                                            | 44,203    |           |           |   | 43,646    |          
|Prepaid financing costs, expenses and other
    assets, net of accumulated amortization of $13,781 and $10,181
    at December 31, 2003 and 2002, respectively |                                                 |                                            | 22,442    |           |           |   | 19,661    |          
|                                                                                                                                                               |                                                 |                                            |           |           |           |   |           |          
|                                                                                                                                                               |                                                 | Total assets                               |           | $         | 2,741,433 |   |           | $         | 2,832,409 | 
|                                                                                                                                                               |                                                 |                                            |           |           |           |   |           |          
|Liabilities                                                                                                                                                    |                                                 |                                            |           |           |           |   |           |          
|Mortgage loans payable                                                                                                                                         |                                                 | $                                          | 564,829   |           |           | $ | 570,654   |          
|Unsecured lines of credit                                                                                                                                      |                                                 |                                            | 161,000   |           |           |   | 208,587   |          
|Unsecured term loan                                                                                                                                            |                                                 |                                            | 125,000   |           |           |   | 125,000   |          
|Unsecured senior notes, net of discount                                                                                                                        |                                                 |                                            | 498,952   |           |           |   | 498,063   |          
|Accounts payable and accrued expenses                                                                                                                          |                                                 |                                            | 54,317    |           |           |   | 55,705    |          
|Security deposits                                                                                                                                              |                                                 |                                            | 22,321    |           |           |   | 20,645    |          
|Dividends payable                                                                                                                                              |                                                 |                                            | 32,535    |           |           |   | 31,807    |          
|                                                                                                                                                               |                                                 |                                            |           |           |           |   |           |          
|                                                                                                                                                               |                                                 | Total liabilities                          |           |           | 1,458,954 |   |           |           | 1,510,461 | 
|Minority interest                                                                                                                                              |                                                 |                                            | 72,194    |           |           |   | 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, 64,425,450 and 62,984,217
    issued and outstanding, respectively                            |                                                 |                                            | 646       |           |           |   | 631       |          
|Additional paid-in capital                                                                                                                                     |                                                 |                                            | 1,225,192 |           |           |   | 1,260,773 |          
|Retained earnings                                                                                                                                              |                                                 |                                            |          |           |           |   |          |          
|Deferred compensation                                                                                                                                          |                                                 |                                            | (14,952   | )         |           |   | (11,259   | )        
|Accumulated other comprehensive loss                                                                                                                           |                                                 |                                            | (601      | )         |           |   | (2,768    | )        
|                                                                                                                                                               |                                                 |                                            |           |           |           |   |           |          
|                                                                                                                                                               |                                                 | Total stockholders equity                 |           |           | 1,210,285 |   |           |           | 1,247,377 | 
|                                                                                                                                                               |                                                 |                                            |           |           |           |   |           |          
|                                                                                                                                                               |                                                 | Total liabilities and stockholders equity |           | $         | 2,741,433 |   |           | $         | 2,832,409 | 
|                                                                                                                                                               |                                                 |                                            |           |           |           |   |           |          

See accompanying notes to financial
statements.

F-2



---



##### Table of Contents



ARDEN REALTY, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share
amounts)


|                                                                                              |                                     |                         |         |      |  |      |         |      |  |   |         |      | 
|--------------------------------------------------------------------------------------------- | ----------------------------------- | ----------------------- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- | ---- | 
|                                                                                              |                                     |                        
|                                                                                              |                                     | Year Ended December 31,
|                                                                                              |                                     |                        
|                                                                                              |                                     | 2003                    |         | 2002 |  | 2001
|                                                                                              |                                     |                         |         |      |  |     
|Property revenues                                                                             |                                     | $                       | 413,535 |      |  | $    | 394,487 |      |  | $ | 403,776 |     
|Property operating expenses                                                                   |                                     |                         | 132,753 |      |  |      | 123,650 |      |  |   | 117,165 |     
|                                                                                              |                                     |                         |         |      |  |      |         |      |  |   |         |     
|                                                                                              |                                     |                         | 280,782 |      |  |      | 270,837 |      |  |   | 286,611 |     
|General and administrative expenses                                                           |                                     |                         | 18,123  |      |  |      | 13,166  |      |  |   | 12,143  |     
|Interest                                                                                      |                                     |                         | 93,767  |      |  |      | 88,516  |      |  |   | 86,651  |     
|Depreciation and amortization                                                                 |                                     |                         | 118,114 |      |  |      | 106,182 |      |  |   | 98,136  |     
|Interest and other income                                                                     |                                     |                         | (734    | )    |  |      | (2,542  | )    |  |   | (2,941  | )   
|                                                                                              |                                     |                         |         |      |  |      |         |      |  |   |         |     
|Income from continuing operations before gain on
    sale of properties and minority interest |                                     |                         | 51,512  |      |  |      | 65,515  |      |  |   | 92,622  |     
|Gain on sale of operating properties                                                          |                                     |                         |        |      |  |      | 1,967   |      |  |   | 4,591   |     
|                                                                                              |                                     |                         |         |      |  |      |         |      |  |   |         |     
|Income from continuing operations before minority
    interest                                |                                     |                         | 51,512  |      |  |      | 67,482  |      |  |   | 97,213  |     
|Minority interest                                                                             |                                     |                         | (5,536  | )    |  |      | (5,999  | )    |  |   | (7,304  | )   
|                                                                                              |                                     |                         |         |      |  |      |         |      |  |   |         |     
|Income from continuing operations                                                             |                                     |                         | 45,976  |      |  |      | 61,483  |      |  |   | 89,909  |     
|Discontinued operations, net of minority interest                                             |                                     |                         | 6,596   |      |  |      | 8,692   |      |  |   | 7,850   |     
|Gain on sale of discontinued properties                                                       |                                     |                         | 5,937   |      |  |      |        |      |  |   |        |     
|                                                                                              |                                     |                         |         |      |  |      |         |      |  |   |         |     
|Net income                                                                                    |                                     | $                       | 58,509  |      |  | $    | 70,175  |      |  | $ | 97,759  |     
|                                                                                              |                                     |                         |         |      |  |      |         |      |  |   |         |     
|Basic net income per common share:                                                            |                                     |                         |         |      |  |      |         |      |  |   |         |     
|                                                                                              | Income from continuing operations   |                         | $       | 0.72 |  |      | $       | 0.96 |  |   | $       | 1.41 | 
|                                                                                              | Income from discontinued operations |                         |         | 0.20 |  |      |         | 0.13 |  |   |         | 0.12 | 
|                                                                                              |                                     |                         |         |      |  |      |         |      |  |   |         |     
|Net income per common share  basic                                                           |                                     | $                       | 0.92    |      |  | $    | 1.09    |      |  | $ | 1.53    |     
|                                                                                              |                                     |                         |         |      |  |      |         |      |  |   |         |     
|Weighted average number of common
    shares  basic                                          |                                     |                         | 63,553  |      |  |      | 64,151  |      |  |   | 63,754  |     
|                                                                                              |                                     |                         |         |      |  |      |         |      |  |   |         |     
|Diluted net income per common share:                                                          |                                     |                         |         |      |  |      |         |      |  |   |         |     
|                                                                                              | Income from continuing operations   |                         | $       | 0.72 |  |      | $       | 0.96 |  |   | $       | 1.41 | 
|                                                                                              | Income from discontinued operations |                         |         | 0.20 |  |      |         | 0.13 |  |   |         | 0.12 | 
|                                                                                              |                                     |                         |         |      |  |      |         |      |  |   |         |     
|Net income per common
    share  diluted                                                     |                                     | $                       | 0.92    |      |  | $    | 1.09    |      |  | $ | 1.53    |     
|                                                                                              |                                     |                         |         |      |  |      |         |      |  |   |         |     
|Weighted average number of common
    shares  diluted                                        |                                     |                         | 63,815  |      |  |      | 64,351  |      |  |   | 64,014  |     
|                                                                                              |                                     |                         |         |      |  |      |         |      |  |   |         |     

See accompanying notes to financial
statements.

F-3



---



##### Table of Contents



ARDEN REALTY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(in thousands, except share amounts)


|                             |                                        |              |            |            |   |          |     |          |   |               |           |               |   |        |   |         |   |   |         |        |   |   |        |        |   |   |           |          |  
|---------------------------- | -------------------------------------- | ------------ | ---------- | ---------- | - | -------- | --- | -------- | - | ------------- | --------- | ------------- | - | ------ | - | ------- | - | - | ------- | ------ | - | - | ------ | ------ | - | - | --------- | -------- | -
|                             |                                        |              |            |            |   |          |     |          |   | Accumulated   |           |              
|                             |                                        | Common Stock |            | Additional |   |          |     |          |   | Other         |           | Total        
|                             |                                        |              |            | Paid in    |   | Retained |     | Deferred |   | Comprehensive |           | Stockholders
|                             |                                        | Shares       |            | Amount     |   | Capital  |     | Earnings |   | Compensation  |           | Loss          |   | Equity
|                             |                                        |              |            |            |   |          |     |          |   |               |           |               |   |       
|Balance at January 1, 2001   |                                        |              | 63,646,871 |            |   | $        | 637 |          |   |               | 1,363,407 |               |   |        |  |         |   |   | (8,873  | )      |   |   |       |        |   |   | 1,355,171 |         
|                             | OP units converted                     |              |            | 335,573    |   |          |     | 3        |   |               |           | 6,583         |   |        |   |        |   |   |         |       |   |   |        |       |   |   |           | 6,586    |  
|                             | Stock options exercised                |              |            | 21,166     |   |          |     |         |   |               |           | 463           |   |        |   |        |   |   |         |       |   |   |        |       |   |   |           | 463      |  
|                             | Stock compensation                     |              |            | 94,500     |   |          |     | 1        |   |               |           | 2,532         |   |        |   |        |   |   |         | (2,533 | ) |   |        |       |   |   |           |         |  
|                             | Amortization of stock compensation     |              |            |           |   |          |     |         |   |               |           |              |   |        |   |        |   |   |         | 2,273  |   |   |        |       |   |   |           | 2,273    |  
|                             | Net income                             |              |            |           |   |          |     |         |   |               |           |              |   |        |   | 97,759  |   |   |         |       |   |   |        |       |   |   |           | 97,759   |  
|                             | Dividends declared and payable         |              |            |           |   |          |     |         |   |               |           | (27,287       | ) |        |   | (97,759 | ) |   |         |       |   |   |        |       |   |   |           | (125,046 | )
|                             |                                        |              |            |            |   |          |     |          |   |               |           |               |   |        |   |         |   |   |         |        |   |   |        |        |   |   |           |         
|Balance at December 31, 2001 |                                        |              | 64,098,110 |            |   |          | 641 |          |   |               | 1,345,698 |               |   |        |  |         |   |   | (9,133  | )      |   |   |       |        |   |   | 1,337,206 |         
|                             |                                        |              |            |            |   |          |     |          |   |               |           |               |   |        |   |         |   |   |         |        |   |   |        |        |   |   |           |         
|                             | OP units converted                     |              |            | 121,875    |   |          |     | 2        |   |               |           | 2,488         |   |        |   |        |   |   |         |       |   |   |        |       |   |   |           | 2,490    |  
|                             | Stock options exercised                |              |            | 423,999    |   |          |     | 4        |   |               |           | 9,074         |   |        |   |        |   |   |         |       |   |   |        |       |   |   |           | 9,078    |  
|                             | Stock compensation                     |              |            | 187,500    |   |          |     | 2        |   |               |           | 4,813         |   |        |   |        |   |   |         | (4,815 | ) |   |        |       |   |   |           |         |  
|                             | Amortization of stock compensation     |              |            |           |   |          |     |         |   |               |           |              |   |        |   |        |   |   |         | 1,444  |   |   |        |       |   |   |           | 1,444    |  
|                             | Forfeiture of stock compensation       |              |            | (51,267    | ) |          |     |         |   |               |           | (1,245        | ) |        |   |        |   |   |         | 1,245  |   |   |        |       |   |   |           |         |  
|                             | Stock repurchases                      |              |            | (1,796,000 | ) |          |     | (18      | ) |               |           | (40,675       | ) |        |   |        |   |   |         |       |   |   |        |       |   |   |           | (40,693  | )
|                             | Unrealized loss on interest rate swaps |              |            |           |   |          |     |         |   |               |           |              |   |        |   |        |   |   |         |       |   |   |        | (2,768 | ) |   |           | (2,768   | )
|                             | Net income                             |              |            |           |   |          |     |         |   |               |           |              |   |        |   | 70,175  |   |   |         |       |   |   |        |       |   |   |           | 70,175   |  
|                             |                                        |              |            |            |   |          |     |          |   |               |           |               |   |        |   |         |   |   |         |        |   |   |        |        |   |   |           |         
|                             | Comprehensive income                   |              |            |           |   |          |     |         |   |               |           |              |   |        |   |        |   |   |         |       |   |   |        |       |   |   |           | 67,407   |  
|                             | Dividends declared and payable         |              |            |           |   |          |     |         |   |               |           | (59,380       | ) |        |   | (70,175 | ) |   |         |       |   |   |        |       |   |   |           | (129,555 | )
|                             |                                        |              |            |            |   |          |     |          |   |               |           |               |   |        |   |         |   |   |         |        |   |   |        |        |   |   |           |         
|Balance at December 31, 2002 |                                        |              | 62,984,217 |            |   |          | 631 |          |   |               | 1,260,773 |               |   |        |  |         |   |   | (11,259 | )      |   |   | (2,768 | )      |   |   | 1,247,377 |         
|                             |                                        |              |            |            |   |          |     |          |   |               |           |               |   |        |   |         |   |   |         |        |   |   |        |        |   |   |           |         
|                             | OP units converted                     |              |            | 29,076     |   |          |     |         |   |               |           | 495           |   |        |   |        |   |   |         |       |   |   |        |       |   |   |           | 495      |  
|                             | Stock options exercised                |              |            | 1,162,523  |   |          |     | 12       |   |               |           | 27,934        |   |        |   |        |   |   |         |       |   |   |        |       |   |   |           | 27,946   |  
|                             | Stock option expense                   |              |            |           |   |          |     |         |   |               |           | 41            |   |        |   |        |   |   |         |       |   |   |        |       |   |   |           | 41       |  
|                             | Stock compensation                     |              |            | 252,500    |   |          |     | 3        |   |               |           | 6,276         |   |        |   |        |   |   |         | (6,279 | ) |   |        |       |   |   |           |         |  
|                             | Amortization of stock compensation     |              |            |           |   |          |     |         |   |               |           |              |   |        |   |        |   |   |         | 2,545  |   |   |        |       |   |   |           | 2,545    |  
|                             | Forfeiture of stock compensation       |              |            | (2,866     | ) |          |     |         |   |               |           | (41           | ) |        |   |        |   |   |         | 41     |   |   |        |       |   |   |           |         |  
|                             | Unrealized gain on interest rate swaps |              |            |           |   |          |     |         |   |               |           |              |   |        |   |        |   |   |         |       |   |   |        | 2,167  |   |   |           | 2,167    |  
|                             | Net income                             |              |            |           |   |          |     |         |   |               |           |              |   |        |   | 58,509  |   |   |         |       |   |   |        |       |   |   |           | 58,509   |  
|                             |                                        |              |            |            |   |          |     |          |   |               |           |               |   |        |   |         |   |   |         |        |   |   |        |        |   |   |           |         
|                             | Comprehensive income                   |              |            |            |   |          |     |          |   |               |           |               |   |        |   |         |   |   |         |        |   |   |        |        |   |   |           | 60,676   |  
|                             | Dividends declared and payable         |              |            |           |   |          |     |         |   |               |           | (70,286       | ) |        |   | (58,509 | ) |   |         |       |   |   |        |       |   |   |           | (128,795 | )
|                             |                                        |              |            |            |   |          |     |          |   |               |           |               |   |        |   |         |   |   |         |        |   |   |        |        |   |   |           |         
|Balance at December 31, 2003 |                                        |              | 64,425,450 |            |   | $        | 646 |          |   | $             | 1,225,192 |               |   | $      |  |         |   | $ | (14,952 | )      |   | $ | (601   | )      |   | $ | 1,210,285 |         
|                             |                                        |              |            |            |   |          |     |          |   |               |           |               |   |        |   |         |   |   |         |        |   |   |        |        |   |   |           |         

See accompanying notes to financial
statements.

F-4



---



##### Table of Contents



ARDEN REALTY, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(in thousands)


|                                                                                      |                                                                      |                                                    |          |         |        |      |          |         |        |   |          |         |        |  
|------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------- | -------- | ------- | ------ | ---- | -------- | ------- | ------ | - | -------- | ------- | ------ | -
|                                                                                      |                                                                      |                                                   
|                                                                                      |                                                                      | Year Ended December 31,                           
|                                                                                      |                                                                      |                                                   
|                                                                                      |                                                                      | 2003                                               |          | 2002    |        | 2001
|                                                                                      |                                                                      |                                                    |          |         |        |     
|Operating Activities:                                                                 |                                                                      |                                                    |          |         |        |      |          |         |        |   |          |        
|Net income                                                                            |                                                                      | $                                                  | 58,509   |         |        | $    | 70,175   |         |        | $ | 97,759   |        
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                      |                                                    |          |         |        |      |          |         |        |   |          |        
|                                                                                      | Minority interest, including discontinued
    operations             |                                                    |          | 5,873   |        |      |          | 6,236   |        |   |          | 7,565   |       
|                                                                                      | Depreciation and amortization, including
    discontinued operations |                                                    |          | 120,316 |        |      |          | 111,418 |        |   |          | 101,819 |       
|                                                                                      | Amortization of loan costs and fees                                  |                                                    |          | 3,972   |        |      |          | 3,807   |        |   |          | 3,568   |       
|                                                                                      | Gain on sale of property                                             |                                                    |          | (5,937  | )      |      |          | (1,967  | )      |   |          | (4,591  | )     
|                                                                                      | Gain on repayment of mortgage loan receivable                        |                                                    |          |        |        |      |          | (750    | )      |   |          |        |       
|                                                                                      | Amortization of deferred compensation                                |                                                    |          | 2,251   |        |      |          | 1,199   |        |   |          | 1,938   |       
|                                                                                      | Changes in operating assets and liabilities:                         |                                                    |          |         |        |      |          |         |        |   |          |         |       
|                                                                                      |                                                                      | Rent and other receivables                         |          |         | (771   | )    |          |         | 6,768  |   |          |         | 3,775  |  
|                                                                                      |                                                                      | Deferred rent                                      |          |         | (557   | )    |          |         | (4,657 | ) |          |         | (7,401 | )
|                                                                                      |                                                                      | Prepaid financing costs, expenses and other assets |          |         | (1,494 | )    |          |         | (2,997 | ) |          |         | (4,366 | )
|                                                                                      |                                                                      | Accounts payable and accrued expenses              |          |         | (2,356 | )    |          |         | 9,728  |   |          |         | 4,388  |  
|                                                                                      |                                                                      | Security deposits                                  |          |         | 1,676  |      |          |         | 962    |   |          |         | 213    |  
|                                                                                      |                                                                      |                                                    |          |         |        |      |          |         |        |   |          |        
|Net cash provided by operating activities                                             |                                                                      |                                                    | 181,482  |         |        |      | 199,922  |         |        |   | 204,667  |        
|                                                                                      |                                                                      |                                                    |          |         |        |      |          |         |        |   |          |        
|Investing Activities:                                                                 |                                                                      |                                                    |          |         |        |      |          |         |        |   |          |        
|Acquisitions and improvements to commercial
    properties                            |                                                                      |                                                    | (111,365 | )       |        |      | (251,534 | )       |        |   | (161,785 | )      
|Proceeds from sales of properties                                                     |                                                                      |                                                    | 91,010   |         |        |      | 24,287   |         |        |   | 45,931   |        
|Proceeds from repayment of mortgage note
    receivable                               |                                                                      |                                                    |         |         |        |      | 14,245   |         |        |   |         |        
|                                                                                      |                                                                      |                                                    |          |         |        |      |          |         |        |   |          |        
|Net cash used in investing activities                                                 |                                                                      |                                                    | (20,355  | )       |        |      | (213,002 | )       |        |   | (115,854 | )      
|                                                                                      |                                                                      |                                                    |          |         |        |      |          |         |        |   |          |        
|Financing Activities:                                                                 |                                                                      |                                                    |          |         |        |      |          |         |        |   |          |        
|Proceeds from term loan                                                               |                                                                      |                                                    |         |         |        |      | 125,000  |         |        |   |         |        
|Repayments of mortgage loans                                                          |                                                                      |                                                    | (5,825   | )       |        |      | (2,798   | )       |        |   | (2,603   | )      
|Proceeds from unsecured lines of credit                                               |                                                                      |                                                    | 102,500  |         |        |      | 255,937  |         |        |   | 140,500  |        
|Repayments of unsecured lines of credit                                               |                                                                      |                                                    | (150,086 | )       |        |      | (227,700 | )       |        |   | (213,500 | )      
|Proceeds from issuances of unsecured senior
    notes, net of discount                |                                                                      |                                                    |         |         |        |      |         |         |        |   | 149,064  |        
|Decrease (increase) in restricted cash                                                |                                                                      |                                                    | 804      |         |        |      | (1,730   | )       |        |   | 599      |        
|Proceeds from issuance of common stock, net of
    offering costs                     |                                                                      |                                                    | 27,946   |         |        |      | 9,078    |         |        |   | 463      |        
|Repurchase of common stock                                                            |                                                                      |                                                    |         |         |        |      | (40,693  | )       |        |   |         |        
|Distributions to minority interests                                                   |                                                                      |                                                    | (3,443   | )       |        |      | (3,527   | )       |        |   | (4,182   | )      
|Distributions to preferred operating partnership
    unit holders                     |                                                                      |                                                    | (4,312   | )       |        |      | (4,312   | )       |        |   | (4,312   | )      
|Dividends paid                                                                        |                                                                      |                                                    | (128,067 | )       |        |      | (129,153 | )       |        |   | (123,233 | )      
|                                                                                      |                                                                      |                                                    |          |         |        |      |          |         |        |   |          |        
|Net cash used in financing activities                                                 |                                                                      |                                                    | (160,483 | )       |        |      | (19,898  | )       |        |   | (57,204  | )      
|                                                                                      |                                                                      |                                                    |          |         |        |      |          |         |        |   |          |        
|Net increase (decrease) in cash and cash
    equivalents                              |                                                                      |                                                    | 644      |         |        |      | (32,978  | )       |        |   | 31,609   |        
|Cash and cash equivalents at beginning of period                                      |                                                                      |                                                    | 4,063    |         |        |      | 37,041   |         |        |   | 5,432    |        
|                                                                                      |                                                                      |                                                    |          |         |        |      |          |         |        |   |          |        
|Cash and cash equivalents at end of period                                            |                                                                      | $                                                  | 4,707    |         |        | $    | 4,063    |         |        | $ | 37,041   |        
|                                                                                      |                                                                      |                                                    |          |         |        |      |          |         |        |   |          |        
|Supplemental Disclosure of Cash Flow
    Information:                                 |                                                                      |                                                    |          |         |        |      |          |         |        |   |          |        
|Cash paid during the period for interest, net of
    amount capitalized               |                                                                      | $                                                  | 96,547   |         |        | $    | 94,007   |         |        | $ | 83,809   |        
|                                                                                      |                                                                      |                                                    |          |         |        |      |          |         |        |   |          |        

See accompanying notes to financial
statements.

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##### Table of Contents



ARDEN REALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|   |         
|-- | --------
|1. | Business



| |                        
| | -----------------------
| | Description of Business

The terms Arden Realty,
us, we and our as used in
these financial statements refer to Arden Realty, Inc.
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 December 31, 2003, our portfolio was
comprised of 130 primarily suburban office properties and 215
buildings containing approximately 18.9 million net
rentable square feet including one development property with
approximately 283,000 net rentable square feet currently
under lease-up. As of December 31, 2003, our operating
portfolio was 90.4% occupied.

The minority interests at December 31, 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.

Organization
and Formation of the Company

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



|   |                                                                         
|-- | ------------------------------------------------------------------------
|2. | Basis of Presentation and Summary of
    Significant Accounting Policies



| |                      
| | ---------------------
| | Basis of Presentation

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

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

Risks
and Uncertainties

The preparation of financial statements, in
conformity with accounting principles generally accepted in the
United States, requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.

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

Segment
Information

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

Commercial
Properties

Our properties are stated at depreciated cost.
Write-downs to estimated fair value are recognized whenever a
propertys estimated undiscounted future cash flows are
less than its book value. We carry properties held for
disposition at the lower of their depreciated cost or fair value
less cost to sell. Based on our assessment, no write-downs to
estimated fair value were necessary as of December 31, 2003
and 2002.

Property acquisitions have been accounted for in
accordance with Statement of Financial Accounting Standards
No. 141, Business Combinations since June 30, 2001,
the effective date of this pronouncement. The fair value of the
real estate acquired is allocated to the acquired tangible
assets, consisting of land, building and tenant improvements,
and identified intangible assets and liabilities, consisting of
the value of above-market and below-market leases, other value
of in-place leases and value of tenant relationships, if any,
based in each case on their fair values.

The fair value of the tangible assets of an
acquired property (which includes land, building and tenant
improvements) is determined by valuing the property as if it
were vacant, and the as-if-vacant value is then
allocated to land, building and tenant improvements based on
managements determination of the relative fair values of
these assets. We determine the as-if-vacant fair value of a
property using methods similar to those used by independent
appraisers. Factors considered by management in performing these
analyses include an estimate of carrying costs during the
expected lease-up periods considering current market conditions
and costs to execute similar leases. In estimating carrying
costs, management includes estimates of lost rental revenue,
real estate taxes, insurance and other operating expenses during
the expected lease-up periods based on current market demand. We
also estimate costs to execute similar leases including leasing
commissions, concessions, legal and other related costs.

In allocating the fair value of the identified
intangible assets and liabilities of an acquired property,
above-market and below-market in-place lease values are recorded
based on the present value (using an interest rate which
reflects the risks associated with the leases acquired) of the
difference between (i) the contractual amounts to be paid
pursuant to the in-place leases and (ii) managements
estimate of fair market lease rates for the corresponding
in-place leases, measured over a period equal to the remaining
non-cancelable term of the lease. The capitalized above-market
and below-market lease values are amortized into rental income
over the remaining non-cancelable terms of the respective leases.

The aggregate value of other acquired intangible
assets, consisting of in-place leases and tenant relationships,
if any, is measured by the excess of (i) the purchase price
paid for a property after adjusting existing in-place leases to
market rental rates over (ii) the estimated fair value of
the property as if vacant, determined as set forth above. This
aggregate value is allocated between in-place lease values and
tenant relationships based on managements evaluation of
the specific characteristics of each tenants lease. Should
acquisitions of properties result in allocating material amounts
to the value of tenant relationships, an amount would be
separately allocated and amortized over the estimated life of
the relationship.

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

Repair and maintenance costs are charged to
expenses as incurred and significant replacements and
betterments are capitalized. Repairs and maintenance costs
include all costs that do not extend the useful life

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##### Table of Contents



of a an asset or increase its operating
efficiency. Significant replacements and betterments represent
costs that extend an assets useful life or increase its
operating efficiency.


Depreciation

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

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

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

Cash
Equivalents

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

Restricted
Cash

Restricted cash at December 31, 2003 and
2002 consisted of $13.7 million in cash deposits as
required by certain of our mortgage loans payable and
$6.0 million and $6.8 million, respectively, in
impound accounts for real estate taxes and insurance, as
required by certain of our mortgage loans payable.

Prepaid
Financing Costs

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

Revenue
Recognition

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

The Company recognizes gains on sales of real
estate pursuant to the provisions of SFAS No. 66
Accounting for Sales for Real Estate. The specific
timing of a sale is measured against various criteria in
SFAS No. 66 related to the terms of the transaction
and any continuing involvement in the form of management or
financial assistance associated with the property. If the sales
criteria are not met, the Company defers gain recognition and
accounts for the continued operations of the property by
applying the finance, installment or cost recovery methods, as
appropriate, until the sales criteria are met.

Allowance
for Rents and Other Receivables

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

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Income
Taxes

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

During 2003, 2002 and 2001, we declared dividends
of $2.02, $2.02 and $1.96 per share, respectively.

Fair
Value of Financial Instruments

Our disclosures of estimated fair value of
financial instruments at December 31, 2003 and 2002 were
determined using available market information and appropriate
valuation methods. Considerable judgment is necessary to
interpret market data and develop estimated fair value. The use
of different market assumptions or estimation methods may have a
material effect on the estimated fair value amounts.

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

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

|                       |  |                   |         |                   |  |          |         |            |  |   |         |  |  |   |         | 
|---------------------- |  | ----------------- | ------- | ----------------- |  | -------- | ------- | ---------- |  | - | ------- |  |  | - | ------- | 
|                       |  |                   |         |                  
|                       |  | December 31, 2003 |         | December 31, 2002
|                       |  |                   |         |                  
|                       |  | Carrying          |         | Estimated         |  | Carrying |         | Estimated 
|                       |  | Amount            |         | Fair Value        |  | Amount   |         | Fair Value
|                       |  |                   |         |                   |  |          |         |           
|Mortgage loans payable |  | $                 | 564,829 |                   |  | $        | 581,945 |            |  | $ | 570,654 |  |  | $ | 600,663 | 
|                       |  |                   |         |                   |  |          |         |            |  |   |         |  |  |   |         | 
|Unsecured senior notes |  | $                 | 498,952 |                   |  | $        | 540,904 |            |  | $ | 498,063 |  |  | $ | 541,762 | 
|                       |  |                   |         |                   |  |          |         |            |  |   |         |  |  |   |         | 

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

Interest
Rate Hedge Agreements

We have periodically entered into interest rate
hedge agreements to effectively convert floating rate debt into
fixed rate debt. Net amounts received or paid under these
agreements are recognized as an adjustment to interest expense
when such amounts are incurred or earned. Our objective in using
interest rate hedge agreements is to limit our exposure to
interest rate movements.

During 2002, such agreements were used to fix the
floating interest rate associated with $50 million of the
Wells Fargo unsecured line of credit and the entire
$125 million balance of the unsecured term loan. Since June
of 2003, we have also entered into $150 million of
forward-starting hedges 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 hedges 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 hedge 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 hedges, we will receive interest at a fixed rate
of 7.00% and pay interest at a variable rate averaging the
six-month LIBOR in arrears plus 3.10%. The interest rate hedges
mature at the same time the notes are due. These hedges 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

F-9



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hedges 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
destination. Derivatives used to hedge the exposure to changes
in the fair value of an asset, liability, or firm commitment
attributable to a particular risk, are considered fair value
hedges. Derivatives used to hedge the exposure to variability in
expected future cash flows, or other types of forecasted
transactions, are considered cash flow hedges.

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

Under SFAS 133, our $175 million in
floating-to-fixed hedges and our $150 million in
forward-starting hedges outstanding as of December 31, 2003
are classified as cash flow hedges with their fair value of
approximately $601,000 reported in accumulated other
comprehensive loss on our balance sheet. The estimated fair
value of these interest rate hedge 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 hedges or as part of interest expense for
future borrowings in the case of the forward-starting hedges. If
the underlying debt related to these hedges 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.

Under SFAS 133, our $100 million in
fixed-to-floating hedges are classified as fair value hedges
with their fair value of approximately $506,000 reported in both
the unsecured senior notes and prepaid financing costs, expenses
and other assets line items on our balance sheet. The estimated
fair value of these interest rate hedge 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 fixed-rate loan at the
floating interest rate provided under our agreements in the case
of the floating-to-fixed hedges. If the underlying debt related
to these hedges 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.

New
Accounting Standards

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

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46). FIN 46 clarifies the
application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements and provides
guidance on the identification of entities for which control is
achieved through means other than through voting rights and how
to determine when and which business enterprise

F-10



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##### Table of Contents



should consolidate such an entity. This new model
for consolidation applies to an entity which either (1) the
equity investors (if any) do not have a controlling financial
interest or (2) the equity investment at risk is insufficient to
finance that entitys activities without receiving
additional subordinated financial support from other parties.
Certain provisions of this interpretation are effective for
2003. The adoption of these provisions of this statement did not
have a significant impact on our consolidated financial
statements during 2003.


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). 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 except as it
applies to noncontrolling interests that are classified as
equity under SFAS 150 in the financial statements of the
subsidiary which has been deferred indefinitely. The adoption of
this statement did not have a significant impact on our
consolidated financial statements during 2003.

Reclassifications

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



|   |                      
|-- | ---------------------
|3. | Commercial Properties

Property
Dispositions

|                             |  |                |  |                    |  |                   |  |          |        |        |  |             |         |  |  |   |        | 
|---------------------------- |  | -------------- |  | ------------------ |  | ----------------- |  | -------- | ------ | ------ |  | ----------- | ------- |  |  | - | ------ | 
|                             |  |                |  |                    |  |                   |  | Property |        | Square |  | Sales Price
|Property                     |  | County         |  | Submarket          |  | Date of Sale      |  | Type     |        | Feet   |  | ($000s)   
|                             |  |                |  |                    |  |                   |  |          |        |        |  |            
|9201 Sunset                  |  | Los Angeles    |  | West Hollywood     |  | March 11, 2003    |  |          | Office |        |  |             | 139,711 |  |  | $ | 32,350 | 
|Centrelake Plaza             |  | San Bernardino |  | Inland Empire West |  | April 11, 2003    |  |          | Office |        |  |             | 110,763 |  |  |   | 14,395 | 
|Havengate Center             |  | San Bernardino |  | Inland Empire East |  | April 11, 2003    |  |          | Office |        |  |             | 80,557  |  |  |   | 10,521 | 
|HDS Plaza                    |  | San Bernardino |  | Inland Empire East |  | April 11, 2003    |  |          | Office |        |  |             | 104,178 |  |  |   | 12,371 | 
|Chicago Avenue Business Park |  | Riverside      |  | Inland Empire East |  | April 11, 2003    |  |          | Office |        |  |             | 47,482  |  |  |   | 6,113  | 
|Lambert Plaza                |  | Orange         |  | North County       |  | May 22, 2003      |  |          | Office |        |  |             | 32,807  |  |  |   | 5,000  | 
|Pennsfield Plaza             |  | Los Angeles    |  | Simi/Conejo Valley |  | November 5, 2003  |  |          | Office |        |  |             | 21,202  |  |  |   | 3,555  | 
|Lyons Plaza                  |  | Los Angeles    |  | Simi/Conejo Valley |  | December 11, 2003 |  |          | Office |        |  |             | 61,203  |  |  |   | 9,200  | 
|                             |  |                |  |                    |  |                   |  |          |        |        |  |             |         |  |  |   |        | 
|                             |  |                |  |                    |  |                   |  |          |        |        |  |             | 597,903 |  |  | $ | 93,505 | 
|                             |  |                |  |                    |  |                   |  |          |        |        |  |             |         |  |  |   |        | 

Property
Acquisitions

|                             |  |           |  |               |  |                   |  |          |        |        |  |                |         |  |  |   |        | 
|---------------------------- |  | --------- |  | ------------- |  | ----------------- |  | -------- | ------ | ------ |  | -------------- | ------- |  |  | - | ------ | 
|                             |  |           |  |               |  |                   |  | Property |        | Square |  | Purchase Price
|Property                     |  | County    |  | Submarket     |  | Date of Purchase  |  | Type     |        | Feet   |  | ($000s)      
|                             |  |           |  |               |  |                   |  |          |        |        |  |               
|Governor Executive Centre II |  | San Diego |  | Governor Park |  | December 23, 2003 |  |          | Office |        |  |                | 101,433 |  |  | $ | 23,400 | 
|                             |  |           |  |               |  |                   |  |          |        |        |  |                |         |  |  |   |        | 

Discontinued
Operations and Properties held for Disposition

SFAS 144, effective January 1, 2002,
requires, among other things, that the operating results of real
estate properties classified as held for disposition subsequent
to January 1, 2002 be included in discontinued operations
in the statements of income for all periods presented.
SFAS 144 provides that long-lived assets classified as held
for disposition as a result of disposal activities that were
initiated prior to January 1, 2002, are to be accounted for
in accordance with Financial Accounting Standards No. 121
(SFAS 121). Accordingly, the operating results for the
properties classified as held for disposition prior to
January 1, 2002 and sold prior to December 31, 2002
are included in income from continuing operations for the years
ended December 31, 2002 and 2001. In order to increase the
comparability of our consolidated statements of income for the
years ended December 31, 2003, 2002 and 2001, the tables
below summarize the operating results of two properties
classified as discontinued operations at December 31, 2003
and eight properties sold during 2003.

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As of December 31, 2003, properties held for
disposition consisted of two properties with approximately
295,000 square feet.

The results of operations for the two properties
held for disposition as of December 31, 2003 and eight
properties sold during 2003 classified as discontinued
operations for the years ended December 31, 2003, 2002 and
2001 are as follows (in thousands):

|                                                  |  |                                  |        |      |  |      |        |   |  |   |        |  
|------------------------------------------------- |  | -------------------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                  |  |                                 
|                                                  |  | For the Years Ended December 31,
|                                                  |  |                                 
|                                                  |  | 2003                             |        | 2002 |  | 2001
|                                                  |  |                                  |        |      |  |     
|Revenues                                          |  | $                                | 14,108 |      |  | $    | 21,732 |   |  | $ | 14,749 |  
|Property Operating expenses                       |  |                                  | (4,964 | )    |  |      | (7,568 | ) |  |   | (5,411 | )
|Depreciation and amortization                     |  |                                  | (2,210 | )    |  |      | (5,235 | ) |  |   | (3,683 | )
|Interest Expense                                  |  |                                  |       |      |  |      |       |   |  |   | 2,456  |  
|Minority interest                                 |  |                                  | (338   | )    |  |      | (237   | ) |  |   | (261   | )
|                                                  |  |                                  |        |      |  |      |        |   |  |   |        |  
|Discontinued operations, net of minority interest |  | $                                | 6,596  |      |  | $    | 8,692  |   |  | $ | 7,850  |  
|                                                  |  |                                  |        |      |  |      |        |   |  |   |        |  
|Gain on sale of discontinued properties           |  | $                                | 5,937  |      |  | $    |       |   |  | $ |       |  
|                                                  |  |                                  |        |      |  |      |        |   |  |   |        |  

Capitalized
Interest

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

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

|                        |  |                                  |        |      |  |      |        |   |  |   |        |     
|----------------------- |  | -------------------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | ----
|                        |  |                                 
|                        |  | For the Years Ended December 31,
|                        |  |                                 
|                        |  | 2003                             |        | 2002 |  | 2001
|                        |  |                                  |        |      |  |     
|Total interest incurred |  | $                                | 96,263 |      |  | $    | 94,162 |   |  | $ | 93,290 |     
|Amount capitalized      |  |                                  | (2,496 | )    |  |      | (5,646 | ) |  |   | (6,639 | )(1)
|                        |  |                                  |        |      |  |      |        |   |  |   |        |     
|Amount expensed         |  | $                                | 93,767 |      |  | $    | 88,516 |   |  | $ | 86,651 |     
|                        |  |                                  |        |      |  |      |        |   |  |   |        |     




|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes approximately $2.5 million of
    interest capitalized on an office property which was classified
    as part of discontinued operations for the year ended
    December 31, 2001.

Future
Minimum Lease Payments

Future minimum lease payments to be received
under noncancelable operating leases existing as of
December 31, 2003, are as follows (in thousands):

|           |       |   |         |           | 
|---------- | ----- | - | ------- | --------- | 
|2004       |       | $ | 346,429 |          
|2005       |       |   | 297,034 |          
|2006       |       |   | 236,734 |          
|2007       |       |   | 186,741 |          
|2008       |       |   | 138,530 |          
|Thereafter |       |   | 343,195 |          
|           |       |   |         |          
|           | Total |   | $       | 1,548,663 | 
|           |       |   |         |          

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

We lease the land underlying the office buildings
or parking structures at six of our buildings. Ground lease
expense, including amounts netted against parking revenues, was
approximately $2.0 million,

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$1.9 million and $2.9 million for the
years ended December 31, 2003, 2002 and 2001, respectively.
Future minimum ground lease payments due under existing ground
leases are as follows (in thousands):


|           |       |   |         |         | 
|---------- | ----- | - | ------- | ------- | 
|2004       |       | $ | 1,785   |        
|2005       |       |   | 1,815   |        
|2006       |       |   | 1,840   |        
|2007       |       |   | 1,865   |        
|2008       |       |   | 1,865   |        
|Thereafter |       |   | 110,922 |        
|           |       |   |         |        
|           | Total |   | $       | 120,092 | 
|           |       |   |         |        



|   |                          
|-- | -------------------------
|4. | Mortgage Notes Receivable

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

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---



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|   |                                              
|-- | ---------------------------------------------
|5. | Mortgage Loans and Unsecured
    Indebtedness

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

|                               |            |                |         |              |  |                   |         |                |  |            |      |          |  |                            |                |  |   |  |         |   |      |  |       |  | 
|------------------------------ | ---------- | -------------- | ------- | ------------ |  | ----------------- | ------- | -------------- |  | ---------- | ---- | -------- |  | -------------------------- | -------------- |  | - |  | ------- | - | ---- |  | ----- |  | 
|                               |            |                |         |              |  |                   |         |                |  | Number     |      |         
|                               |            |                |         |              |  |                   |         |                |  | of         |      |         
|                               |            |                |         |              |  | Stated Annual     |         |                |  | Properties |      |         
|                               |            | December 31,   |         | December 31, |  | Interest Rate at  |         | Fixed/Floating |  | Securing   |      | Maturity
|Type of Debt                   |            | 2003           |         | 2002         |  | December 31, 2003 |         | Rate           |  | Loan       |      | Date    
|                               |            |                |         |              |  |                   |         |                |  |            |      |         
|                               |            |                |         |              |  |                   |         |                |  |           
|                               |            | (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)      |            |                | 134,544 |              |  |                   | 136,100 |                |  |            | 6.74 | %        |  |                            | Fixed          |  |   |  | 22      |   |      |  | 4/08  | 
|Mortgage Financing IV(2)       |            |                | 109,960 |              |  |                   | 111,200 |                |  |            | 6.61 | %        |  |                            | Fixed          |  |   |  | 12      |   |      |  | 4/08  | 
|Mortgage Financing V(2)        |            |                | 105,899 |              |  |                   | 108,153 |                |  |            | 6.94 | %        |  |                            | Fixed          |  |   |  | 12      |   |      |  | 4/09  | 
|Mortgage Financing VI(2)       |            |                | 21,578  |              |  |                   | 21,816  |                |  |            | 7.54 | %        |  |                            | Fixed          |  |   |  | 3       |   |      |  | 4/09  | 
|Activity Business Center(2)    |            |                | 7,394   |              |  |                   | 7,580   |                |  |            | 8.85 | %        |  |                            | Fixed          |  |   |  | 1       |   |      |  | 5/06  | 
|145 South Fairfax(2)           |            |                | 3,912   |              |  |                   | 3,952   |                |  |            | 8.93 | %        |  |                            | Fixed          |  |   |  | 1       |   |      |  | 1/27  | 
|Marin Corporate Center(2)      |            |                | 2,724   |              |  |                   | 2,850   |                |  |            | 9.00 | %        |  |                            | Fixed          |  |   |  | 1       |   |      |  | 7/15  | 
|Conejo Business Center(2)      |            |                | 2,669   |              |  |                   | 2,795   |                |  |            | 8.75 | %        |  |                            | Fixed          |  |   |  | (Note 3 | ) |      |  | 7/15  | 
|Conejo Business Center(2)      |            |                | 1,149   |              |  |                   | 1,208   |                |  |            | 7.88 | %        |  |                            | Fixed          |  |   |  | (Note 3 | ) |      |  | 7/15  | 
|                               |            |                |         |              |  |                   |         |                |  |            |      |          |  |                            |                |  |   |  |         |   |      |  |       | 
|                               |            |                | 564,829 |              |  |                   | 570,654 |                |  |            |      |          |  |                            |                |  |   |  |         |   |      |  |       | 
|Unsecured Lines of Credit:     |            |                |         |              |  |                   |         |                |  |            |      |          |  |                            |                |  |   |  |         |   |      |  |       | 
|Floating Rate                  |            |                |         |              |  |                   |         |                |  |            |      |          |  |                            |                |  |   |  |         |   |      |  |       | 
|Wells Fargo  $310 mm(1)       |            |                | 158,000 |              |  |                   | 208,587 |                |  |            | 2.78 | %        |  | LIBOR + 1.00% (Notes 4, 5) |                |  |  |  |         |   | 4/06 | 
|City National Bank  $20 mm(1) |            |                | 3,000   |              |  |                   |        |                |  |            |     |          |  |                            | (Note 6)       |  |   |  |        |   |      |  | 8/04  | 
|                               |            |                |         |              |  |                   |         |                |  |            |      |          |  |                            |                |  |   |  |         |   |      |  |       | 
|                               |            |                | 161,000 |              |  |                   | 208,587 |                |  |            |      |          |  |                            |                |  |   |  |         |   |      |  |       | 
|Unsecured Term Loan:           |            |                |         |              |  |                   |         |                |  |            |      |          |  |                            |                |  |   |  |         |   |      |  |       | 
|Fixed Rate                     |            |                |         |              |  |                   |         |                |  |            |      |          |  |                            |                |  |   |  |         |   |      |  |       | 
|Wells Fargo  $125 mm(1)       |            |                | 125,000 |              |  |                   | 125,000 |                |  |            | 4.14 | %        |  |                            | Fixed (Note 7) |  |   |  |        |   |      |  | 6/06  | 
|Unsecured Senior Notes:        |            |                |         |              |  |                   |         |                |  |            |      |          |  |                            |                |  |   |  |         |   |      |  |       | 
|Fixed Rate                     |            |                |         |              |  |                   |         |                |  |            |      |          |  |                            |                |  |   |  |         |   |      |  |       | 
|2005 Notes(8)                  |            |                | 199,872 |              |  |                   | 199,769 |                |  |            | 8.88 | %        |  |                            | Fixed          |  |   |  |        |   |      |  | 3/05  | 
|2007 Notes(8)                  |            |                | 149,907 |              |  |                   | 149,245 |                |  |            | 7.00 | %        |  |                            | (Note 9)       |  |   |  |        |   |      |  | 11/07 | 
|2010 Notes(8)                  |            |                | 49,744  |              |  |                   | 49,704  |                |  |            | 9.15 | %        |  |                            | Fixed          |  |   |  |        |   |      |  | 3/10  | 
|2010 Notes(8)                  |            |                | 99,429  |              |  |                   | 99,345  |                |  |            | 8.50 | %        |  |                            | Fixed          |  |   |  |        |   |      |  | 11/10 | 
|                               |            |                |         |              |  |                   |         |                |  |            |      |          |  |                            |                |  |   |  |         |   |      |  |       | 
|                               |            |                | 498,952 |              |  |                   | 498,063 |                |  |            |      |          |  |                            |                |  |   |  |         |   |      |  |       | 
|                               |            |                |         |              |  |                   |         |                |  |            |      |          |  |                            |                |  |   |  |         |   |      |  |       | 
|                               | Total Debt |                | $       | 1,349,781    |  |                   | $       | 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 of 2006.                                  
|   
|(6) | In December 2003, we expanded this line of credit
    to $20 million from $10 million at an interest rate of
    LIBOR + 1.00% or Prime Rate  1.875%.                                                                            
|   
|(7) | In 2002, we entered into interest rate swap
    agreements that fixed the interest rate on the entire balance of
    this loan at 3.64% in 2003, 4.25% in 2004, 4.75% in 2005 and
    4.90% in 2006.                              
|   
|(8) | Requires semi-annual interest payments only, with
    principal balance due upon maturity.                                                                                                                                        
|   
|(9) | During the fourth quarter of 2003, we entered
    into interest rate swap agreements to float the interest rate on
    $100 million of the outstanding balance of these notes at a
    rate of LIBOR + 3.1% through November 2007.

Our Operating Partnership has an unsecured line
of credit with a total commitment of $20 million from City
National Bank. This line of credit accrues interest at
LIBOR + 1.00% or the City National Bank Prime

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##### Table of Contents



Rate less 1.875% 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 December 31, 2003 and 2002, there
was $3.0 million and no amounts outstanding on this line of
credit, respectively, and $17.0 and $10.0 million was
available for additional borrowings, respectively.


Our Operating Partnership also has an unsecured
line of credit with a group of banks led by Wells Fargo. The
line of credit provides for borrowings up to $310 million
with an option to increase the amount to $350 million and
bears interest at a rate ranging between LIBOR + 0.80% and
LIBOR + 1.25% (including an annual facility fee ranging
from 0.15% to 0.40% based on the aggregate amount of the line of
credit) depending on the Operating Partnerships unsecured
debt rating. This new line of credit amends the previous
$275 million unsecured line of credit that was scheduled to
mature in April 2003. This line of credit matures in April 2006.
In addition, as long as the Operating Partnership maintains an
unsecured debt rating of BBB-/Baa3 or better, the agreement
contains a competitive bid option, whereby the lenders may bid
on the interest rate to be charged for up to $150 million
of the unsecured line of credit. The Operating Partnership also
has the option to convert the interest rate on this line of
credit to the higher of Wells Fargos prime rate or the
Federal Funds rate plus 0.5%. As of December 31, 2003 and
2002, $158.0 million and $208.6 million was
outstanding on this line of credit, respectively, and
$152.0 million and $111.4 million was available for
additional borrowings, respectively.

We have entered into $150 million of
forward-starting hedges 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 hedges 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 hedge 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 hedges, 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 hedges mature
at the same time the notes are due. Including these hedges, our
floating-rate debt ratio as of December 31, 2003 was
approximately 16%.

Following is a summary of scheduled principal
payments for our total debt outstanding as of December 31,
2003 (in thousands):

|           |       |        |         |           | 
|---------- | ----- | ------ | ------- | --------- | 
|Year       |       | Amount
|           |       |       
|2004       |       | $      | 184,466 |          
|2005       |       |        | 207,470 |          
|2006       |       |        | 297,859 | (1)      
|2007       |       |        | 158,961 |          
|2008       |       |        | 230,985 |          
|Thereafter |       |        | 270,040 |          
|           |       |        |         |          
|           | Total |        | $       | 1,349,781 | 
|           |       |        |         |          




|    |                                                                                   
|--- | ----------------------------------------------------------------------------------
|(1) | Includes $158 million outstanding on our
    Wells Fargo unsecured line of credit.



|   |                     
|-- | --------------------
|6. | Stockholders Equity

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

During the year ended December 31, 2003, we
redeemed an aggregate of 29,076 common OP Units of the
Operating Partnership for shares of our common stock.

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Our minority interest balance includes
$50 million of 8.625% 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 8.625%
Series B Cumulative Redeemable Preferred Stock, on a
one-for-one basis. The Preferred OP Units have no stated
maturity or mandatory redemption and are subordinate to all debt.

During 2003, we issued a total of 252,500
restricted stock awards to several key executive officers and
employees. Holders of these shares have full voting rights and
will receive any dividends but are prohibited from selling or
transferring unvested shares. The fair market value on the dates
of grants for these restricted shares ranged from $20.81 to
$30.02. These restricted shares vest equally on the anniversary
date of the awards over either 3 or 4 years, except for
33,500 of these shares which vest after 3 years (cliff
vesting).

We recorded deferred compensation of
approximately $6.3 million during 2003 for the grants
described above based upon the market value of these shares on
the dates of the awards and will amortize the compensation
charges to expense on a straight-line basis over the respective
vesting periods.

On July 24, 2002 our Board of Directors
authorized a common stock repurchase program pursuant to which
we are authorized to purchase up to $75 million of our
common stock over the following 12 months. As part of this
repurchase program, we acquired 1,796,000 shares of our
common stock at an average price of approximately
$22.66 per share during the year ended December 31,
2002. No shares were repurchased during the year ended
December 31, 2003. In 2003, our Board of Directors extended
this repurchase program for an additional 12 months.

On December 16, 2003, we declared a
quarterly dividend of $0.505 per share to stockholders of
record on December 31, 2003. This dividend was paid on
January 21, 2004. We declared dividends of $2.02 per
common share for the year ended December 31, 2003.



|   |                              
|-- | -----------------------------
|7. | Commitments and Contingencies

Capital Commitments

As of December 31, 2003, we had
approximately $9.1 million outstanding in capital
commitments related to tenant improvements, renovation costs and
general property-related capital expenditures.

Litigation

We are presently subject to various lawsuits,
claims and proceedings of a nature considered normal to our
ordinary course of business, none of which if determined
unfavorably to us is expected to have a material adverse effect
on our cash flows, financial condition or results from
operations. There were no material changes in our legal
procedures during the year ended December 31, 2003.

Concentration of Credit
Risk

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

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



|   |                           
|-- | --------------------------
|8. | Related Party Transactions

Promissory Notes Receivable from
Officers

In March 2002, Mr. Andrew Sobel, our
Executive Vice President  Strategic Planning and
Operations, replaced a note due to us in the amount of $194,936
bearing interest at 6.56% per annum that matured in

F-16



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##### Table of Contents



February of 2002 with a new note for the same
principal amount bearing interest at LIBOR + 1.10% per
annum and maturing in March 2007.


On July 19, 2001 and September 28,
2001, four officers executed promissory notes totaling
approximately $416,000 primarily for the purpose of meeting
payroll taxes due upon the vesting of stock grants. These notes
mature between July 19, 2006 and September 28, 2011
and bear interest at an annual rate of between 5.75% and 6.00%.
In February 2002, two of these notes to us totaling
approximately $125,000 were repaid in full, including accrued
interest. The remaining loans are personally guaranteed by the
respective officers and are included as part of other
receivables in our balance sheets at December 31, 2003 and
2002.

We lease approximately 5,600 square feet of
office space to two companies in which three of our officers
have investment interests. The total annual rents from these
leases is approximately $127,000.

We also lease approximately 28,300 square
feet to a company related to one of our independent directors.
The total annual rents from this lease is approximately $408,000.



|   |                                                                   
|-- | ------------------------------------------------------------------
|9. | Revenue from Rental Operations and Property
    Operating Expenses

Revenue from rental operations and property
operating expenses for the years ended December 31, 2003,
2002 and 2001 are summarized as follows ($000s):

|                                |                         |      |         |         |  |      |         |         |  |   |         |         | 
|------------------------------- | ----------------------- | ---- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                |                         | 2003 |         | 2002    |  | 2001
|                                |                         |      |         |         |  |     
|Revenue from rental operations: |                         |      |         |         |  |      |         |         |  |   |         |        
|                                | Scheduled cash rents    |      | $       | 356,804 |  |      | $       | 339,292 |  |   | $       | 335,202 | 
|                                | Straight-line rents     |      |         | 986     |  |      |         | 4,214   |  |   |         | 8,780   | 
|                                | Tenant reimbursements   |      |         | 24,683  |  |      |         | 22,135  |  |   |         | 21,715  | 
|                                | Parking, net of expense |      |         | 22,084  |  |      |         | 20,805  |  |   |         | 21,248  | 
|                                | Other rental operations |      |         | 8,978   |  |      |         | 8,041   |  |   |         | 16,831  | 
|                                |                         |      |         |         |  |      |         |         |  |   |         |        
|                                |                         |      | 413,535 |         |  |      | 394,487 |         |  |   | 403,776 |        
|                                |                         |      |         |         |  |      |         |         |  |   |         |        
|Property expenses:              |                         |      |         |         |  |      |         |         |  |   |         |        
|                                | Repairs and maintenance |      |         | 42,859  |  |      |         | 37,250  |  |   |         | 34,939  | 
|                                | Utilities               |      |         | 34,253  |  |      |         | 34,209  |  |   |         | 32,518  | 
|                                | Real estate taxes       |      |         | 29,488  |  |      |         | 28,616  |  |   |         | 28,329  | 
|                                | Insurance               |      |         | 8,431   |  |      |         | 7,787   |  |   |         | 5,492   | 
|                                | Ground rent             |      |         | 961     |  |      |         | 895     |  |   |         | 1,884   | 
|                                | Administrative          |      |         | 16,761  |  |      |         | 14,893  |  |   |         | 14,003  | 
|                                |                         |      |         |         |  |      |         |         |  |   |         |        
|                                |                         |      | 132,753 |         |  |      | 123,650 |         |  |   | 117,165 |        
|                                |                         |      |         |         |  |      |         |         |  |   |         |        
|                                |                         | $    | 280,782 |         |  | $    | 270,837 |         |  | $ | 286,611 |        
|                                |                         |      |         |         |  |      |         |         |  |   |         |        

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|    |                   
|--- | ------------------
|10. | Earnings Per Share

The following table sets forth the computation of
basic and diluted net income per share for the years ended
December 31, 2003, 2002 and 2001 (in thousands, except per
share amounts):

|                                                  |                                     |      |        |      |  |      |        |      |  |   |        |      | 
|------------------------------------------------- | ----------------------------------- | ---- | ------ | ---- |  | ---- | ------ | ---- |  | - | ------ | ---- | 
|                                                  |                                     | 2003 |        | 2002 |  | 2001
|                                                  |                                     |      |        |      |  |     
|Income from continuing operations                 |                                     | $    | 45,976 |      |  | $    | 61,483 |      |  | $ | 89,909 |     
|Discontinued operations, net of minority interest |                                     |      | 6,596  |      |  |      | 8,692  |      |  |   | 7,850  |     
|Gain on sale of discontinued properties           |                                     |      | 5,937  |      |  |      |       |      |  |   |       |     
|                                                  |                                     |      |        |      |  |      |        |      |  |   |        |     
|Net income                                        |                                     | $    | 58,509 |      |  | $    | 70,175 |      |  | $ | 97,759 |     
|                                                  |                                     |      |        |      |  |      |        |      |  |   |        |     
|Weighted average shares  basic                   |                                     |      | 63,553 |      |  |      | 64,151 |      |  |   | 63,754 |     
|Weighted average diluted stock options            |                                     |      | 262    |      |  |      | 200    |      |  |   | 260    |     
|                                                  |                                     |      |        |      |  |      |        |      |  |   |        |     
|Weighted average shares  diluted                 |                                     |      | 63,815 |      |  |      | 64,351 |      |  |   | 64,014 |     
|                                                  |                                     |      |        |      |  |      |        |      |  |   |        |     
|Basic net income per common share:                |                                     |      |        |      |  |      |        |      |  |   |        |     
|                                                  | Income from continuing operations   |      | $      | 0.72 |  |      | $      | 0.96 |  |   | $      | 1.41 | 
|                                                  | Income from discontinued operations |      |        | 0.20 |  |      |        | 0.13 |  |   |        | 0.12 | 
|                                                  |                                     |      |        |      |  |      |        |      |  |   |        |     
|Net income per common share  basic               |                                     | $    | 0.92   |      |  | $    | 1.09   |      |  | $ | 1.53   |     
|                                                  |                                     |      |        |      |  |      |        |      |  |   |        |     
|Diluted net income per common share:              |                                     |      |        |      |  |      |        |      |  |   |        |     
|                                                  | Income from continuing operations   |      | $      | 0.72 |  |      | $      | 0.96 |  |   | $      | 1.41 | 
|                                                  | Income from discontinued operations |      |        | 0.20 |  |      |        | 0.13 |  |   |        | 0.12 | 
|                                                  |                                     |      |        |      |  |      |        |      |  |   |        |     
|Net income per common share  diluted             |                                     | $    | 0.92   |      |  | $    | 1.09   |      |  | $ | 1.53   |     
|                                                  |                                     |      |        |      |  |      |        |      |  |   |        |     

See discussion of discontinued operations in
footnote 3 above.



|    |                  
|--- | -----------------
|11. | Stock Option Plan

Prior to January 1, 2003 we elected to
follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25) and related interpretations in accounting for our
employee and directors stock options because, as discussed
below, the alternative fair value accounting provided for under
FASB Statement No. 123, Accounting for Stock-Based
Compensation (Statement 123) requires use of option
valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise
price of employee and director stock options we granted equals
the market price of the underlying stock on the date of grant,
no compensation expense is recognized.

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 with the following weighted-average assumptions for 2003:
risk-free interest rate of 2.92%, dividend yield of 9.70% and a
volatility factor of the expected market price for our common
stock of 0.186. During the twelve months ended December 31,
2003, we recognized approximately $41,000 of stock option based
employee compensation costs.

We established a stock option plan for the
purpose of attracting and retaining executive officers,
directors and other key employees. As of December 31, 2003,
6,500,000 of our authorized shares of common stock have been
reserved for issuance under that plan.

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

Pro forma information regarding net income and
earnings per share is required by Statement 123, and has been
determined as if we had accounted for its employee stock options
under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a
Black-Scholes option

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pricing model with the following weighted-average
assumptions for 2002 and 2001, respectively: risk-free interest
rate of 4.28% and 4.39%, dividend yield of 7.80% and 7.60% and a
volatility factor of the expected market price of our common
stock of 0.190 and 0.191. The weighted average expected life of
the options is approximately 7 to 10 years.


The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options
which have no vesting restriction and are fully transferable. In
addition, option valuation models require the input of highly
subjective assumptions including the expected stock price
volatility. Because our employee and director stock options have
characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in
managements opinion, the existing models do not
necessarily provide a reliable single measure of the fair value
of our employee and director stock options.

For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over
the options vesting periods. Our pro forma information for
the years ended December 31, 2003, 2002 and 2001 follows
(in thousands, except earnings per share information):

|                                                                       |  |      |        |      |  |      |        |  |  |   |        | 
|---------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                                       |  | 2003 |        | 2002 |  | 2001
|                                                                       |  |      |        |      |  |     
|Net income available to common stockholders                            |  | $    | 58,509 |      |  | $    | 70,175 |  |  | $ | 97,759 | 
|Stock based employee compensation costs assuming
    fair value method |  |      | 843    |      |  |      | 1,477  |  |  |   | 2,099  | 
|                                                                       |  |      |        |      |  |      |        |  |  |   |        | 
|Pro forma net income                                                   |  | $    | 57,666 |      |  | $    | 68,698 |  |  | $ | 95,660 | 
|                                                                       |  |      |        |      |  |      |        |  |  |   |        | 
|Pro forma net income per share- diluted                                |  | $    | 0.90   |      |  | $    | 1.07   |  |  | $ | 1.49   | 
|                                                                       |  |      |        |      |  |      |        |  |  |   |        | 

A summary of Arden Realtys stock option
activity, and related information for the years ended
December 31, 2003, 2002 and 2001 follows:

|                                               |  |         |        |           |  |         |       |           |  |         |       |           |  |   |       |  |  |   |       |   |  |   |       | 
|---------------------------------------------- |  | ------- | ------ | --------- |  | ------- | ----- | --------- |  | ------- | ----- | --------- |  | - | ----- |  |  | - | ----- | - |  | - | ----- | 
|                                               |  |         |        |           |  |        
|                                               |  | 2003    |        | 2002      |  | 2001   
|                                               |  |         |        |           |  |        
|                                               |  |         |        | Weighted- |  |         |       | Weighted- |  |         |       | Weighted-
|                                               |  |         |        | Average   |  |         |       | Average   |  |         |       | Average  
|                                               |  | Options |        | Exercise  |  | Options |       | Exercise  |  | Options |       | Exercise 
|                                               |  | (000s) |        | Price     |  | (000s) |       | Price     |  | (000s) |       | Price    
|                                               |  |         |        |           |  |         |       |           |  |         |       |          
|Outstanding, beginning of period               |  |         | 4,479  |           |  | $       | 22.44 |           |  |         | 5,014 |           |  | $ | 24.38 |  |  |   | 4,686 |   |  | $ | 24.24 | 
|Granted                                        |  |         | 268    |           |  |         | 20.81 |           |  |         | 164   |           |  |   | 25.60 |  |  |   | 381   |   |  |   | 26.80 | 
|Exercised                                      |  |         | (1,162 | )         |  |         | 24.06 |           |  |         | (424  | )         |  |   | 21.40 |  |  |   | (21   | ) |  |   | 21.89 | 
|Forfeited                                      |  |         | (159   | )         |  |         | 27.37 |           |  |         | (275  | )         |  |   | 25.68 |  |  |   | (32   | ) |  |   | 24.43 | 
|                                               |  |         |        |           |  |         |       |           |  |         |       |           |  |   |       |  |  |   |       |   |  |   |       | 
|Outstanding at end of year                     |  |         | 3,426  |           |  | $       | 22.10 |           |  |         | 4,479 |           |  | $ | 22.44 |  |  |   | 5,014 |   |  | $ | 24.38 | 
|                                               |  |         |        |           |  |         |       |           |  |         |       |           |  |   |       |  |  |   |       |   |  |   |       | 
|Exercisable at end of the period               |  |         | 2,948  |           |  | $       | 25.03 |           |  |         | 3,682 |           |  | $ | 24.75 |  |  |   | 3,612 |   |  | $ | 24.50 | 
|                                               |  |         |        |           |  |         |       |           |  |         |       |           |  |   |       |  |  |   |       |   |  |   |       | 
|Weighted-average fair value of options granted |  | $       | 0.49   |           |  |         |       |           |  | $       | 1.66  |           |  |   |       |  |  | $ | 1.49  |   |  |   |       | 
|                                               |  |         |        |           |  |         |       |           |  |         |       |           |  |   |       |  |  |   |       |   |  |   |       | 

Exercise prices for options outstanding as of
December 31, 2003 ranged from $19.13 to $32.25. The
weighted average remaining contractual life of those options is
6 years.



|    |                                 
|--- | --------------------------------
|12. | Employee Retirement Savings Plan

Effective June 12, 1997, we adopted a
retirement savings plan pursuant to Section 401(k) of the
Internal Revenue Code whereby participants may contribute a
portion of their compensation to their respective retirement
accounts in an amount not to exceed the maximum allowed under
the Internal Revenue Code. The plan provides for matching
contributions by us, which amounted to approximately $888,000 in
2003, $844,000 in 2002 and $803,000 in 2001. Plan participants
are immediately vested in their contributions and are vested
equally over four years in matching contributions by us.

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13. Subsequent Events

On February 4, 2004, we sold an approximate
133,000 square foot retail property located in Riverside
County for approximately $17.5 million. This property was
classified as held for disposition in our balance sheet at
December 31, 2003. The net proceeds from this disposition
were used to reduce the outstanding balance on the Wells Fargo
unsecured line of credit (unaudited).

On February 27, 2004, we issued a total of
38,000 restricted stock awards to several key executive officers
and employees. Holders of these shares have full voting rights
and will receive any dividends but are prohibited from selling
or transferring unvested shares. The fair market value on the
date of the grant for these restricted shares was $31.60. These
restricted shares vest equally over 3 years.

We have a $2.7 million investment in the
securities of a non-publicly traded company formed in 2000 to
provide distributed energy generation to commercial real estate
owners. On March 8, 2004, we received information from the
company that they are currently assessing their business and
financing strategies. The ultimate outcome of their analysis on
the companys operations and the recoverability of our
investment is currently uncertain. No adjustments have been made
in these financial statements as a result of this uncertainty.
(unaudited)



|    |                  
|--- | -----------------
|14. | Quarterly Results

Following is a quarterly summary of our revenue
and expenses for the years ended December 31, 2003 and
2002. Revenue and expenses may fluctuate significantly from
quarter to quarter due to our development, renovation,
acquisition and sales activity (unaudited).

|                                                  |         |                                                                |         |               |  |                    |         |                   |  |   |         |      |  |   |         |      | 
|------------------------------------------------- | ------- | -------------------------------------------------------------- | ------- | ------------- |  | ------------------ | ------- | ----------------- |  | - | ------- | ---- |  | - | ------- | ---- | 
|                                                  |         |                                                               
|                                                  |         | For the Quarter Ended (in thousands, except per share amounts)
|                                                  |         |                                                               
|                                                  |         | March 31, 2003                                                 |         | June 30, 2003 |  | September 30, 2003 |         | December 31, 2003
|                                                  |         |                                                                |         |               |  |                    |         |                  
|Revenue                                           |         | $                                                              | 101,304 |               |  | $                  | 102,326 |                   |  | $ | 104,858 |      |  | $ | 105,047 |     
|Property operating expenses                       |         |                                                                | (31,407 | )             |  |                    | (32,710 | )                 |  |   | (35,255 | )    |  |   | (33,381 | )   
|General and administrative                        |         |                                                                | (3,652  | )             |  |                    | (4,225  | )                 |  |   | (4,697  | )    |  |   | (5,549  | )   
|Interest expense                                  |         |                                                                | (23,035 | )             |  |                    | (23,254 | )                 |  |   | (23,953 | )    |  |   | (23,525 | )   
|Depreciation and amortization                     |         |                                                                | (28,458 | )             |  |                    | (29,537 | )                 |  |   | (30,578 | )    |  |   | (29,541 | )   
|Interest and other income                         |         |                                                                | 132     |               |  |                    | 378     |                   |  |   | 121     |      |  |   | 103     |     
|Minority interest                                 |         |                                                                | (1,443  | )             |  |                    | (1,391  | )                 |  |   | (1,319  | )    |  |   | (1,383  | )   
|Discontinued operations, net of minority interest |         |                                                                | 2,636   |               |  |                    | 1,295   |                   |  |   | 1,364   |      |  |   | 1,301   |     
|(Loss) Gain on sale of discontinued properties    |         |                                                                | (639    | )             |  |                    | 6,021   |                   |  |   |        |      |  |   | 555     |     
|                                                  |         |                                                                |         |               |  |                    |         |                   |  |   |         |      |  |   |         |     
|Net Income                                        |         | $                                                              | 15,438  |               |  | $                  | 18,903  |                   |  | $ | 10,541  |      |  | $ | 13,627  |     
|                                                  |         |                                                                |         |               |  |                    |         |                   |  |   |         |      |  |   |         |     
|Net income per share:                             |         |                                                                |         |               |  |                    |         |                   |  |   |         |      |  |   |         |     
|                                                  | Basic   |                                                                | $       | 0.24          |  |                    | $       | 0.30              |  |   | $       | 0.17 |  |   | $       | 0.21 | 
|                                                  |         |                                                                |         |               |  |                    |         |                   |  |   |         |      |  |   |         |     
|                                                  | Diluted |                                                                | $       | 0.24          |  |                    | $       | 0.30              |  |   | $       | 0.16 |  |   | $       | 0.21 | 
|                                                  |         |                                                                |         |               |  |                    |         |                   |  |   |         |      |  |   |         |     

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|                                                  |         |                                                                |         |               |  |                    |         |                   |  |   |         |      |  |   |         |      | 
|------------------------------------------------- | ------- | -------------------------------------------------------------- | ------- | ------------- |  | ------------------ | ------- | ----------------- |  | - | ------- | ---- |  | - | ------- | ---- | 
|                                                  |         |                                                               
|                                                  |         | For the Quarter Ended (in thousands, except per share amounts)
|                                                  |         |                                                               
|                                                  |         | March 31, 2002                                                 |         | June 30, 2002 |  | September 30, 2002 |         | December 31, 2002
|                                                  |         |                                                                |         |               |  |                    |         |                  
|Revenue                                           |         | $                                                              | 97,155  |               |  | $                  | 97,032  |                   |  | $ | 99,060  |      |  | $ | 101,240 |     
|Property operating expenses                       |         |                                                                | (28,600 | )             |  |                    | (29,156 | )                 |  |   | (32,988 | )    |  |   | (32,906 | )   
|General and administrative                        |         |                                                                | (2,960  | )             |  |                    | (2,951  | )                 |  |   | (3,323  | )    |  |   | (3,932  | )   
|Interest expense                                  |         |                                                                | (21,397 | )             |  |                    | (21,584 | )                 |  |   | (22,403 | )    |  |   | (23,132 | )   
|Depreciation and amortization                     |         |                                                                | (25,091 | )             |  |                    | (27,597 | )                 |  |   | (26,368 | )    |  |   | (27,126 | )   
|Interest and other income                         |         |                                                                | 540     |               |  |                    | 512     |                   |  |   | 524     |      |  |   | 966     |     
|Gain on sale of properties                        |         |                                                                | 1,192   |               |  |                    | 81      |                   |  |   |        |      |  |   | 694     |     
|Minority interest                                 |         |                                                                | (1,617  | )             |  |                    | (1,477  | )                 |  |   | (1,424  | )    |  |   | (1,481  | )   
|Discontinued operations, net of minority interest |         |                                                                | 2,131   |               |  |                    | 2,547   |                   |  |   | 2,035   |      |  |   | 1,979   |     
|                                                  |         |                                                                |         |               |  |                    |         |                   |  |   |         |      |  |   |         |     
|Net Income                                        |         | $                                                              | 21,353  |               |  | $                  | 17,407  |                   |  | $ | 15,113  |      |  | $ | 16,302  |     
|                                                  |         |                                                                |         |               |  |                    |         |                   |  |   |         |      |  |   |         |     
|Net income per share:                             |         |                                                                |         |               |  |                    |         |                   |  |   |         |      |  |   |         |     
|                                                  | Basic   |                                                                | $       | 0.33          |  |                    | $       | 0.27              |  |   | $       | 0.23 |  |   | $       | 0.26 | 
|                                                  |         |                                                                |         |               |  |                    |         |                   |  |   |         |      |  |   |         |     
|                                                  | Diluted |                                                                | $       | 0.33          |  |                    | $       | 0.27              |  |   | $       | 0.23 |  |   | $       | 0.26 | 
|                                                  |         |                                                                |         |               |  |                    |         |                   |  |   |         |      |  |   |         |     

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##### Table of Contents



15. Schedule of Commercial Properties and
Accumulated Depreciation

December 31, 2003


(In thousands, except square foot
data)


|                          |  |         |         |               |  |               |       |      |  |              |        |                   |  |   |     |  |  |   |       |  |  |   |        | 
|------------------------- |  | ------- | ------- | ------------- |  | ------------- | ----- | ---- |  | ------------ | ------ | ----------------- |  | - | --- |  |  | - | ----- |  |  | - | ------ | 
|                          |  |         |         |               |  |               |       |     
|                          |  |         |         | Initial Costs |  | Basis Step Up |       |     
|                          |  |         |         |               |  |               |       |     
|                          |  |         |         |               |  | Buildings     |       |      |  | Buildings    |        | Costs Capitalized
|                          |  | Square  |         |               |  | and           |       |      |  | and          |        | Subsequent to    
|                          |  | Footage |         | Land          |  | Improvements  |       | Land |  | Improvements |        | Acquisition(2)   
|                          |  |         |         |               |  |               |       |      |  |              |        |                  
|Century Park Center       |  |         | 243,404 |               |  | $             | 7,189 |      |  | $            | 16,742 |                   |  | $ |    |  |  | $ |      |  |  | $ | 13,098 | 
|Beverly Atrium            |  |         | 59,650  |               |  |               | 4,127 |      |  |              | 11,513 |                   |  |   | 110 |  |  |   | 328   |  |  |   | 3,179  | 
|Woodland Hills            |  |         | 224,955 |               |  |               | 6,566 |      |  |              | 14,754 |                   |  |   | 365 |  |  |   | 880   |  |  |   | 7,612  | 
|222 South Harbor          |  |         | 175,391 |               |  |               | 515   |      |  |              | 11,199 |                   |  |   | 94  |  |  |   | 2,075 |  |  |   | 4,656  | 
|425 West Broadway         |  |         | 71,589  |               |  |               | 1,500 |      |  |              | 4,436  |                   |  |   | 305 |  |  |   | 918   |  |  |   | 2,730  | 
|1950 Sawtelle             |  |         | 103,106 |               |  |               | 1,988 |      |  |              | 7,263  |                   |  |   |    |  |  |   |      |  |  |   | 2,575  | 
|Bristol Plaza             |  |         | 84,014  |               |  |               | 1,820 |      |  |              | 3,380  |                   |  |   | 257 |  |  |   | 485   |  |  |   | 2,452  | 
|16000 Ventura             |  |         | 174,841 |               |  |               | 1,700 |      |  |              | 17,189 |                   |  |   | 185 |  |  |   | 1,929 |  |  |   | 5,017  | 
|5000 East Spring          |  |         | 163,358 |               |  |               |      |      |  |              | 11,658 |                   |  |   |    |  |  |   | 424   |  |  |   | 4,699  | 
|70 South Lake             |  |         | 100,133 |               |  |               | 1,360 |      |  |              | 9,097  |                   |  |   |    |  |  |   |      |  |  |   | 3,061  | 
|Westwood Terrace          |  |         | 135,943 |               |  |               | 2,103 |      |  |              | 16,850 |                   |  |   |    |  |  |   |      |  |  |   | 3,418  | 
|Westlake  5601 Lindero   |  |         | 105,830 |               |  |               | 2,576 |      |  |              | 6,067  |                   |  |   |    |  |  |   |      |  |  |   | 5,710  | 
|6100 Wilshire             |  |         | 202,704 |               |  |               | 1,200 |      |  |              | 19,902 |                   |  |   |    |  |  |   |      |  |  |   | 5,834  | 
|Calabasas Commerce Center |  |         | 126,771 |               |  |               | 1,262 |      |  |              | 9,725  |                   |  |   |    |  |  |   |      |  |  |   | 2,288  | 
|Long Beach Airport  DF&G |  |         | 272,013 |               |  |               |      |      |  |              | 14,452 |                   |  |   |    |  |  |   |      |  |  |   | 576    | 
|Skyview Center            |  |         | 391,675 |               |  |               | 6,514 |      |  |              | 33,701 |                   |  |   |    |  |  |   |      |  |  |   | 7,975  | 
|400 Corporate Pointe      |  |         | 164,598 |               |  |               | 3,382 |      |  |              | 17,527 |                   |  |   | 75  |  |  |   | 390   |  |  |   | 4,329  | 
|5832 Bolsa                |  |         | 49,355  |               |  |               | 690   |      |  |              | 3,526  |                   |  |   | 15  |  |  |   | 80    |  |  |   | 1,624  | 
|9665 Wilshire             |  |         | 158,684 |               |  |               | 6,697 |      |  |              | 22,230 |                   |  |   | 139 |  |  |   | 473   |  |  |   | 10,809 | 
|701 B Street              |  |         | 540,413 |               |  |               | 3,722 |      |  |              | 35,184 |                   |  |   | 64  |  |  |   | 625   |  |  |   | 14,542 | 
|100 Broadway              |  |         | 191,727 |               |  |               | 4,570 |      |  |              | 15,255 |                   |  |   |    |  |  |   |      |  |  |   | 3,403  | 
|Norwalk                   |  |         | 122,175 |               |  |               | 4,508 |      |  |              | 5,532  |                   |  |   |    |  |  |   |      |  |  |   | 4,884  | 
|303 Glenoaks              |  |         | 175,289 |               |  |               | 6,500 |      |  |              | 18,132 |                   |  |   |    |  |  |   |      |  |  |   | 5,728  | 
|10351 Santa Monica        |  |         | 96,251  |               |  |               | 3,080 |      |  |              | 7,906  |                   |  |   |    |  |  |   |      |  |  |   | 2,463  | 
|2730 Wilshire             |  |         | 55,080  |               |  |               | 3,515 |      |  |              | 5,944  |                   |  |   |    |  |  |   |      |  |  |   | 99     | 

[Additional columns below]

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

|                          |  |             |       |              |  |       |        |                 |  |              |        |             |  |   |        |  |  |   |        |     |  |  |            | 
|------------------------- |  | ----------- | ----- | ------------ |  | ----- | ------ | --------------- |  | ------------ | ------ | ----------- |  | - | ------ |  |  | - | ------ | --- |  |  | ---------- | 
|                          |  |             |       |              |  |       |        |                 |  |             
|                          |  | Total Costs |       |              |  |       |        |                 |  |             
|                          |  |             |       |              |  |       |        |                 |  |             
|                          |  |             |       | Buildings    |  |       |        |                 |  |              |        |            
|                          |  |             |       | and          |  |       |        | Accumulated     |  |              |        | Year Built/
|                          |  | Land        |       | Improvements |  | Total |        | Depreciation(1) |  | Encumbrances |        | Renovated  
|                          |  |             |       |              |  |       |        |                 |  |              |        |            
|Century Park Center       |  | $           | 7,189 |              |  | $     | 29,840 |                 |  | $            | 37,029 |             |  | $ | 8,502  |  |  | $ |       |     |  |  | 1972/94    | 
|Beverly Atrium            |  |             | 4,237 |              |  |       | 15,020 |                 |  |              | 19,257 |             |  |   | 3,917  |  |  |   | 5,268  | (3) |  |  | 1989       | 
|Woodland Hills            |  |             | 6,931 |              |  |       | 23,246 |                 |  |              | 30,177 |             |  |   | 7,353  |  |  |   | 14,564 | (3) |  |  | 1972/95    | 
|222 South Harbor          |  |             | 609   |              |  |       | 17,930 |                 |  |              | 18,539 |             |  |   | 5,345  |  |  |   | 8,914  | (3) |  |  | 1986/91    | 
|425 West Broadway         |  |             | 1,805 |              |  |       | 8,084  |                 |  |              | 9,889  |             |  |   | 2,452  |  |  |   | 4,734  | (3) |  |  | 1984       | 
|1950 Sawtelle             |  |             | 1,988 |              |  |       | 9,838  |                 |  |              | 11,826 |             |  |   | 2,369  |  |  |   | 6,779  | (3) |  |  | 1988/95    | 
|Bristol Plaza             |  |             | 2,077 |              |  |       | 6,317  |                 |  |              | 8,394  |             |  |   | 1,981  |  |  |   | 4,082  | (3) |  |  | 1982       | 
|16000 Ventura             |  |             | 1,885 |              |  |       | 24,135 |                 |  |              | 26,020 |             |  |   | 6,589  |  |  |   | 11,504 | (3) |  |  | 1980/96    | 
|5000 East Spring          |  |             |      |              |  |       | 16,781 |                 |  |              | 16,781 |             |  |   | 4,514  |  |  |   |       |     |  |  | 1989/95    | 
|70 South Lake             |  |             | 1,360 |              |  |       | 12,158 |                 |  |              | 13,518 |             |  |   | 3,236  |  |  |   | 6,677  | (3) |  |  | 1982/94    | 
|Westwood Terrace          |  |             | 2,103 |              |  |       | 20,268 |                 |  |              | 22,371 |             |  |   | 4,743  |  |  |   |       |     |  |  | 1988       | 
|Westlake  5601 Lindero   |  |             | 2,576 |              |  |       | 11,777 |                 |  |              | 14,353 |             |  |   | 2,767  |  |  |   | 6,225  | (3) |  |  | 1989       | 
|6100 Wilshire             |  |             | 1,200 |              |  |       | 25,736 |                 |  |              | 26,936 |             |  |   | 6,438  |  |  |   | 11,567 | (3) |  |  | 1986       | 
|Calabasas Commerce Center |  |             | 1,262 |              |  |       | 12,013 |                 |  |              | 13,275 |             |  |   | 2,623  |  |  |   | 8,010  | (3) |  |  | 1990       | 
|Long Beach Airport  DF&G |  |             |      |              |  |       | 15,028 |                 |  |              | 15,028 |             |  |   | 3,097  |  |  |   |       |     |  |  | 1987/95    | 
|Skyview Center            |  |             | 6,514 |              |  |       | 41,676 |                 |  |              | 48,190 |             |  |   | 9,859  |  |  |   | 27,604 | (3) |  |  | 1981/87/95 | 
|400 Corporate Pointe      |  |             | 3,457 |              |  |       | 22,246 |                 |  |              | 25,703 |             |  |   | 5,169  |  |  |   | 15,583 | (3) |  |  | 1987       | 
|5832 Bolsa                |  |             | 705   |              |  |       | 5,230  |                 |  |              | 5,935  |             |  |   | 1,572  |  |  |   | 2,675  | (3) |  |  | 1985       | 
|9665 Wilshire             |  |             | 6,836 |              |  |       | 33,512 |                 |  |              | 40,348 |             |  |   | 7,901  |  |  |   |       |     |  |  | 1972/92/93 | 
|701 B Street              |  |             | 3,786 |              |  |       | 50,351 |                 |  |              | 54,137 |             |  |   | 12,865 |  |  |   |       |     |  |  | 1982/96    | 
|100 Broadway              |  |             | 4,570 |              |  |       | 18,658 |                 |  |              | 23,228 |             |  |   | 3,772  |  |  |   | 15,120 | (3) |  |  | 1987/96    | 
|Norwalk                   |  |             | 4,508 |              |  |       | 10,416 |                 |  |              | 14,924 |             |  |   | 2,824  |  |  |   | 7,186  | (3) |  |  | 1978/94    | 
|303 Glenoaks              |  |             | 6,500 |              |  |       | 23,860 |                 |  |              | 30,360 |             |  |   | 4,828  |  |  |   | 13,104 | (3) |  |  | 1983/96    | 
|10351 Santa Monica        |  |             | 3,080 |              |  |       | 10,369 |                 |  |              | 13,449 |             |  |   | 2,196  |  |  |   | 5,478  | (3) |  |  | 1984       | 
|2730 Wilshire             |  |             | 3,515 |              |  |       | 6,043  |                 |  |              | 9,558  |             |  |   | 1,535  |  |  |   | 4,581  | (3) |  |  | 1985       | 

F-22



---



##### Table of Contents



|                             |  |         |         |               |  |               |        |      |  |              |        |                   |  |  |   |  |  |  |   |  |  |  |        |  
|---------------------------- |  | ------- | ------- | ------------- |  | ------------- | ------ | ---- |  | ------------ | ------ | ----------------- |  |  | - |  |  |  | - |  |  |  | ------ | -
|                             |  |         |         |               |  |               |        |     
|                             |  |         |         | Initial Costs |  | Basis Step Up |        |     
|                             |  |         |         |               |  |               |        |     
|                             |  |         |         |               |  | Buildings     |        |      |  | Buildings    |        | Costs Capitalized
|                             |  | Square  |         |               |  | and           |        |      |  | and          |        | Subsequent to    
|                             |  | Footage |         | Land          |  | Improvements  |        | Land |  | Improvements |        | Acquisition(2)   
|                             |  |         |         |               |  |               |        |      |  |              |        |                  
|Grand Avenue Plaza (1970)    |  |         | 81,448  |               |  |               | 620    |      |  |              | 2,832  |                   |  |  |  |  |  |  |  |  |  |  | 3,749  |  
|Burbank Executive Plaza      |  |         | 60,395  |               |  |               | 1,100  |      |  |              | 4,384  |                   |  |  |  |  |  |  |  |  |  |  | 10,986 |  
|333 N. Glenoaks              |  |         | 81,243  |               |  |               | 1,500  |      |  |              | 5,981  |                   |  |  |  |  |  |  |  |  |  |  | (5,985 | )
|Center Promenade             |  |         | 174,837 |               |  |               | 2,310  |      |  |              | 9,266  |                   |  |  |  |  |  |  |  |  |  |  | 3,632  |  
|Los Angeles Corporate Center |  |         | 389,293 |               |  |               | 26,781 |      |  |              | 15,139 |                   |  |  |  |  |  |  |  |  |  |  | 12,216 |  
|5200 West Century            |  |         | 310,910 |               |  |               | 2,080  |      |  |              | 9,360  |                   |  |  |  |  |  |  |  |  |  |  | 21,035 |  
|15250 Ventura                |  |         | 110,641 |               |  |               | 2,560  |      |  |              | 10,257 |                   |  |  |  |  |  |  |  |  |  |  | 4,354  |  
|10350 Santa Monica           |  |         | 42,292  |               |  |               | 861    |      |  |              | 3,456  |                   |  |  |  |  |  |  |  |  |  |  | 1,018  |  
|535 N. Brand Blvd.           |  |         | 109,187 |               |  |               | 1,600  |      |  |              | 8,427  |                   |  |  |  |  |  |  |  |  |  |  | 11,952 |  
|10780 Santa Monica           |  |         | 92,486  |               |  |               | 2,625  |      |  |              | 7,997  |                   |  |  |  |  |  |  |  |  |  |  | 2,216  |  
|4900 California              |  |         | 155,189 |               |  |               | 4,680  |      |  |              | 14,877 |                   |  |  |  |  |  |  |  |  |  |  | 3,411  |  
|Whittier                     |  |         | 135,415 |               |  |               | 3,575  |      |  |              | 10,798 |                   |  |  |  |  |  |  |  |  |  |  | 2,754  |  
|Clarendon Crest              |  |         | 43,063  |               |  |               | 1,300  |      |  |              | 3,951  |                   |  |  |  |  |  |  |  |  |  |  | 1,416  |  
|Noble Professional Center    |  |         | 51,828  |               |  |               | 1,657  |      |  |              | 5,096  |                   |  |  |  |  |  |  |  |  |  |  | 1,109  |  
|South Bay Centre             |  |         | 202,830 |               |  |               | 4,775  |      |  |              | 14,365 |                   |  |  |  |  |  |  |  |  |  |  | 4,994  |  
|8383 Wilshire                |  |         | 417,463 |               |  |               | 13,570 |      |  |              | 45,505 |                   |  |  |  |  |  |  |  |  |  |  | 13,685 |  
|Parkway Center I             |  |         | 61,333  |               |  |               | 1,480  |      |  |              | 5,941  |                   |  |  |  |  |  |  |  |  |  |  | 1,188  |  
|Centerpointe La Palma        |  |         | 597,550 |               |  |               | 16,011 |      |  |              | 64,400 |                   |  |  |  |  |  |  |  |  |  |  | 8,915  |  
|299 N. Euclid                |  |         | 73,522  |               |  |               | 1,050  |      |  |              | 6,110  |                   |  |  |  |  |  |  |  |  |  |  | 5,382  |  
|2800 28th Street             |  |         | 103,506 |               |  |               | 2,937  |      |  |              | 9,063  |                   |  |  |  |  |  |  |  |  |  |  | 3,632  |  
|1000 Town Center             |  |         | 107,656 |               |  |               | 2,800  |      |  |              | 11,260 |                   |  |  |  |  |  |  |  |  |  |  | 1,416  |  
|Mariner Court                |  |         | 105,436 |               |  |               | 2,350  |      |  |              | 9,461  |                   |  |  |  |  |  |  |  |  |  |  | 1,929  |  
|Pacific Gateway              |  |         | 223,731 |               |  |               | 6,287  |      |  |              | 19,191 |                   |  |  |  |  |  |  |  |  |  |  | 6,080  |  
|1821 Dyer                    |  |         | 115,061 |               |  |               | 1,808  |      |  |              | 5,474  |                   |  |  |  |  |  |  |  |  |  |  | 4,592  |  
|Crown Cabot Financial        |  |         | 172,900 |               |  |               | 7,056  |      |  |              | 21,360 |                   |  |  |  |  |  |  |  |  |  |  | 8,431  |  
|120 S. Spalding              |  |         | 60,656  |               |  |               | 2,775  |      |  |              | 8,544  |                   |  |  |  |  |  |  |  |  |  |  | 6,085  |  
|South Bay Tech               |  |         | 104,815 |               |  |               | 1,600  |      |  |              | 4,782  |                   |  |  |  |  |  |  |  |  |  |  | 1,289  |  
|1370 Valley Vista            |  |         | 84,081  |               |  |               | 2,698  |      |  |              | 8,141  |                   |  |  |  |  |  |  |  |  |  |  | 1,430  |  

[Additional columns below]

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

|                             |  |             |        |              |  |       |        |                 |  |              |        |             |  |  |        |  |  |  |        |     |  |  |              | 
|---------------------------- |  | ----------- | ------ | ------------ |  | ----- | ------ | --------------- |  | ------------ | ------ | ----------- |  |  | ------ |  |  |  | ------ | --- |  |  | ------------ | 
|                             |  |             |        |              |  |       |        |                 |  |             
|                             |  | Total Costs |        |              |  |       |        |                 |  |             
|                             |  |             |        |              |  |       |        |                 |  |             
|                             |  |             |        | Buildings    |  |       |        |                 |  |              |        |            
|                             |  |             |        | and          |  |       |        | Accumulated     |  |              |        | Year Built/
|                             |  | Land        |        | Improvements |  | Total |        | Depreciation(1) |  | Encumbrances |        | Renovated  
|                             |  |             |        |              |  |       |        |                 |  |              |        |            
|Grand Avenue Plaza (1970)    |  |             | 620    |              |  |       | 6,581  |                 |  |              | 7,201  |             |  |  | 1,806  |  |  |  | 5,742  | (3) |  |  | 1980         | 
|Burbank Executive Plaza      |  |             | 1,100  |              |  |       | 15,370 |                 |  |              | 16,470 |             |  |  | 3,663  |  |  |  | 4,188  | (3) |  |  | 1983         | 
|333 N. Glenoaks              |  |             | 1,500  |              |  |       | (4     | )               |  |              | 1,496  |             |  |  |       |  |  |  | 4,188  | (3) |  |  | 1978         | 
|Center Promenade             |  |             | 2,310  |              |  |       | 12,898 |                 |  |              | 15,208 |             |  |  | 2,737  |  |  |  |       |     |  |  | 1982         | 
|Los Angeles Corporate Center |  |             | 26,781 |              |  |       | 27,355 |                 |  |              | 54,136 |             |  |  | 8,533  |  |  |  | 21,043 | (3) |  |  | 1984/86      | 
|5200 West Century            |  |             | 2,080  |              |  |       | 30,395 |                 |  |              | 32,475 |             |  |  | 7,460  |  |  |  |       |     |  |  | 1982/98/99   | 
|15250 Ventura                |  |             | 2,560  |              |  |       | 14,611 |                 |  |              | 17,171 |             |  |  | 3,246  |  |  |  |       |     |  |  | 1970/90-91   | 
|10350 Santa Monica           |  |             | 861    |              |  |       | 4,474  |                 |  |              | 5,335  |             |  |  | 952    |  |  |  | 2,280  | (3) |  |  | 1979         | 
|535 N. Brand Blvd.           |  |             | 1,600  |              |  |       | 20,379 |                 |  |              | 21,979 |             |  |  | 3,104  |  |  |  |       |     |  |  | 1973/92/1999 | 
|10780 Santa Monica           |  |             | 2,625  |              |  |       | 10,213 |                 |  |              | 12,838 |             |  |  | 2,193  |  |  |  |       |     |  |  | 1984         | 
|4900 California              |  |             | 4,680  |              |  |       | 18,288 |                 |  |              | 22,968 |             |  |  | 4,109  |  |  |  |       |     |  |  | 1983         | 
|Whittier                     |  |             | 3,575  |              |  |       | 13,552 |                 |  |              | 17,127 |             |  |  | 2,686  |  |  |  |       |     |  |  | 1982         | 
|Clarendon Crest              |  |             | 1,300  |              |  |       | 5,367  |                 |  |              | 6,667  |             |  |  | 961    |  |  |  | 3,143  | (3) |  |  | 1990         | 
|Noble Professional Center    |  |             | 1,657  |              |  |       | 6,205  |                 |  |              | 7,862  |             |  |  | 1,344  |  |  |  | 3,539  | (3) |  |  | 1985/93      | 
|South Bay Centre             |  |             | 4,775  |              |  |       | 19,359 |                 |  |              | 24,134 |             |  |  | 4,068  |  |  |  | 12,708 | (3) |  |  | 1984         | 
|8383 Wilshire                |  |             | 13,570 |              |  |       | 59,190 |                 |  |              | 72,760 |             |  |  | 12,703 |  |  |  |       |     |  |  | 1971/93      | 
|Parkway Center I             |  |             | 1,480  |              |  |       | 7,129  |                 |  |              | 8,609  |             |  |  | 1,655  |  |  |  | 4,972  | (3) |  |  | 1992/95      | 
|Centerpointe La Palma        |  |             | 16,011 |              |  |       | 73,315 |                 |  |              | 89,326 |             |  |  | 14,538 |  |  |  | 33,455 | (3) |  |  | 1986/88/90   | 
|299 N. Euclid                |  |             | 1,050  |              |  |       | 11,492 |                 |  |              | 12,542 |             |  |  | 2,382  |  |  |  |       |     |  |  | 1983         | 
|2800 28th Street             |  |             | 2,937  |              |  |       | 12,695 |                 |  |              | 15,632 |             |  |  | 2,963  |  |  |  |       |     |  |  | 1979         | 
|1000 Town Center             |  |             | 2,800  |              |  |       | 12,676 |                 |  |              | 15,476 |             |  |  | 2,450  |  |  |  |       |     |  |  | 1989         | 
|Mariner Court                |  |             | 2,350  |              |  |       | 11,390 |                 |  |              | 13,740 |             |  |  | 2,567  |  |  |  | 6,814  | (3) |  |  | 1989         | 
|Pacific Gateway              |  |             | 6,287  |              |  |       | 25,271 |                 |  |              | 31,558 |             |  |  | 6,210  |  |  |  |       |     |  |  | 1982/90      | 
|1821 Dyer                    |  |             | 1,808  |              |  |       | 10,066 |                 |  |              | 11,874 |             |  |  | 2,464  |  |  |  |       |     |  |  | 1980/88      | 
|Crown Cabot Financial        |  |             | 7,056  |              |  |       | 29,791 |                 |  |              | 36,847 |             |  |  | 5,928  |  |  |  |       |     |  |  | 1989         | 
|120 S. Spalding              |  |             | 2,775  |              |  |       | 14,629 |                 |  |              | 17,404 |             |  |  | 4,038  |  |  |  | 8,127  | (3) |  |  | 1984         | 
|South Bay Tech               |  |             | 1,600  |              |  |       | 6,071  |                 |  |              | 7,671  |             |  |  | 1,190  |  |  |  |       |     |  |  | 1984         | 
|1370 Valley Vista            |  |             | 2,698  |              |  |       | 9,571  |                 |  |              | 12,269 |             |  |  | 1,876  |  |  |  | 5,469  | (3) |  |  | 1988         | 

F-23



---



##### Table of Contents



|                            |  |         |         |               |  |               |        |      |  |              |         |                   |  |  |   |  |  |  |   |  |  |  |        | 
|--------------------------- |  | ------- | ------- | ------------- |  | ------------- | ------ | ---- |  | ------------ | ------- | ----------------- |  |  | - |  |  |  | - |  |  |  | ------ | 
|                            |  |         |         |               |  |               |        |     
|                            |  |         |         | Initial Costs |  | Basis Step Up |        |     
|                            |  |         |         |               |  |               |        |     
|                            |  |         |         |               |  | Buildings     |        |      |  | Buildings    |         | Costs Capitalized
|                            |  | Square  |         |               |  | and           |        |      |  | and          |         | Subsequent to    
|                            |  | Footage |         | Land          |  | Improvements  |        | Land |  | Improvements |         | Acquisition(2)   
|                            |  |         |         |               |  |               |        |      |  |              |         |                  
|Foremost Professional Plaza |  |         | 60,534  |               |  |               | 2,049  |      |  |              | 6,196   |                   |  |  |  |  |  |  |  |  |  |  | 1,060  | 
|Northpoint                  |  |         | 104,235 |               |  |               | 1,800  |      |  |              | 20,272  |                   |  |  |  |  |  |  |  |  |  |  | 1,729  | 
|Conejo Business Center      |  |         | 69,017  |               |  |               | 2,489  |      |  |              | 7,359   |                   |  |  |  |  |  |  |  |  |  |  | 1,411  | 
|Marin Corporate Center      |  |         | 51,360  |               |  |               | 1,956  |      |  |              | 5,915   |                   |  |  |  |  |  |  |  |  |  |  | 878    | 
|145 South Fairfax           |  |         | 53,994  |               |  |               | 1,825  |      |  |              | 5,551   |                   |  |  |  |  |  |  |  |  |  |  | 1,818  | 
|Bernardo Regency            |  |         | 47,916  |               |  |               | 1,625  |      |  |              | 4,937   |                   |  |  |  |  |  |  |  |  |  |  | 1,576  | 
|City Centre                 |  |         | 302,519 |               |  |               | 8,250  |      |  |              | 24,951  |                   |  |  |  |  |  |  |  |  |  |  | 4,501  | 
|Wilshire Pacific Plaza      |  |         | 100,122 |               |  |               | 3,750  |      |  |              | 11,317  |                   |  |  |  |  |  |  |  |  |  |  | 3,696  | 
|Glendale Corporate Center   |  |         | 108,209 |               |  |               | 2,750  |      |  |              | 12,734  |                   |  |  |  |  |  |  |  |  |  |  | 2,671  | 
|World Savings Center        |  |         | 469,115 |               |  |               |       |      |  |              | 110,382 |                   |  |  |  |  |  |  |  |  |  |  | 15,837 | 
|Sunset Point Plaza          |  |         | 58,105  |               |  |               | 2,075  |      |  |              | 6,362   |                   |  |  |  |  |  |  |  |  |  |  | 1,128  | 
|Activity Business Center    |  |         | 167,045 |               |  |               | 3,650  |      |  |              | 11,303  |                   |  |  |  |  |  |  |  |  |  |  | 2,104  | 
|Westlake Gardens            |  |         | 49,639  |               |  |               | 1,831  |      |  |              | 5,550   |                   |  |  |  |  |  |  |  |  |  |  | 2,329  | 
|9100 Wilshire Boulevard     |  |         | 326,227 |               |  |               | 16,250 |      |  |              | 48,950  |                   |  |  |  |  |  |  |  |  |  |  | 9,822  | 
|Westwood Center             |  |         | 313,000 |               |  |               | 3,159  |      |  |              | 24,920  |                   |  |  |  |  |  |  |  |  |  |  | 84,807 | 
|1919 Santa Monica           |  |         | 43,796  |               |  |               | 2,580  |      |  |              | 7,772   |                   |  |  |  |  |  |  |  |  |  |  | 1,189  | 
|600 Corporate Pointe        |  |         | 273,339 |               |  |               | 8,575  |      |  |              | 35,325  |                   |  |  |  |  |  |  |  |  |  |  | 6,594  | 
|150 East Colorado Boulevard |  |         | 61,168  |               |  |               | 1,988  |      |  |              | 5,841   |                   |  |  |  |  |  |  |  |  |  |  | 2,605  | 
|5161 Lankershim             |  |         | 178,317 |               |  |               | 5,016  |      |  |              | 25,568  |                   |  |  |  |  |  |  |  |  |  |  | 5,030  | 
|1501 Hughes Way             |  |         | 77,060  |               |  |               | 1,348  |      |  |              | 4,058   |                   |  |  |  |  |  |  |  |  |  |  | 3,529  | 
|3901 Via Oro                |  |         | 53,195  |               |  |               | 692    |      |  |              | 2,081   |                   |  |  |  |  |  |  |  |  |  |  | 963    | 
|Huntington Beach Plaza      |  |         | 52,186  |               |  |               | 1,109  |      |  |              | 3,317   |                   |  |  |  |  |  |  |  |  |  |  | 1,222  | 
|Fountain Valley Plaza       |  |         | 107,252 |               |  |               | 2,949  |      |  |              | 9,377   |                   |  |  |  |  |  |  |  |  |  |  | 2,176  | 
|3300 Irvine Avenue          |  |         | 74,224  |               |  |               | 2,215  |      |  |              | 6,697   |                   |  |  |  |  |  |  |  |  |  |  | 1,604  | 

[Additional columns below]

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

|                            |  |             |        |              |  |       |         |                 |  |              |         |             |  |  |        |  |  |  |        |     |  |  |           | 
|--------------------------- |  | ----------- | ------ | ------------ |  | ----- | ------- | --------------- |  | ------------ | ------- | ----------- |  |  | ------ |  |  |  | ------ | --- |  |  | --------- | 
|                            |  |             |        |              |  |       |         |                 |  |             
|                            |  | Total Costs |        |              |  |       |         |                 |  |             
|                            |  |             |        |              |  |       |         |                 |  |             
|                            |  |             |        | Buildings    |  |       |         |                 |  |              |         |            
|                            |  |             |        | and          |  |       |         | Accumulated     |  |              |         | Year Built/
|                            |  | Land        |        | Improvements |  | Total |         | Depreciation(1) |  | Encumbrances |         | Renovated  
|                            |  |             |        |              |  |       |         |                 |  |              |         |            
|Foremost Professional Plaza |  |             | 2,049  |              |  |       | 7,256   |                 |  |              | 9,305   |             |  |  | 1,499  |  |  |  |       |     |  |  | 1992      | 
|Northpoint                  |  |             | 1,800  |              |  |       | 22,001  |                 |  |              | 23,801  |             |  |  | 3,972  |  |  |  |       |     |  |  | 1991      | 
|Conejo Business Center      |  |             | 2,489  |              |  |       | 8,770   |                 |  |              | 11,259  |             |  |  | 1,286  |  |  |  | 3,818  |     |  |  | 1991      | 
|Marin Corporate Center      |  |             | 1,956  |              |  |       | 6,793   |                 |  |              | 8,749   |             |  |  | 909    |  |  |  | 2,724  |     |  |  | 1986      | 
|145 South Fairfax           |  |             | 1,825  |              |  |       | 7,369   |                 |  |              | 9,194   |             |  |  | 1,354  |  |  |  | 3,912  |     |  |  | 1984      | 
|Bernardo Regency            |  |             | 1,625  |              |  |       | 6,513   |                 |  |              | 8,138   |             |  |  | 1,180  |  |  |  |       |     |  |  | 1986      | 
|City Centre                 |  |             | 8,250  |              |  |       | 29,452  |                 |  |              | 37,702  |             |  |  | 5,364  |  |  |  |       |     |  |  | 1982      | 
|Wilshire Pacific Plaza      |  |             | 3,750  |              |  |       | 15,013  |                 |  |              | 18,763  |             |  |  | 3,154  |  |  |  |       |     |  |  | 1976/87   | 
|Glendale Corporate Center   |  |             | 2,750  |              |  |       | 15,405  |                 |  |              | 18,155  |             |  |  | 3,010  |  |  |  |       |     |  |  | 1985      | 
|World Savings Center        |  |             |       |              |  |       | 126,219 |                 |  |              | 126,219 |             |  |  | 22,496 |  |  |  |       |     |  |  | 1983      | 
|Sunset Point Plaza          |  |             | 2,075  |              |  |       | 7,490   |                 |  |              | 9,565   |             |  |  | 1,456  |  |  |  | 3,413  | (3) |  |  | 1988      | 
|Activity Business Center    |  |             | 3,650  |              |  |       | 13,407  |                 |  |              | 17,057  |             |  |  | 2,487  |  |  |  | 7,394  |     |  |  | 1987      | 
|Westlake Gardens            |  |             | 1,831  |              |  |       | 7,879   |                 |  |              | 9,710   |             |  |  | 2,089  |  |  |  |       |     |  |  | 1998      | 
|9100 Wilshire Boulevard     |  |             | 16,250 |              |  |       | 58,772  |                 |  |              | 75,022  |             |  |  | 12,272 |  |  |  |       |     |  |  | 1971/90   | 
|Westwood Center             |  |             | 3,159  |              |  |       | 109,727 |                 |  |              | 112,886 |             |  |  | 9,643  |  |  |  |       |     |  |  | 1965/2000 | 
|1919 Santa Monica           |  |             | 2,580  |              |  |       | 8,961   |                 |  |              | 11,541  |             |  |  | 1,534  |  |  |  | 3,681  | (3) |  |  | 1991      | 
|600 Corporate Pointe        |  |             | 8,575  |              |  |       | 41,919  |                 |  |              | 50,494  |             |  |  | 8,002  |  |  |  | 17,495 | (3) |  |  | 1989      | 
|150 East Colorado Boulevard |  |             | 1,988  |              |  |       | 8,446   |                 |  |              | 10,434  |             |  |  | 1,687  |  |  |  | 4,742  | (3) |  |  | 1979/97   | 
|5161 Lankershim             |  |             | 5,016  |              |  |       | 30,598  |                 |  |              | 35,614  |             |  |  | 5,773  |  |  |  | 13,417 | (3) |  |  | 1985/97   | 
|1501 Hughes Way             |  |             | 1,348  |              |  |       | 7,587   |                 |  |              | 8,935   |             |  |  | 1,829  |  |  |  |       |     |  |  | 1983/97   | 
|3901 Via Oro                |  |             | 692    |              |  |       | 3,044   |                 |  |              | 3,736   |             |  |  | 709    |  |  |  |       |     |  |  | 1986/97   | 
|Huntington Beach Plaza      |  |             | 1,109  |              |  |       | 4,539   |                 |  |              | 5,648   |             |  |  | 860    |  |  |  | 1,492  | (3) |  |  | 1984/96   | 
|Fountain Valley Plaza       |  |             | 2,949  |              |  |       | 11,553  |                 |  |              | 14,502  |             |  |  | 2,539  |  |  |  | 4,778  | (3) |  |  | 1982      | 
|3300 Irvine Avenue          |  |             | 2,215  |              |  |       | 8,301   |                 |  |              | 10,516  |             |  |  | 1,766  |  |  |  | 3,207  | (3) |  |  | 1981/97   | 

F-24



---



##### Table of Contents



|                           |  |         |         |               |  |               |        |      |  |              |        |                   |  |  |   |  |  |  |   |  |  |  |        |  
|-------------------------- |  | ------- | ------- | ------------- |  | ------------- | ------ | ---- |  | ------------ | ------ | ----------------- |  |  | - |  |  |  | - |  |  |  | ------ | -
|                           |  |         |         |               |  |               |        |     
|                           |  |         |         | Initial Costs |  | Basis Step Up |        |     
|                           |  |         |         |               |  |               |        |     
|                           |  |         |         |               |  | Buildings     |        |      |  | Buildings    |        | Costs Capitalized
|                           |  | Square  |         |               |  | and           |        |      |  | and          |        | Subsequent to    
|                           |  | Footage |         | Land          |  | Improvements  |        | Land |  | Improvements |        | Acquisition(2)   
|                           |  |         |         |               |  |               |        |      |  |              |        |                  
|Von Karman CorporateCenter |  |         | 451,477 |               |  |               | 11,513 |      |  |              | 34,783 |                   |  |  |  |  |  |  |  |  |  |  | 10,925 |  
|1503 South Coast           |  |         | 60,605  |               |  |               | 1,570  |      |  |              | 4,731  |                   |  |  |  |  |  |  |  |  |  |  | 1,278  |  
|625 The City               |  |         | 139,806 |               |  |               | 4,792  |      |  |              | 14,470 |                   |  |  |  |  |  |  |  |  |  |  | 3,023  |  
|Orange Financial Center    |  |         | 305,439 |               |  |               | 10,379 |      |  |              | 34,415 |                   |  |  |  |  |  |  |  |  |  |  | 8,835  |  
|Carlsbad Corporate Center  |  |         | 125,000 |               |  |               | 3,722  |      |  |              | 15,061 |                   |  |  |  |  |  |  |  |  |  |  | 5,915  |  
|Balboa Corporate Center    |  |         | 69,890  |               |  |               | 2,759  |      |  |              | 8,303  |                   |  |  |  |  |  |  |  |  |  |  | (98    | )
|Panorama Corporate Center  |  |         | 133,149 |               |  |               | 6,512  |      |  |              | 19,593 |                   |  |  |  |  |  |  |  |  |  |  | 2,564  |  
|Ruffin Corporate Center    |  |         | 45,059  |               |  |               | 1,766  |      |  |              | 5,315  |                   |  |  |  |  |  |  |  |  |  |  | (26    | )
|Skypark Office Plaza       |  |         | 202,164 |               |  |               | 5,733  |      |  |              | 21,608 |                   |  |  |  |  |  |  |  |  |  |  | 4,212  |  
|Governor Park Plaza        |  |         | 104,065 |               |  |               | 3,382  |      |  |              | 10,177 |                   |  |  |  |  |  |  |  |  |  |  | 3,264  |  
|5120 Shoreham              |  |         | 37,759  |               |  |               | 1,224  |      |  |              | 4,073  |                   |  |  |  |  |  |  |  |  |  |  | 1,095  |  
|Morehouse Tech Center      |  |         | 181,207 |               |  |               | 6,841  |      |  |              | 21,067 |                   |  |  |  |  |  |  |  |  |  |  | 4,007  |  
|Torreyana Science Park     |  |         | 81,204  |               |  |               | 5,035  |      |  |              | 15,148 |                   |  |  |  |  |  |  |  |  |  |  | 370    |  
|Waples Tech Center         |  |         | 28,119  |               |  |               | 1,010  |      |  |              | 3,027  |                   |  |  |  |  |  |  |  |  |  |  | 560    |  
|10251 Vista Sorrento       |  |         | 69,386  |               |  |               | 1,839  |      |  |              | 7,202  |                   |  |  |  |  |  |  |  |  |  |  | 280    |  
|Camarillo Business Park    |  |         | 154,216 |               |  |               | 3,522  |      |  |              | 10,602 |                   |  |  |  |  |  |  |  |  |  |  | 3,552  |  
|5702 Bolsa                 |  |         | 27,731  |               |  |               | 589    |      |  |              | 1,775  |                   |  |  |  |  |  |  |  |  |  |  | 131    |  
|5672 Bolsa                 |  |         | 11,968  |               |  |               | 254    |      |  |              | 767    |                   |  |  |  |  |  |  |  |  |  |  | 62     |  
|5632 Bolsa                 |  |         | 21,568  |               |  |               | 458    |      |  |              | 1,381  |                   |  |  |  |  |  |  |  |  |  |  | 67     |  
|Huntington Commerce Center |  |         | 67,551  |               |  |               | 992    |      |  |              | 2,997  |                   |  |  |  |  |  |  |  |  |  |  | 679    |  
|Savi Tech Center           |  |         | 341,446 |               |  |               | 8,280  |      |  |              | 24,911 |                   |  |  |  |  |  |  |  |  |  |  | 3,176  |  
|Yorba Linda Business Park  |  |         | 167,142 |               |  |               | 2,629  |      |  |              | 7,913  |                   |  |  |  |  |  |  |  |  |  |  | 1,196  |  

[Additional columns below]

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

|                           |  |             |        |              |  |       |        |                 |  |              |        |             |  |  |        |  |  |  |        |     |  |  |         | 
|-------------------------- |  | ----------- | ------ | ------------ |  | ----- | ------ | --------------- |  | ------------ | ------ | ----------- |  |  | ------ |  |  |  | ------ | --- |  |  | ------- | 
|                           |  |             |        |              |  |       |        |                 |  |             
|                           |  | Total Costs |        |              |  |       |        |                 |  |             
|                           |  |             |        |              |  |       |        |                 |  |             
|                           |  |             |        | Buildings    |  |       |        |                 |  |              |        |            
|                           |  |             |        | and          |  |       |        | Accumulated     |  |              |        | Year Built/
|                           |  | Land        |        | Improvements |  | Total |        | Depreciation(1) |  | Encumbrances |        | Renovated  
|                           |  |             |        |              |  |       |        |                 |  |              |        |            
|Von Karman CorporateCenter |  |             | 11,513 |              |  |       | 45,708 |                 |  |              | 57,221 |             |  |  | 10,145 |  |  |  | 18,895 | (3) |  |  | 1981/84 | 
|1503 South Coast           |  |             | 1,570  |              |  |       | 6,009  |                 |  |              | 7,579  |             |  |  | 1,121  |  |  |  | 2,236  | (3) |  |  | 1979/97 | 
|625 The City               |  |             | 4,792  |              |  |       | 17,493 |                 |  |              | 22,285 |             |  |  | 3,134  |  |  |  | 6,975  | (3) |  |  | 1985/97 | 
|Orange Financial Center    |  |             | 10,379 |              |  |       | 43,250 |                 |  |              | 53,629 |             |  |  | 7,624  |  |  |  | 17,976 | (3) |  |  | 1985/95 | 
|Carlsbad Corporate Center  |  |             | 3,722  |              |  |       | 20,976 |                 |  |              | 24,698 |             |  |  | 3,045  |  |  |  | 9,221  | (3) |  |  | 1996    | 
|Balboa Corporate Center    |  |             | 2,759  |              |  |       | 8,205  |                 |  |              | 10,964 |             |  |  | 1,234  |  |  |  | 5,709  | (3) |  |  | 1990    | 
|Panorama Corporate Center  |  |             | 6,512  |              |  |       | 22,157 |                 |  |              | 28,669 |             |  |  | 3,342  |  |  |  | 12,693 | (3) |  |  | 1991    | 
|Ruffin Corporate Center    |  |             | 1,766  |              |  |       | 5,289  |                 |  |              | 7,055  |             |  |  | 803    |  |  |  | 3,407  | (3) |  |  | 1990    | 
|Skypark Office Plaza       |  |             | 5,733  |              |  |       | 25,820 |                 |  |              | 31,553 |             |  |  | 4,398  |  |  |  |       |     |  |  | 1986    | 
|Governor Park Plaza        |  |             | 3,382  |              |  |       | 13,441 |                 |  |              | 16,823 |             |  |  | 2,720  |  |  |  | 4,970  | (3) |  |  | 1986    | 
|5120 Shoreham              |  |             | 1,224  |              |  |       | 5,168  |                 |  |              | 6,392  |             |  |  | 1,199  |  |  |  | 2,970  | (3) |  |  | 1984    | 
|Morehouse Tech Center      |  |             | 6,841  |              |  |       | 25,074 |                 |  |              | 31,915 |             |  |  | 4,886  |  |  |  |       |     |  |  | 1984    | 
|Torreyana Science Park     |  |             | 5,035  |              |  |       | 15,518 |                 |  |              | 20,553 |             |  |  | 2,433  |  |  |  | 9,391  | (3) |  |  | 1980/97 | 
|Waples Tech Center         |  |             | 1,010  |              |  |       | 3,587  |                 |  |              | 4,597  |             |  |  | 729    |  |  |  |       |     |  |  | 1990    | 
|10251 Vista Sorrento       |  |             | 1,839  |              |  |       | 7,482  |                 |  |              | 9,321  |             |  |  | 1,171  |  |  |  | 3,838  | (3) |  |  | 1981/95 | 
|Camarillo Business Park    |  |             | 3,522  |              |  |       | 14,154 |                 |  |              | 17,676 |             |  |  | 2,999  |  |  |  | 8,288  | (3) |  |  | 1984/97 | 
|5702 Bolsa                 |  |             | 589    |              |  |       | 1,906  |                 |  |              | 2,495  |             |  |  | 317    |  |  |  | 931    | (3) |  |  | 1987/97 | 
|5672 Bolsa                 |  |             | 254    |              |  |       | 829    |                 |  |              | 1,083  |             |  |  | 142    |  |  |  | 326    | (3) |  |  | 1987    | 
|5632 Bolsa                 |  |             | 458    |              |  |       | 1,448  |                 |  |              | 1,906  |             |  |  | 231    |  |  |  | 835    | (3) |  |  | 1987    | 
|Huntington Commerce Center |  |             | 992    |              |  |       | 3,676  |                 |  |              | 4,668  |             |  |  | 786    |  |  |  | 1,538  | (3) |  |  | 1987    | 
|Savi Tech Center           |  |             | 8,280  |              |  |       | 28,087 |                 |  |              | 36,367 |             |  |  | 4,924  |  |  |  | 14,560 | (3) |  |  | 1989    | 
|Yorba Linda Business Park  |  |             | 2,629  |              |  |       | 9,109  |                 |  |              | 11,738 |             |  |  | 1,706  |  |  |  | 4,124  | (3) |  |  | 1988    | 

F-25



---



##### Table of Contents



|                              |  |         |         |               |  |               |        |      |  |              |        |                   |  |  |       |  |  |  |   |  |  |  |        | 
|----------------------------- |  | ------- | ------- | ------------- |  | ------------- | ------ | ---- |  | ------------ | ------ | ----------------- |  |  | ----- |  |  |  | - |  |  |  | ------ | 
|                              |  |         |         |               |  |               |        |     
|                              |  |         |         | Initial Costs |  | Basis Step Up |        |     
|                              |  |         |         |               |  |               |        |     
|                              |  |         |         |               |  | Buildings     |        |      |  | Buildings    |        | Costs Capitalized
|                              |  | Square  |         |               |  | and           |        |      |  | and          |        | Subsequent to    
|                              |  | Footage |         | Land          |  | Improvements  |        | Land |  | Improvements |        | Acquisition(2)   
|                              |  |         |         |               |  |               |        |      |  |              |        |                  
|Cymer Technology Center       |  |         | 155,612 |               |  |               | 5,446  |      |  |              | 16,387 |                   |  |  |      |  |  |  |  |  |  |  | 2,530  | 
|Poway Industrial              |  |         | 112,000 |               |  |               | 1,876  |      |  |              | 5,646  |                   |  |  |      |  |  |  |  |  |  |  | 202    | 
|10180 Scripps Ranch           |  |         | 43,560  |               |  |               | 1,165  |      |  |              | 3,507  |                   |  |  |      |  |  |  |  |  |  |  | 233    | 
|Via Frontera                  |  |         | 77,920  |               |  |               | 1,792  |      |  |              | 5,391  |                   |  |  |      |  |  |  |  |  |  |  | 1,028  | 
|Westridge                     |  |         | 48,955  |               |  |               | 1,807  |      |  |              | 5,591  |                   |  |  |      |  |  |  |  |  |  |  | 617    | 
|Tower Plaza Retail            |  |         | 133,481 |               |  |               | 4,531  |      |  |              | 13,660 |                   |  |  |      |  |  |  |  |  |  |  | 1,724  | 
|6060 Center Drive             |  |         | 241,928 |               |  |               | 1,990  |      |  |              |       |                   |  |  | 2,310 |  |  |  |  |  |  |  | 60,512 | 
|Howard Hughes  Spectrum Club |  |         | 36,959  |               |  |               | 2,500  |      |  |              | 7,500  |                   |  |  |      |  |  |  |  |  |  |  | 36     | 
|6080 Center Drive             |  |         | 287,148 |               |  |               | 1,990  |      |  |              |       |                   |  |  | 3,092 |  |  |  |  |  |  |  | 73,250 | 
|Univision  5999 Center Drive |  |         | 161,650 |               |  |               |       |      |  |              |       |                   |  |  | 1,529 |  |  |  |  |  |  |  | 42,281 | 
|11075 Santa Monica            |  |         | 35,696  |               |  |               | 1,225  |      |  |              | 3,746  |                   |  |  |      |  |  |  |  |  |  |  | 1,277  | 
|Continental Grand Plaza       |  |         | 235,926 |               |  |               | 7,125  |      |  |              | 40,451 |                   |  |  |      |  |  |  |  |  |  |  | 7,488  | 
|Calabasas Tech                |  |         | 273,526 |               |  |               | 11,513 |      |  |              | 34,591 |                   |  |  |      |  |  |  |  |  |  |  | 6,348  | 
|Oceangate Tower               |  |         | 210,907 |               |  |               | 3,080  |      |  |              | 20,386 |                   |  |  |      |  |  |  |  |  |  |  | 4,099  | 
|Genesee Executive Plaza       |  |         | 155,820 |               |  |               | 6,750  |      |  |              | 20,178 |                   |  |  |      |  |  |  |  |  |  |  | 5,106  | 
|Solar Drive Business Center   |  |         | 125,132 |               |  |               | 4,250  |      |  |              | 12,770 |                   |  |  |      |  |  |  |  |  |  |  | 1,533  | 
|91 Freeway Center             |  |         | 93,277  |               |  |               | 2,900  |      |  |              | 9,179  |                   |  |  |      |  |  |  |  |  |  |  | 1,939  | 
|601 S. Glenoaks               |  |         | 72,524  |               |  |               | 2,450  |      |  |              | 7,519  |                   |  |  |      |  |  |  |  |  |  |  | 942    | 
|Tourney Pointe                |  |         | 219,991 |               |  |               | 6,047  |      |  |              | 21,334 |                   |  |  |      |  |  |  |  |  |  |  | 11,828 | 
|Hillside Corporate Center     |  |         | 59,876  |               |  |               | 2,213  |      |  |              | 7,336  |                   |  |  |      |  |  |  |  |  |  |  | 2,267  | 
|Westlake Gardens II           |  |         | 48,874  |               |  |               | 1,832  |      |  |              | 5,493  |                   |  |  |      |  |  |  |  |  |  |  | 1,909  | 
|Howard Hughes Tower           |  |         | 313,833 |               |  |               | 5,830  |      |  |              | 47,170 |                   |  |  |      |  |  |  |  |  |  |  | 12,806 | 
|2001 Wilshire Blvd            |  |         | 101,125 |               |  |               | 5,007  |      |  |              | 14,893 |                   |  |  |      |  |  |  |  |  |  |  | 1,090  | 
|Carmel Valley Centre          |  |         | 107,197 |               |  |               | 4,900  |      |  |              | 23,416 |                   |  |  |      |  |  |  |  |  |  |  | 428    | 
|Carmel View Office Plaza      |  |         | 77,460  |               |  |               | 3,100  |      |  |              | 9,377  |                   |  |  |      |  |  |  |  |  |  |  | 431    | 

[Additional columns below]

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

|                              |  |             |        |              |  |       |        |                 |  |              |        |             |  |  |        |  |  |  |        |     |  |  |              | 
|----------------------------- |  | ----------- | ------ | ------------ |  | ----- | ------ | --------------- |  | ------------ | ------ | ----------- |  |  | ------ |  |  |  | ------ | --- |  |  | ------------ | 
|                              |  |             |        |              |  |       |        |                 |  |             
|                              |  | Total Costs |        |              |  |       |        |                 |  |             
|                              |  |             |        |              |  |       |        |                 |  |             
|                              |  |             |        | Buildings    |  |       |        |                 |  |              |        |            
|                              |  |             |        | and          |  |       |        | Accumulated     |  |              |        | Year Built/
|                              |  | Land        |        | Improvements |  | Total |        | Depreciation(1) |  | Encumbrances |        | Renovated  
|                              |  |             |        |              |  |       |        |                 |  |              |        |            
|Cymer Technology Center       |  |             | 5,446  |              |  |       | 18,917 |                 |  |              | 24,363 |             |  |  | 2,827  |  |  |  | 10,793 | (3) |  |  | 1986         | 
|Poway Industrial              |  |             | 1,876  |              |  |       | 5,848  |                 |  |              | 7,724  |             |  |  | 932    |  |  |  | 3,453  | (3) |  |  | 1991/96      | 
|10180 Scripps Ranch           |  |             | 1,165  |              |  |       | 3,740  |                 |  |              | 4,905  |             |  |  | 586    |  |  |  | 1,974  | (3) |  |  | 1978/96      | 
|Via Frontera                  |  |             | 1,792  |              |  |       | 6,419  |                 |  |              | 8,211  |             |  |  | 1,269  |  |  |  | 2,843  | (3) |  |  | 1982/97      | 
|Westridge                     |  |             | 1,807  |              |  |       | 6,208  |                 |  |              | 8,015  |             |  |  | 1,191  |  |  |  | 2,938  | (3) |  |  | 1984/96      | 
|Tower Plaza Retail            |  |             | 4,531  |              |  |       | 15,384 |                 |  |              | 19,915 |             |  |  | 2,419  |  |  |  |       |     |  |  | 1970/97      | 
|6060 Center Drive             |  |             | 4,300  |              |  |       | 60,512 |                 |  |              | 64,811 |             |  |  | 5,378  |  |  |  |       |     |  |  | 2000         | 
|Howard Hughes  Spectrum Club |  |             | 2,500  |              |  |       | 7,536  |                 |  |              | 10,036 |             |  |  | 1,068  |  |  |  |       |     |  |  | 1993         | 
|6080 Center Drive             |  |             | 5,082  |              |  |       | 73,250 |                 |  |              | 78,332 |             |  |  | 4,610  |  |  |  |       |     |  |  | 2002         | 
|Univision  5999 Center Drive |  |             | 1,529  |              |  |       | 42,281 |                 |  |              | 43,810 |             |  |  | 1,882  |  |  |  |       |     |  |  | 2001         | 
|11075 Santa Monica            |  |             | 1,225  |              |  |       | 5,023  |                 |  |              | 6,248  |             |  |  | 1,120  |  |  |  |       |     |  |  | 1983         | 
|Continental Grand Plaza       |  |             | 7,125  |              |  |       | 47,939 |                 |  |              | 55,064 |             |  |  | 8,467  |  |  |  | 26,612 | (3) |  |  | 1986         | 
|Calabasas Tech                |  |             | 11,513 |              |  |       | 40,939 |                 |  |              | 52,452 |             |  |  | 7,591  |  |  |  |       |     |  |  | 1990/2001    | 
|Oceangate Tower               |  |             | 3,080  |              |  |       | 24,485 |                 |  |              | 27,565 |             |  |  | 4,692  |  |  |  |       |     |  |  | 1971/93/94   | 
|Genesee Executive Plaza       |  |             | 6,750  |              |  |       | 25,284 |                 |  |              | 32,034 |             |  |  | 4,800  |  |  |  | 16,275 | (3) |  |  | 1984         | 
|Solar Drive Business Center   |  |             | 4,250  |              |  |       | 14,303 |                 |  |              | 18,553 |             |  |  | 2,397  |  |  |  |       |     |  |  | 1982         | 
|91 Freeway Center             |  |             | 2,900  |              |  |       | 11,118 |                 |  |              | 14,018 |             |  |  | 2,097  |  |  |  |       |     |  |  | 1986/97      | 
|601 S. Glenoaks               |  |             | 2,450  |              |  |       | 8,461  |                 |  |              | 10,911 |             |  |  | 1,350  |  |  |  | 5,662  | (3) |  |  | 1990         | 
|Tourney Pointe                |  |             | 6,047  |              |  |       | 33,162 |                 |  |              | 39,209 |             |  |  | 4,927  |  |  |  |       |     |  |  | 1985/98/2000 | 
|Hillside Corporate Center     |  |             | 2,213  |              |  |       | 9,603  |                 |  |              | 11,816 |             |  |  | 1,633  |  |  |  |       |     |  |  | 1998         | 
|Westlake Gardens II           |  |             | 1,832  |              |  |       | 7,402  |                 |  |              | 9,234  |             |  |  | 1,494  |  |  |  |       |     |  |  | 1999         | 
|Howard Hughes Tower           |  |             | 5,830  |              |  |       | 59,976 |                 |  |              | 65,806 |             |  |  | 10,087 |  |  |  |       |     |  |  | 1987         | 
|2001 Wilshire Blvd            |  |             | 5,007  |              |  |       | 15,983 |                 |  |              | 20,990 |             |  |  | 2,040  |  |  |  |       |     |  |  | 1980         | 
|Carmel Valley Centre          |  |             | 4,900  |              |  |       | 23,844 |                 |  |              | 28,744 |             |  |  | 709    |  |  |  |       |     |  |  | 1987/89      | 
|Carmel View Office Plaza      |  |             | 3,100  |              |  |       | 9,808  |                 |  |              | 12,908 |             |  |  | 340    |  |  |  |       |     |  |  | 1985         | 

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##### Table of Contents



|                             |  |         |            |               |  |               |         |      |  |              |           |                   |  |   |       |  |  |   |       |  |  |   |         | 
|---------------------------- |  | ------- | ---------- | ------------- |  | ------------- | ------- | ---- |  | ------------ | --------- | ----------------- |  | - | ----- |  |  | - | ----- |  |  | - | ------- | 
|                             |  |         |            |               |  |               |         |     
|                             |  |         |            | Initial Costs |  | Basis Step Up |         |     
|                             |  |         |            |               |  |               |         |     
|                             |  |         |            |               |  | Buildings     |         |      |  | Buildings    |           | Costs Capitalized
|                             |  | Square  |            |               |  | and           |         |      |  | and          |           | Subsequent to    
|                             |  | Footage |            | Land          |  | Improvements  |         | Land |  | Improvements |           | Acquisition(2)   
|                             |  |         |            |               |  |               |         |      |  |              |           |                  
|Crossroads                   |  |         | 133,566    |               |  |               | 3,950   |      |  |              | 12,860    |                   |  |   |      |  |  |   |      |  |  |   | 1,451   | 
|Governor Executive Center    |  |         | 52,195     |               |  |               | 1,500   |      |  |              | 9,707     |                   |  |   |      |  |  |   |      |  |  |   | 149     | 
|Gateway Towers               |  |         | 432,894    |               |  |               | 5,585   |      |  |              | 57,128    |                   |  |   |      |  |  |   |      |  |  |   | 2,538   | 
|Governor Executive Center II |  |         | 101,433    |               |  |               | 1,959   |      |  |              | 17,931    |                   |  |   |      |  |  |   |      |  |  |   | 3,516   | 
|                             |  |         |            |               |  |               |         |      |  |              |           |                   |  |   |       |  |  |   |       |  |  |   |         | 
|                             |  |         | 18,635,706 |               |  | $             | 466,575 |      |  | $            | 1,793,783 |                   |  | $ | 8,540 |  |  | $ | 8,607 |  |  | $ | 730,576 | 
|                             |  |         |            |               |  |               |         |      |  |              |           |                   |  |   |       |  |  |   |       |  |  |   |         | 

[Additional columns below]

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

|                             |  |             |         |              |  |       |           |                 |  |              |           |             |  |   |         |  |  |   |         |  |  |  |         | 
|---------------------------- |  | ----------- | ------- | ------------ |  | ----- | --------- | --------------- |  | ------------ | --------- | ----------- |  | - | ------- |  |  | - | ------- |  |  |  | ------- | 
|                             |  |             |         |              |  |       |           |                 |  |             
|                             |  | Total Costs |         |              |  |       |           |                 |  |             
|                             |  |             |         |              |  |       |           |                 |  |             
|                             |  |             |         | Buildings    |  |       |           |                 |  |              |           |            
|                             |  |             |         | and          |  |       |           | Accumulated     |  |              |           | Year Built/
|                             |  | Land        |         | Improvements |  | Total |           | Depreciation(1) |  | Encumbrances |           | Renovated  
|                             |  |             |         |              |  |       |           |                 |  |              |           |            
|Crossroads                   |  |             | 3,950   |              |  |       | 14,311    |                 |  |              | 18,261    |             |  |   | 434     |  |  |   |        |  |  |  | 1979    | 
|Governor Executive Center    |  |             | 1,500   |              |  |       | 9,856     |                 |  |              | 11,356    |             |  |   | 299     |  |  |   |        |  |  |  | 1988    | 
|Gateway Towers               |  |             | 5,585   |              |  |       | 59,666    |                 |  |              | 65,251    |             |  |   | 1,861   |  |  |   |        |  |  |  | 1984/86 | 
|Governor Executive Center II |  |             | 1,959   |              |  |       | 21,447    |                 |  |              | 23,407    |             |  |   |        |  |  |   |        |  |  |  |         | 
|                             |  |             |         |              |  |       |           |                 |  |              |           |             |  |   |         |  |  |   |         |  |  |  |         | 
|                             |  | $           | 475,115 |              |  | $     | 2,532,966 |                 |  | $            | 3,008,081 |             |  | $ | 460,732 |  |  | $ | 564,829 |  |  |  |         | 
|                             |  |             |         |              |  |       |           |                 |  |              |           |             |  |   |         |  |  |   |         |  |  |  |         | 



---



|    |                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The depreciable lives for buildings and
    improvements and furniture, fixtures and equipment range from
    five to forty seven years. Tenant improvements and leasing costs
    are depreciated over the remaining term of the lease.
|   
|(2) | Amounts shown net of write-offs of fully
    depreciated assets and include total capitalized interest of
    $53.7 million.                                                                                                            
|   
|(3) | All of these properties are collateral for our
    $547.0 million mortgage financings. The encumbrance
    allocated to an individual property is based on the related
    individual release price.                                    

F-27



---



##### Table of Contents



ARDEN REALTY, INC.

15. Schedule of Commercial Properties and
Accumulated Depreciation (continued)

The changes in our investment in commercial
properties and related accumulated depreciation for each of the
periods in the three years ended December 31, 2003, 2002
and 2001 are as follows (in thousands):

|                          |                                                                                         |                                  |   |           |   |      |   |           |   |  |   |           |  
|------------------------- | --------------------------------------------------------------------------------------- | -------------------------------- | - | --------- | - | ---- | - | --------- | - |  | - | --------- | -
|                          |                                                                                         |                                 
|                          |                                                                                         | Arden Realty, Inc.              
|                          |                                                                                         |                                 
|                          |                                                                                         |                                 
|                          |                                                                                         | For the Years Ended December 31,
|                          |                                                                                         |                                 
|                          |                                                                                         | 2003                             |   | 2002      |   | 2001
|                          |                                                                                         |                                  |   |           |   |     
|Commercial Properties:    |                                                                                         |                                  |   |           |   |      |   |           |   |  |   |          
|                          | Balance at beginning of period                                                          |                                  | $ | 3,045,208 |   |      | $ | 2,797,052 |   |  | $ | 2,741,681 |  
|                          | Improvements                                                                            |                                  |   | 77,532    |   |      |   | 95,073    |   |  |   | 78,580    |  
|                          | Disposition of property                                                                 |                                  |   | (97,632   | ) |      |   | (24,094   | ) |  |   | (44,773   | )
|                          | Write offs of fully depreciated assets                                                  |                                  |   | (37,913   | ) |      |   | (24,129   | ) |  |   | (21,412   | )
|                          | Acquisition of properties                                                               |                                  |   | 22,054    |   |      |   | 134,938   |   |  |   |          |  
|                          | Transfers from (to) properties under development
    and land available for development |                                  |   |          |   |      |   | 66,368    |   |  |   | 42,976    |  
|                          | Reclassification to other assets                                                        |                                  |   | (1,168    | ) |      |   |          |   |  |   |          |  
|                          |                                                                                         |                                  |   |           |   |      |   |           |   |  |   |          
|                          | Balance at end of period                                                                |                                  | $ | 3,008,081 |   |      | $ | 3,045,208 |   |  | $ | 2,797,052 |  
|                          |                                                                                         |                                  |   |           |   |      |   |           |   |  |   |          
|Accumulated Depreciation: |                                                                                         |                                  |   |           |   |      |   |           |   |  |   |          
|                          | Balance at beginning of period                                                          |                                  | $ | (392,611  | ) |      | $ | (307,082  | ) |  | $ | (231,499  | )
|                          | Depreciation for period                                                                 |                                  |   | (118,416  | ) |      |   | (111,022  | ) |  |   | (100,789  | )
|                          | Disposition of property                                                                 |                                  |   | 12,325    |   |      |   | 1,982     |   |  |   | 3,794     |  
|                          | Write offs of fully depreciated assets                                                  |                                  |   | 37,913    |   |      |   | 24,129    |   |  |   | 21,412    |  
|                          | Transfers to (from) properties under development
    and land available for development |                                  |   |          |   |      |   | (618      | ) |  |   |          |  
|                          | Reclassification to other assets                                                        |                                  |   | 57        |   |      |   |           |   |  |   |           |  
|                          |                                                                                         |                                  |   |           |   |      |   |           |   |  |   |          
|                          | Balance at end of period                                                                |                                  | $ | (460,732  | ) |      | $ | (392,611  | ) |  | $ | (307,082  | )
|                          |                                                                                         |                                  |   |           |   |      |   |           |   |  |   |          

F-28