---

# Securities
and Exchange Commission

# Washington,
D.C. 20549

# FORM 10-Q

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

For the quarter ended March 31, 2002

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
             
             
             
             
             
             
             
          

(I.R.S. Employer Identification No.)

or organization)

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

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

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

            
-----
            
-----


As of May 10, 2002 there were 64,494,477 shares of the
registrant's common stock, $.01 par value,
issued and outstanding.

---

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

|                                                                      | PAGE NO.
|--------------------------------------------------------------------- | --------
|PART I.
     
     
FINANCIAL INFORMATION                            
|                                                                     
|Item 1.
  
Financial Statements                                      
|Consolidated Balance Sheets as of March 31, 2002 (unaudited) and     
|December 31, 2001                                                     | 3       
|                                                                     
|Consolidated Statements of Income for the three months ended         
|March 31, 2002 and 2001 (unaudited)                                   | 4       
|                                                                     
|Consolidated Statements of Cash Flows for the three months ended     
|March 31, 2002 and 2001 (unaudited)                                   | 5       
|                                                                     
|Notes to Consolidated Financial Statements                            | 6       
|                                                                     
|Item 2.
  
Management's Discussion and Analysis of Financial         
|Condition and Results of Operations                                   | 9       
|                                                                     
|Item 3.
  
Quantitative and Qualitative Disclosures about Market Risk | 20      
|                                                                     
|PART II.
     
    
OTHER INFORMATION                                 | 21      
|                                                                     
|SIGNATURES                                                            | 22      

## Part I.
  
FINANCIAL INFORMATION

## Item 1.
 
Financial Statements

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

`March 31,      December 31,
                                                                                2002             2001
                                                                             ----------      ------------
Assets                                                                      (unaudited)
Investment in real estate:
   Land....................................................................$   469,165       $   447,753
   Buildings and improvements..............................................  2,048,305         1,975,427
   Tenant improvements and leasing commissions.............................    275,531           251,201
                                                                             ---------       -----------
                                                                             2,793,001         2,674,381
   Less:  accumulated depreciation and amortization........................   (327,524)         (293,385)
                                                                             ---------        ----------
                                                                             2,465,477         2,380,996
   Properties under development............................................    142,648           133,012
   Properties held for disposition, net....................................     15,812           108,972
                                                                             ---------         ---------
     Net investment in real estate.........................................  2,623,937         2,622,980

Cash and cash equivalents..................................................      7,012            37,041
Restricted cash............................................................     21,596            18,768
Rent and other receivables.................................................      7,288             9,685
Mortgage notes receivable, net of discount.................................     13,321            13,495
Deferred rent..............................................................     40,546            38,989
Prepaid financing costs, expenses and other assets, net of amortization....     19,259            20,485
                                                                           -----------      ------------
     Total assets..........................................................$ 2,732,959       $ 2,761,443
                                                                           ===========       ===========

Liabilities
Mortgage loans payable.....................................................$   572,731       $   573,452
Unsecured lines of credit..................................................    163,350           180,350
Unsecured senior notes, net of discount....................................    497,776           497,681
Accounts payable and accrued expenses......................................     40,958            43,002
Security deposits..........................................................     19,763            19,683
Dividends payable..........................................................     32,524            31,408
                                                                           -----------       -----------
     Total liabilities.....................................................  1,327,102         1,345,576

Minority interests.........................................................     76,691            78,661

Stockholders' Equity
Preferred stock, $.01 par value 20,000,000 shares authorized, none issued..         --                --
Common stock, $.01 par value, 100,000,000 shares authorized,
   64,404,910 and 64,098,110 issued and outstanding, respectively..........        644               641
Additional paid-in capital.................................................  1,341,594         1,345,698
Deferred compensation......................................................    (13,072)           (9,133)
                                                                           ------------    --------------
     Total stockholders' equity............................................  1,329,166         1,337,206
                                                                           ------------    --------------
     Total liabilities and stockholders' equity............................$ 2,732,959       $ 2,761,443
                                                                           ===========       ===========

                      See accompanying notes to consolidated financial statements.`

3

# Arden Realty, Inc.Consolidated Statements of Income

(in thousands, except per share data)
(unaudited)

`Three Months Ended
                                                                            March 31,
                                                                   ---------------------------
                                                                       2002              2001
                                                                   ----------       ---------

Revenue..........................................................   $ 102,264        $ 103,121
Property operating expenses......................................      30,226           29,842
                                                                   ----------       ----------
                                                                       72,038           73,279
General and administrative expenses..............................       2,960            2,866
Interest expense.................................................      21,397           21,158
Depreciation and amortization....................................      26,383           24,146
Interest and other income........................................        (540)            (861)
                                                                   ----------       ----------
Income before gain and minority interest.........................      21,838           25,970
Gain on sale of property.........................................       1,192               --
                                                                   ------------     ----------
Income before minority interest..................................      23,030           25,970
Minority interest................................................      (1,677)          (1,897)
                                                                   ----------       ----------
Net income.......................................................   $  21,353        $  24,073
                                                                    =========        =========

Net income per common share:
        Basic....................................................   $    0.33        $    0.38
                                                                    =========        =========
        Diluted..................................................   $    0.33        $    0.38
                                                                    =========        =========

Weighted average common shares outstanding:
        Basic....................................................      64,405           63,658
                                                                   ==========       ==========
        Diluted..................................................      64,683           63,899
                                                                   ==========       ==========


                 See accompanying notes to consolidated financial statements.`

4

# Arden
Realty, Inc.Consolidated Statements of Cash Flows

(in thousands)
(unaudited)

`Three Months Ended
                                                                                        March 31,
                                                                             -----------------------------

                                                                                  2002              2001
                                                                             ----------         ----------
Operating Activities:
  Net income................................................................  $  21,353          $  24,073
  Adjustments to reconcile net income to net cash
    provided by operating activities:

    Minority interests......................................................      1,677              1,897
    Depreciation and amortization...........................................     26,383             24,146
    Gain on sale of property................................................     (1,192)                --
    Amortization of loan costs..............................................        937                866
    Non-cash compensation expense...........................................        245                425
    Changes in operating assets and liabilities:
       Rent and other receivables...........................................      2,562             (3,244)
       Deferred rent........................................................     (1,596)            (1,792)
       Prepaid financing costs, expenses and other assets...................        (13)            (1,180)
       Accounts payable and accrued expenses................................     (2,094)             1,835
       Security deposits....................................................         16                561
                                                                            -----------        -----------
  Net cash provided by operating activities.................................     48,278             47,587
                                                                            -----------        -----------
Investing Activities:
  Improvements to investment in real estate.................................    (31,659)           (49,638)
  Proceeds from sale of property............................................      6,122                 --
                                                                            -----------        -----------
  Net cash used in investing activities.....................................    (25,537)           (49,638)
                                                                            -----------        -----------
Financing Activities:
  Repayments of mortgage loans..............................................       (721)              (687)
  Proceeds from unsecured lines of credit...................................     10,000             57,000
  Repayments of unsecured lines of credit...................................    (27,000)           (22,000)
  Proceeds from issuance of common stock....................................      1,166                 --
  Distributions to preferred operating partnership unit holders.............     (1,078)            (1,078)
  Increase in restricted cash...............................................     (2,828)              (932)
  Distributions to minority interests.......................................       (901)            (1,011)
  Dividends paid............................................................    (31,408)           (29,596)
                                                                            -----------        -----------
  Net cash (used in) provided by financing activities.......................    (52,770)             1,696
                                                                            -----------        -----------
  Net decrease in cash and cash equivalents.................................    (30,029)              (355)
  Cash and cash equivalents at beginning of period..........................     37,041              5,432
                                                                            -----------        -----------
  Cash and cash equivalents at end of period................................  $   7,012          $   5,077
                                                                            ===========        ===========

Supplemental Disclosure of Cash Flow Information:
    Cash paid during the period for interest, net of amounts capitalized....  $  22,353          $  24,744
                                                                            ===========        ===========


                               See accompanying notes to consolidated financial statements.`

5

# Arden
Realty, Inc.Notes to Consolidated Condensed Financial Statements

March 31, 2002
(unaudited)

## 1.
 
 
Description of Business

The terms "Arden  Realty",  "us",  "we" and "our" as used in this report refer
to Arden Realty,  Inc.  Through our controlling interest in Arden Realty
Limited  Partnership,  or the Operating  Partnership,  and our other
subsidiaries, we own, manage,  lease, develop,  renovate and acquire
commercial office properties located in Southern  California.  As of March 31,
2002, our portfolio was comprised of 132  primarily  suburban  office
properties,  consisting of 216 buildings  with  approximately  18.2 million net
rentable square feet and two  properties  with  approximately  566,000 net
rentable  square  feet under  development.  As of March 31, 2002 our
properties were 91% occupied.

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

The  minority  interests  at March 31, 2002  consisted  of limited  partnership
interests  in the  Operating  Partnership  of approximately 2.7%, exclusive of
ownership interests of the Operating Partnership's preferred unit holders.

## 2.
 
 
Interim Financial Data

The accompanying  consolidated  condensed  financial  statements  should be
read in conjunction with our 2001 Annual Report on Form 10-K as filed with the
Securities and Exchange  Commission.  The  accompanying  financial  information
reflects all  adjustments, which are, in our opinion,  of a normal recurring
nature and necessary for a fair  presentation of our financial  position,
results of operations and cash flows for the interim  periods.  Interim results
of operations are not necessarily  indicative of the results to be expected for
the full year.

## 3.
 
 
New Accounting Standards

In October  2001,  the  Financial  Accounting  Standards  Board issued
Statement No. 144  "Accounting  for the  Impairment or Disposal of Long-Lived
Assets",  which is required to be adopted in fiscal years beginning after
December 15, 2001.  Statement No. 144 on asset impairment  supercedes
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed  Of", and provide a single  accounting  model
for  long-lived  assets to disposed of. We adopted  Statement No. 144 on January
1, 2002 and its adoption did not have a significant impact on our consolidated
financial statements.

6

## 4.
 
 
Property Dispositions

On March 7, 2002, we sold an approximate  64,000 square foot office property located in Torrance,  California for
approximately $6.9 million.  As part of this sale we recorded a gain of approximately $1.2 million.

As of  March  31,  2002,  properties  held  for  disposition  consisted  of two  office  properties  representing
approximately 139,000 rentable square feet.  See footnote 9 for additional discussion on property sales.

## 5.
 
 
Mortgage Loans Payable, Unsecured Lines of Credit and Unsecured Senior Notes

A summary of our outstanding indebtedness as of March 31, 2002 and December 31, 2001 is as follows:

`Stated Annual
                                 March 31,                   Interest Rate at                        Number of
                                   2002       December 31,    March 31, 2002        Rate            Properties
Type of Debt                    (unaudited)       2001           (unaudited)    Fixed/Floating     Securing Loan  Maturity
------------                    -----------   -------------   ---------------   ---------------  ---------------  --------
                                      (in thousands)
Mortgage Loans Payable:
Fixed Rate
Mortgage Financing I(1)....    $   175,000    $   175,000         7.52%            Fixed                18          6/04
Mortgage Financing III(2)..        136,100        136,100         6.74%            Fixed                22          4/08
Mortgage Financing IV(2)...        111,200        111,200         6.61%            Fixed                12          4/08
Mortgage Financing V(3)....        109,716        110,253         6.94%            Fixed                12          4/09
Mortgage Financing VI(3)...         21,992         22,036         7.54%            Fixed                 3          4/09
Activity Business Center(3)          7,699          7,737         8.85%            Fixed                 1          5/06
145 South Fairfax(3).......          3,978          3,987         8.93%            Fixed                 1          1/27
Marin Corporate Center(3)..          2,928          2,966         9.00%            Fixed                 1          7/15
Conejo Business Center(3)..          2,874          2,911         8.75%            Fixed           (Note 4)         7/15
Conejo Business Center(3)..          1,244          1,262         7.88%            Fixed           (Note 4)         7/15
                               -----------    -----------
                                   572,731        573,452

Unsecured Lines of Credit:
Floating Rate
Wells Fargo-$275 mm (1)....         88,350        105,350         3.09%     LIBOR + 1.15% (Note 5)       --         4/03
Lehman Brothers-$75 mm (1),(6)      75,000         75,000         3.18%     LIBOR + 1.30%                --         7/02
City National Bank-$10 mm (1)           --             --         5.88%     Prime Rate - 0.875%          --         8/02
                               -----------    -----------
                                   163,350        180,350
Unsecured Senior Notes:
Fixed Rate
2005 Notes(7)..............        199,693        199,667         8.88%            Fixed                 --         3/05
2010 Notes(7)..............         49,673         49,663         9.15%            Fixed                 --         3/10
2010 Notes(7)..............         99,282         99,262         8.50%            Fixed                 --        11/10
2007 Notes(7)..............        149,128        149,089         7.00%            Fixed                 --        11/07
                               -----------    -----------
                                   497,776        497,681
                               -----------    -----------

   Total Debt..............    $ 1,233,857    $ 1,251,483
                               ===========    ===========

__________

(1)      Requires monthly payments of interest only, with outstanding principal balance due upon maturity.
(2)      Requires monthly payments of interest only for five years and monthly payments of principal and interest thereafter.
(3)      Requires monthly payments of principal and interest.
(4)      Both mortgage loans are secured by the Conejo Business Center property.
(5)      This line of credit also has an annual 25 basis point facility fee on the entire $275 million commitment amount.
(6)      This line of credit has a one-year extension option.
(7)      Requires semi-annual interest payments only, with principal balance due upon maturity.`

7

## 6.
 
 
Stockholder's Equity

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

On February  28, 2002 we issued a total of 182,500  restricted  stock  awards
to several key  executive  officers.  Holders of these shares have full voting
rights and will receive any  dividends  paid but are  prohibited  from selling
or  transferring  unvested shares.  Of the 182,500  restricted  shares
awarded,  15,500 shares vest equally over three years and 167,500 shares vest
equally over ten years. We recorded a deferred  compensation charge of
approximately $4.7 million,  based on the market value of these shares on the
date of award and will amortize the compensation charge to expense on a
straight-line basis over the respective vesting periods.

On March 14, 2002, we declared a quarterly dividend of $0.505 per share to
stockholders of record on March 29, 2002.

## 7.
 
 
Revenue from Rental Operations and Property Expenses

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

`Three Months
                                                                      Ended March 31,
                                                             -----------------------------------
                                                                  2002               2001
                                                             ----------------   ----------------
                                                                          (unaudited)
     Revenue from Rental Operations:
        Scheduled cash rents................................   $  87,336          $  85,106
        Straight-line rents.................................       1,650              2,361
        Tenant reimbursements...............................       6,950              5,550
        Parking, net of expenses ...........................       5,150              5,305
        Other rental operations.............................       1,178              4,799
                                                               ---------          ---------
                                                                 102,264            103,121
                                                               ---------          ---------

     Property Expenses:
        Repairs and maintenance.............................       9,445              9,008
        Utilities...........................................       7,848              7,392
        Real estate taxes...................................       7,378              7,414
        Insurance...........................................       1,660              1,216
        Ground rent.........................................          68              1,151
        Administrative......................................       3,827              3,661
                                                             -----------        -----------
                                                                  30,226             29,842
                                                             -----------        -----------
                                                               $  72,038          $  73,279
                                                               =========          =========`

## 8.
 
 
Related Party Transactions

In February  2002,  two officers with  promissory  notes to us totaling
approximately  $125,000,  repaid their notes in full, including accrued interest.

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

## 9.
 
 
Subsequent Events

On April 16,  2002,  we  completed  the sale of an  approximate  60,000  square
foot  office  property  located in  Westlake, California for  approximately
$8.3 million.  On May 1, 2002, we also  completed the sale of an  approximate
80,000 square foot office property located in Canoga Park, California for
approximately $8.4 million.

8

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

## Overview

The  following  discussion  relates  to our  consolidated  financial  statements
and should be read in  conjunction  with the financial statements and related
notes thereto included in our 2001 Annual Report on Form 10-K.

We are a self-administered and self-managed real estate investment trust that
owns, manages, leases,  develops,  renovates and acquires commercial  properties
located in Southern  California.  We are a full-service real estate  organization  managed by 10 senior
executive  officers who have experience in the real estate industry  ranging
from 10 to 33 years and who  collectively  have an average of 19 years
experience.  We perform all property and development  management,  accounting,
finance and  acquisition  activities and a majority of our leasing transactions
with our staff of approximately 300 employees.

As of March 31,  2002,  we were  Southern  California's  largest  publicly
traded  office  landlord  as measured by total net rentable square feet owned.
As of that date, our portfolio was comprised of 132 primarily  suburban  office
properties,  consisting of 216 buildings with  approximately  18.2 million net
rentable  square feet and two properties  with  approximately  566,000 net rentable
square feet under development. As of March 31, 2002, our properties were
approximately 91% occupied.

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

9

## RESULTS OF
OPERATIONS

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

Comparison of the three months ended March 31, 2002 to the three months ended
March 31, 2001 (in thousands, except number of properties and percentages):

`Three Months Ended
                                                   March 31,
                                         --------------------------     Dollar       Percent
                                             2002          2001         Change       Change
                                         ----------    ------------  ------------  -----------
                                                  (unaudited)
Revenue
  Revenue from rental operations:
    Schedule cash rents..............    $  87,336     $  85,106       $   2,230         3%
    Straight-line rents..............        1,650         2,361            (711)      (30)
    Tenant reimbursements............        6,950         5,550           1,400        25
    Parking, net of expense..........        5,150         5,305            (155)       (3)
    Other rental operations..........        1,178         4,799          (3,621)      (75)
                                       -----------   -----------     ------------   --------
      Total..........................      102,264       103,121            (857)       (1)
  Interest and other income..........          540           861            (321)      (37)
                                       -----------   -----------     ------------   --------
      Total revenue..................    $ 102,804     $ 103,982       $  (1,178)       (1)%
                                         =========     =========       ==========   ==========

Expenses
  Property expenses:
    Repairs and maintenance..........    $   9,445     $   9,008             437         5%
    Utilities........................        7,848         7,392             456         6
    Real estate taxes................        7,378         7,414             (36)       (1)
    Insurance........................        1,660         1,216             444        37
    Ground rent......................           68         1,151          (1,083)      (94)
    Administrative...................        3,827         3,661             166         5
                                       -----------   -----------     -----------    --------
      Total property expenses........       30,226        29,842             384         1%

  General and administrative.........        2,960         2,866              94         3%
  Interest...........................       21,397        21,158             239         1
  Depreciation and amortization......       26,383        24,146           2,237         9
                                       -----------   -----------     -----------    --------
      Total expenses.................    $  80,966     $  78,012       $   2,954         4%
                                         =========     =========       =========    =========

Other Data:
  Number of properties:
      Disposed of during period......           (1)           --
      Owned at end of period.........          132           142
  Net rentable square feet:
      Disposed of during period......          (64)           --
      Owned at end of period.........       18,183        18,658`

Variances from rental operations and property expenses are discussed below.

Interest and other income  decreased  by  approximately  $321,000 for the three
months ended March 31, 2002 as compared to the same period in 2001,  primarily
due to lower effective  interest rates in 2002 on investment of our restricted
cash balances  required by mortgage loans.

General and  administrative  expenses as a percentage  of total  revenues were
approximately  2.9% for the three months ended March 31, 2002, as compared to
approximately 2.8% for the same period in 2001.

Interest expense  increased  approximately  $239,000,  or 1%, during the three
months ended March 31, 2002, as compared to the same period in 2001. This
increase was primarily due to lower interest  capitalized  during 2002 resulting
from less  properties  under development in 2002, which was partially offset by
lower effective interest rates in 2002.

Depreciation and amortization  expense  increased by approximately  $2.2 million
or 9% during the three months ended March 31, 2002,  as compared to the same
period in 2001,  primarily  due to  depreciation  related to a property  placed
in service in the fourth quarter of 2001 and  depreciation  related to capital
expenditures,  tenant  improvements  and leasing  commissions  placed in service
subsequent to March 31, 2001.

10

## Variances for Revenue from Rental Operations and Property Expenses

The decrease in revenue  from rental  operations  and property  expenses for the
three months ended March 31, 2002 as compared to the same  period in 2001 was
primarily  due to a 2.9%  reduction  in the  average  occupancy  and the  timing
of lease  termination settlements and other  non-recurring  items in 2002 in our
portfolio of 131 properties that we owned for all of the three month periods
ended March 31, 2001 and 2002.

Following is a summary of the decrease in revenue from rental operations and
property  operating  expenses that relates to the twelve properties that were
either sold or placed in service after March 31, 2001 and for the 131
non-development  properties we owned for all of the three month periods ended
March 31, 2001 and 2002 (unaudited and in thousands, except for number of properties).

`Non-Development Properties
                                                        Properties Sold or        Owned for all of the
                                                         Placed in Service         Three Months Ended
                                       Total Variance  after March 31, 2001      March 31, 2002 and 2001 (1)
                                       --------------  --------------------      ---------------------------

Revenue from Rental Operations:
   Scheduled cash rents..............   $   2,230           $   1,387               $     843
   Straight-line rents...............        (711)                485                  (1,196)
   Tenant reimbursements.............       1,400                 (60)                  1,460
   Parking, net of operations........        (155)                113                    (268)
   Other rental operations...........      (3,621)               (735)                 (2,886)
                                      -----------      --------------           -------------
                                        $    (857)          $   1,190               $  (2,047)
                                        ==========          =========               ==========

Property Expenses:
   Repairs and maintenance...........   $     437           $     215               $     222
   Utilities.........................         456                  29                     427
   Real estate taxes.................         (36)                 88                    (124)
   Insurance.........................         444                  (2)                    446
   Ground rent.......................      (1,083)                 --                  (1,083)
   Administrative....................         166                 (73)                    239
                                      -----------      --------------           -------------
                                        $     384           $     257               $     127
                                        =========           =========               =========

Other Data:
   Number of properties..............                              12                     131
   Net rentable square feet..........                             799                  18,021

__________

(1)      See analysis for these properties below.`

11

## Same Properties

Following is a comparison of property  operating  data computed  under the GAAP basis and cash basis of accounting for the 131
non-development  properties we owned for the entire three month periods ended March 31, 2002 and 2001 (in  thousands,  except number of
properties and percentages):

`Three Months Ended
                                                               March 31,
                                                     --------------------------    Dollar       Percent
                                                         2002          2001        Change        Change
                                                     ---------      ---------    ----------    ----------
                                                               (unaudited)
GAAP Basis:
Revenue from rental operations.....................  $  98,640     $ 100,687      ($ 2,047)        (2.0%)
Property expenses..................................     29,352        29,225           127          0.4%
                                                     ---------     ---------     ---------     ---------
                                                     $  69,288     $  71,462      ($ 2,174)        (3.0%)
                                                     =========     =========      =========    ==========

Cash Basis (1):

Revenue from rental operations.....................  $  97,492     $  98,343      ($   851)        (0.9%)
Property expenses..................................     29,352        29,225           127          0.4%
                                                     ---------     ---------     ---------     ---------
                                                     $  68,140     $  69,118      ($   978)        (1.4%)
                                                     =========     =========      =========    ==========

Number of non-renovation/development properties....        131           131
Average occupancy..................................      91.5%         94.4%
Net rentable square feet...........................     18,021        18,021

__________

(1)      Excludes straight-line rent adjustments.`

Revenue from rental operations for these properties,  computed on a GAAP basis,
decreased by approximately  $2.0 million,  or 2.0%, during the first quarter of
2002 as compared to the same period in 2001.  Approximately  $353,000 of this
decrease was related to lower rental revenue in 2002 primarily  attributable to
a decrease in average  occupancy in 2002 that was partially offset by scheduled
rent increases in 2002.  Revenue from rental  operations was also lower due to
an approximate  $268,000  decrease in parking income and an  approximate  $2.9
million  decrease in revenue from other rental  operations  which were partially
offset by an  approximate  $1.5 million  increase in tenant  reimbursements.
Parking  income  decreased  primarily due to decreases in  occupancy,  while
revenue from other rental operations  decreased  primarily due to lower lease
termination  settlements and other non-recurring items in 2002. Tenant
reimbursements  increased in 2002 primarily due to recovery  billings for
higher  property  expenses in 2002 as discussed below and for 2001
reconciliation billings.

Excluding only the  straight-line  rent adjustment for these  properties,
revenue from rental operations for the three months ended March 31, 2002,
computed on a cash basis,  decreased by approximately  $851,000 or 0.9%
primarily due to the decrease in average occupancy.

Property expenses for these properties increased by approximately  $127,000,
or 0.4%, during the three months ended March 31, 2002,  compared to the same
period in 2001,  primarily  due to an  approximate  $427,000  increase in
utility  expenses,  a,  $446,000 increase  in  insurance  expense  and a
$239,000  increase  in  administrative  expenses  in 2002 which  were
partially  offset by an approximate  $1.1 million  decrease in ground rent
expense.  The increase in utility  expenses was due primarily to rate increases
that went into effect after April 1, 2001.  Insurance  expense  increased due
to increases in  industry-wide  insurance rates in 2002, while administrative
expenses  increased  primarily due to higher personnel costs in  2002. As noted
above, the increase in property expenses was the primary  reason for the $1.5
million  increase in tenant  reimbursements.  The decrease in ground rent
expense was due to lower operating income from one of our properties with a
participating ground lease.

12

## Liquidity and Capital Resources

## Cash Flows

Cash provided by operating  activities  increased by approximately  $700,000 to
$48.3 million for the three months ended March 31, 2002, as compared to $47.6
million for the same period in 2001,  primarily  due to a reduction in tenant
receivables  in 2002 as a result of our collection  efforts and from cash flows
for a development  property placed in service in the fourth quarter of 2001.
This increase  was  partially  offset by the loss of  operating  cash flows on
ten  properties  sold in 2001 and one property we sold in the first quarter of
2002.

Cash used in investing  activities  decreased by approximately $24.1 million to
$25.5 million for the three months ended March 31, 2002  compared to $49.6
million for the same period in 2001.  This  decrease was  primarily  due to
the  decrease in  construction activity in 2002 as a result of our  completion
of a  development  project in the fourth  quarter of 2001.  In addition,  in the
first quarter of 2002 we recorded $6.1 million in proceeds from the sale of a
property.

Cash from financing  activities  decreased by approximately  $54.5 million to
an outflow of $52.8 million for the three months ended March 31, 2002,  as
compared to an inflow of $1.7 million for the same period in 2001.  This
decrease was  primarily  due to the timing of borrowings and paydowns on our
unsecured lines of credit.

## Available Borrowings, Cash Balance and Capital Resources

We have an unsecured line of credit with a group of banks led by Wells Fargo.
This line of credit  provides for borrowings up to $275 million with an option
to increase the amount to $325  million and bears  interest at a rate ranging
between  LIBOR plus 1.15% and LIBOR plus 1.80%  (including  an annual  facility
fee ranging  from .20% to .40% based on the  aggregate  amount of the  facility),
depending on our  unsecured  debt  rating.  In addition,  as long as we maintain
an unsecured  debt rating of BBB-/Baa3 or better,  the agreement  contains a
competitive  bid option,  whereby the lenders on this line of credit may bid on
the interest  rate to be charged for up to $137.5  million of the  unsecured
line of  credit.  Under  certain  circumstances,  we also have the  option to
convert  the interest  rate on this line of credit to the  greater of the
Federal  Funds rate plus 0.5% or Wells  Fargo's  prime rate.  This line of
credit  matures in April 2003.  As of March 31, 2002,  there was  approximately
$88.4 million  outstanding  on this line of credit and approximately $186.6
million was available for additional borrowings.

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

We also have an unsecured line of credit with a total  commitment of $10 million
from City National Bank. This line of credit accrues  interest at the City
National  Bank Prime Rate less 0.875% and is scheduled to mature on August 1,
2002.  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 March 31, 2002,
there was no outstanding  balance on this line of credit and $10 million was
available for additional borrowings.

On  March  7,  2002,  we sold an  approximate  64,000  square  foot  office
property  located  in  Torrance,  California  for approximately  $6.9  million.
On April 16,  2002,  we sold an  approximate  60,000  square foot office
building  located in Westlake, California  for  approximately  $8.3 million.
On May 1, 2002 we also  completed the sale of an  approximate  80,000 square
foot office property located in Canoga Park,  California for  approximately
$8.4 million.  The net proceeds from these  dispositions  were used to reduce
the outstanding balance on our Wells Fargo unsecured line of credit.

13

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

`Year                                                         Amount
---------                                                   -------------

   2002.................................................        76,952(1)
   2003.................................................        93,648(2)
   2004.................................................       182,062
   2005.................................................       207,678
   2006.................................................        15,063
   2007.................................................       158,681
   2008.................................................       230,305
   2009.................................................       111,980
   2010.................................................       150,565
   2011.................................................           710
   Thereafter...........................................         6,213
                                                           -----------

     Total..............................................   $ 1,233,857
                                                           ===========
__________

(1)  Consists primarily of $75 million outstanding on our Lehman Brothers line of credit which has a one-year extension option.

(2)  Consists primarily of $88.4 million outstanding on our Wells Fargo line of credit.`

Following is certain other  information  related to our  indebtedness  as of
March 31, 2002 (in thousands,  except  percentage data):

`Unsecured and Secured Debt:
--------------------------


                                                                             Weighted
                                                                              Average
                                          Balance           Percent        Interest Rate (1)
                                       ---------------  ----------------  ------------------

Unsecured Debt......................    $   661,126             54%             7.45%
Secured Debt........................        572,731             46%             7.36%
                                        -----------     -----------       -----------
Total Debt..........................    $ 1,233,857            100%             7.41%
                                        ===========     ===========       ===========

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

                                                                             Weighted
                                                                              Average
                                          Balance           Percent        Interest Rate (1)
                                       ---------------  ----------------  ------------------

Floating Rate Debt..................    $   163,350             13%             4.15%
Fixed Rate Debt.....................      1,070,507             87%             7.91%
                                       ------------     -----------       -----------
Total Debt..........................    $ 1,233,857            100%             7.41%
                                        ===========     ===========       ===========
__________

(1) Includes amortization of prepaid financing costs.`

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

`For the Three Months Ended March 31,
                                          ------------------------------------
                                              2002                    2001
                                            -------                 -------

 Total interest incurred............      $  22,984               $  23,746
 Amount capitalized.................         (1,587)                 (2,588)
                                         ----------           -------------
 Amount expensed....................      $  21,397               $  21,158
                                          =========               =========`

14

As of March 31,  2002,  we had $28.6  million  in cash and cash  equivalents,
including  $21.6  million in  restricted  cash. Restricted  cash consisted of
$13.7 million in interest  bearing cash deposits  required by five of our
mortgage loans payable and $7.9 million in cash impound accounts for real
estate taxes and insurance as required by several of our mortgage loans payable.

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

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

15

## Funds from
Operations and Funds Available for Distribution

The following table reflects the calculation of our funds from  operations and
our funds  available for  distribution  for the three-month periods ended
March 31, 2002 and 2001 (in thousands):

`For the
                                                         Three Months Ended March 31,
                                                      -------------------------------
                                                         2002                 2001
                                                      ---------             -------
Funds From Operations:(1)                                      (unaudited)

  Net income......................................... $  21,353           $  24,073
  Depreciation and amortization of real estate assets    26,383              24,146
  Gain on sale of property...........................    (1,192)                 --
  Minority interest..................................     1,677               1,897
  Income allocated to Preferred Units................    (1,078)             (1,078)
                                                      ---------           ---------
Funds From Operations (2)............................ $  47,143           $  49,038
                                                      =========           =========

Funds Available for Distribution:(3)

   Funds From Operations............................. $  47,143           $  49,038
   Amortization of prepaid financing costs...........       937                 866
   Non-cash compensation expense.....................       245                 425
   Straight-line rent adjustment.....................    (1,650)             (2,361)
   Capital expenditure, tenant improvement
     and leasing commission reserve..................    (8,700)             (7,700)
                                                      ---------           ---------
Funds Available for Distribution..................... $  37,975           $  40,268
                                                      =========           =========

Weighted average shares and common
     units outstanding - Diluted.....................    66,488              66,066
                                                      =========           =========
__________

(1)    We consider funds from operations,  as defined by the National  Association
       of Real Estate  Investment  Trusts,  or NAREIT,  to be a useful  financial
       measure of our  operating  performance.  We believe that funds from
       operations provides  investors with an additional  basis to evaluate ouR
       ability to service debt and to fund  acquisitions and other capital
       expenditures.  Funds from operations should not be considered an alternative
       to net income determined in  accordance  with GAAP,  as an  indicator  of
       our  financial  performance,  as a  substitute  for cash flow from operating
       activities  determined in accordance  with GAAP or as a measure of our
       liquidity.  Funds from operations also is not necessarily  indicative of
       funds available to fund our cash needs, including our ability to service
       our debt.

       The White Paper on funds from  operations  approved by the Board of  Governors
       of NAREIT in October  1999  defines funds from operations as net income or
       loss computed in accordance  with 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 compute funds from  operations  in  accordance  with  standards  established
       by the White  Paper which may differ from the standards used by other REITs
       and, accordingly, our funds from operations may not be comparable to other REITs.

(2)    Includes  non-cash  compensation  expense of $245,000 for the three  months
       ended March 31, 2002,  and $425,000 for three months ended March 31, 2001.

(3)    Funds  available for  distribution  consists of funds from  operations
       excluding  non-cash  compensation  expense, amortization of prepaid financing
       costs,  straight-line rents and less a reserve for capital  expenditures,
       tenant improvements and leasing commissions.`

16

## Portfolio and Lease Information

The following tables set forth certain information regarding our properties as
of March 31, 2002.

`PORTFOLIO SUMMARY

                                                                                                   Net Operating Income
                                                                                                         For the
                                                                      Approximate Net              Three Months Ended
 Location                     Number of Properties                 Rentable Square Feet               March 31, 2002
 -------------------   --------------------------------   ---------------------------------------   -------------------
                                                                                                       (unaudited)
                              Industrial                             Industrial
                                 and              % of                  and                 % of                  % of
                       Office   Retail   Total    Total    Office      Retail     Total     Total       Total    Total
                       ------   ------   -----    -----    ------      ------     -----     -----       -----    -----
                                                                                                       (000's)
 Los Angeles County:
   West                  29       1       30       23%    4,697,608    36,959    4,734,567    26%      $27,979     39%
   North                 31       -       31       24%    3,372,850         -    3,372,850    19%       12,530     17%
   South                 15       -       15       11%    2,625,031         -    2,625,031    14%        7,624     11%
                        ---     ---      ---      ----    ---------   -------    ---------   ----      -------   -----
    Subtotal             75       1       76       58%   10,695,489    36,959   10,732,448    59%       48,133     67%

 Orange County           24       -       24       18%    3,708,926         -    3,708,926    20%       12,480     16%
 San Diego County        21       -       21       16%    2,486,777         -    2,486,777    14%        7,738     11%
 Ventura/Kern Counties    6       -        6        4%      778,363         -      778,363     4%        2,571      4%
 Riverside/San
   Bernardino Counties    4       1        5        4%      342,980   133,481      476,461     3%        1,116      2%
                        ---     ---      ---      ----      -------   -------    ---------   ----      -------   -----
      Total             130       2      132(1)   100%   18,012,535   170,440   18,182,975   100%     $ 72,038    100%
                        ===     ===      =====   =====   ==========   =======   ==========   ====     ========    ====
_________

(1)  Including two properties currently under development, our total portfolio consists of 134 properties and approximately
     18.7 million rentable square feet.



                                         PORTFOLIO OCCUPANCY AND LEASING SUMMARY


                                                                                          Annualized Base Rent
Location                        Percent Occupied             Percent Leased            Per Leased Square Foot (1)
-------------------------   -----------------------   --------------------------  ----------------------------------
                                                                                                            Full
                                  Industrial                 Industrial               Industrial           Service
                                     and                        and                      and                Gross
                           Office   Retail   Total    Office   Retail    Total    Office  Retail   Total   Leases (2)
                           ------   ------   ------   ------   ------    -----    ------  ------   -----  -----------
Los Angeles County:
  West                      92.4%   100.0%    92.4%    92.7%    100.0%   92.7%    $27.32  $24.60   $27.30   $27.40
  North                     88.7%       -     88.7%    89.1%        -    89.1%     20.88     -      20.88    21.77
  South                     87.7%       -     87.7%    88.3%        -    88.3%     18.29     -      18.29    19.57
Orange County               93.9%       -     93.9%    94.0%        -    94.0%     17.81     -      17.81    20.97
San Diego County            89.7%       -     89.7%    89.8%        -    89.8%     17.64     -      17.64    20.83
Ventura/Kern Counties       93.4%       -     93.4%    95.1%        -    95.1%     18.16     -      18.16    18.38
Riverside/San
  Bernardino Counties       92.1%    86.5%    90.6%    93.9%     86.5%   91.9%     18.12    11.63   16.41    18.80
                           ------   ------   ------   ------    ------  ------    ------   ------   -----    -----

   Total/Weighted Average   91.0%    89.4%    91.0%    91.4%     89.4%   91.4%    $20.95   $14.78  $20.90   $22.82
                           ======   ======   ======   ======    ======  ======    ======   ======  ======   ======
________

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

(2)  Excludes 39 properties with approximately 3.9 million square feet under triple net and modified gross leases.`

17

`LEASE EXPIRATIONS

                                               As of March 31, 2002
                                                                                                 2007 and
                                    2002          2003         2004         2005       2006     Thereafter
                                    ----          ----         ----         ----       ----     ----------
Los Angeles
County:

  West        Expiring SF (1)      458,958      589,384     758,270      758,266     389,926     1,310,079
              % of Leased SF (2)      2.8%         3.6%        4.6%         4.6%        2.4%          7.9%
              Rent per SF (3)       $22.95       $26.45      $27.20       $30.27      $30.44        $35.30

  North       Expiring SF (1)      275,328      505,988     671,051      438,248     354,476       699,483
              % of Leased SF(2)       1.7%         3.0%        4.0%         2.6%        2.1%          4.2%
              Rent per SF (3)       $19.30       $21.61      $21.58       $22.41      $24.51        $23.70

  South       Expiring SF (1)      256,906      306,874     443,172      628,807     248,456       424,023
              % of Leased SF (2)      1.5%         1.8%        2.7%         3.8%        1.5%          2.6%
              Rent per SF (3)       $17.87       $19,57      $20.72       $15.09      $22.81        $22.48
                                   -------      -------     -------      -------     -------    ----------

   Subtotal   Expiring SF (1)      991,192    1,402,246   1,872,493    1,825,321     992,858     2,433,585
              % of Leased SF (2)      6.0%         8.4%       11.3%        11.0%        6.0%         14.7%
              Rent per SF (3)       $20.62       $23.20      $23.65       $23.15      $26.41        $29,73

Orange County Expiring SF (1)      498,977      700,054     662,202      463,767     647,125       480,573
              % of Leased SF (2)      3.0%         4.2%        3.9%         2.8%        3.9%          2.9%
              Rent per SF (3)       $14.11       $18.17      $17.87       $21.68      $20.61        $24.36
San Diego
County        Expiring SF (1)      167,170      605,839     264,110      384,290     144,929       618,501
              % of Leased SF (2)      1.0%         3.7%        1.6%         2.3%        0.9%          3.7%
              Rent per SF(3)        $19.30       $18.45      $18.76       $15.66      $26.54        $22.05

All Others    Expiring SF (1)       87,630      154,624     346,906      143,554     235,112       198,400
              % of Leased SF (2)      0.5%         0.9%        2.1%         0.9%        1.4%          1.2%
              Rent per SF(3)        $17.90       $19.32      $18.36       $19.69      $19.08        $17.90
                                   -------      -------     -------      -------     -------       -------
   Total
   Portfolio  Expiring SF (1)    1,744,969    2,862,763   3,145,711    2,816,932   2,020,024     3,731,059
                                ==========   ==========  ==========   ==========  ==========    ==========
              % of Leased SF (2)     10.5%        17.2%       18.9%        17.0%       12.2%         22.5%
                                ==========   ==========  ==========   ==========  ==========    ==========
              Rent per SF (3)       $18.50       $20.75      $21.44       $21.71      $23.71        $27.14
                                ==========   ==========  ==========   ==========  ==========    ==========
__________

(1)    Represents the net rentable square footage of expiring leases.  For 2002, represents expirations from
       April 1, 2002 through December 31, 2002, not including month-to-month tenants.

(2)    Percentage of total net rentable square footage expiring during the period.

(3)    Represents annualized ending cash rents of expiring leases.`

`LEASING ACTIVITY

                                         Three Months Ended March 31, 2002

                                                                                        Rent Growth
                                 Weighted          Tenant                    --------------------------------
                               Average Lease    Improvements                               New/
Net Absorption    Retention       Term        and Commissions                Expiring   Renewed
(square feet)       Rate        in Months    (per square foot)                 Rate       Rate     Increase
 --------------   ----------   -------------  ------------------             ----------  --------  ----------
                                             New(1)     Renewal    Cash (2)   $20.59      $23.61      15%
                                           ---------   ---------             =======     =======     ====
  (223,204)           72%        49        $ 16.18       $8.67     GAAP (3)   $19.99      $24.59      23%
  =========         =====       ====      ========      ======               =======     =======     ====

________

(1)      Excludes all first generation space.

(2)      Represents the difference between initial market rents on new and renewed leases as compared to the expiring
         cash rents on the same space.

(3)      Represents estimated cash rent growth adjusted for straight-line rents.`

18

`DEVELOPMENT SUMMARY

                                               As of March 31, 2002



                                  Costs      Estimated                                       Estimated               Estimated
                                 Incurred      Total    Percent  Estimated                    Year 1      Estimated    Year 1
                                  To Date     Cost (1)   Leased    Shell       Estimated     Stabilized      Year 1     Annual
                        Square     (in          (in        at    Completion  Stabilization  Cash NOI (3)    Annual      GAAP
Property                 Feet    thousands)  thousands)  5/7/02    Date        Date (2)    (in thousands) Cash Yield  Yield (4)
---------------------   ------   ----------  ----------  ------  ----------  ------------- -------------- ----------  ---------
Howard Hughes Center:
 6080 Center Drive     283,000   $ 72,599     $ 77,100   85%(5)   Complete    3rd Qtr 2002    $ 8,200       10.6%       11.8%
 6100 Center Drive     283,000     53,255       81,500      --   2nd Qtr 2002 2nd Qtr 2003    $ 7,500        9.2%       10.2%
 Unallocated
 Acquisition and
 Master Plan Costs (1)      --     16,794       19,800
   Total Development  --------  ---------    ---------
   Properties          566,000   $142,648     $178,400
                      ========  =========    =========
 _________

(1)  Estimated total cost includes purchase and closing costs, capital expenditures, tenant improvements, leasing commissions
     and carrying costs during development, as well as an allocation of land and master plan costs. Unallocated acquisition
     and master plan costs consists of unallocated land costs and master plan costs that will be allocated to future development
     projects at the Howard Hughes Center. We have entitlements to construct an additional approximately 425,000 net rentable
     square feet of office space and have two parcels entitled for hotel development at the Howard Hughes Center.

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

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

(4)  We consider the Estimated Year 1 Annual GAAP Yield to be the property's Stabilized Cash NOI adjusted for straight-line rents
     during its first year in service over the propertys estimated total costs.

(5)  As of May 7, 2002, 6080 Center Drive was 69% occupied and 85% leased.`

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

In addition to our  development  at the Howard  Hughes  Center,  we have
completed  preliminary  designs and are marketing an approximate  170,000
square foot  build-to-suit  office building at our Long Beach Airport Business
Park. We do not intend to commence construction on this project until a
build-to-suit tenant lease is signed with terms allowing us to achieve yields
commensurate  with the project's development risk.

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

## Current
Economic Climate

Our short and long-term  liquidity is  significantly  impacted by the operating
results of our  properties,  all of which are located in Southern  California.
Our ability to lease  available  space and increase rates when leases expire is
largely  dependent on the demand for office space in the markets where our
properties  are located.  We believe  current  uncertainty  over the national
and Southern  California  economic  environment is exerting  downward  pressures
on the demand for Southern  California  commercial  office space. We are
experiencing these downward pressures due to several factors as follows:

- Occupancy and rental rates have compressed in recent months due to the state
of the local economy;
- Larger tenants are taking a longer amount of time to make their leasing decisions
reflecting the uncertainty in the economy;

19

- Some tenants are under-utilizing their existing space and can therefore expand
internally before they need new space;
- Sublease space, although stabilizing, stands at about 3% of total inventory
throughout Southern California; and
- Over-building in some sub-markets has pushed vacancy rates in those sub-markets
to very high levels.

These factors have  contributed  to a decrease in the  occupancy of our portfolio
from 92.2% as of December 31, 2001 to 91.0% as of March 31, 2002.  Furthermore,
problems  associated with  deregulation of the electric  industry in California
have also resulted in significantly higher utility costs in some areas of the state.

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"
sections of our 2001 annual report on Form 10-K.

## Item 3.
 
Quantitative and Qualitative Disclosure about Market Risk

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

Interest Rate Risk

Even  though we  currently  have no such  agreements,  in order to modify  and
manage  the  interest  characteristics  of our outstanding debt and limit the
effects of interest rates on our operations,  we may use a variety of financial
instruments,  including interest rate swaps,  caps,  floors and other  interest
rate exchange  contracts.  The use of these types of  instruments  to hedge our
exposure to changes in interest rates carries  additional risks such as
counter-party  credit risk and legal  enforceability of hedging contracts.
We do not enter into any transactions for speculative or trading purposes.

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 March 31,
2002, a 1% increase in interest rates on our $163.4 million of floating rate
debt would decrease annual future earnings and cash flows by  approximately  $1.6
million and would not have an impact on the fair value of the floating rate debt.
Conversely,  a 1% decrease in interest  rates on our $163.4 million of floating
rate debt would increase annual future earnings and cash flows by  approximately
$1.6 million and would not have an impact on the fair value of the  floating
rate debt.  A 1%  increase  or  decrease  in  interest  rates on our  secured
notes receivable  would  not have a  material  impact  on  annual  future
earnings,  cash  flows  and the fair  value of the  secured  notes receivable.
The weighted average interest rate on our floating debt as of March 31, 2002
was 4.15%.

Our fixed rate debt totaled  $1,070.5  million as of March 31, 2002 with a
weighted average interest rate of 7.91% and a total fair value of  approximately
$1,081.8  million.  A 1% decrease in interest  rates on our fixed rate debt
would increase its fair value by  approximately  $46.5  million and would not
have an impact on annual  future  earnings  and cash  flows.  A 1% increase in
interest rates in our $1,070.5  million of fixed rate debt would  decrease its
fair value by  approximately  $44.1 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 the change.
Due to the uncertainty of the specific  actions that would be taken and their
possible  effects,  however,  this  sensitive  analysis  assumes no changes in
our capital structure.

20

## Part II
  
OTHER INFORMATION

## Item 1.
 
Legal Proceedings - None

## Item 2.
 
Changes in Securities

During the three months ended March 31, 2002, we redeemed an aggregate of  89,500 common operating partnership units of the
Operating Partnership for shares of our common stock. The redemption of limited partnership units for shares of our common
stock was exempt from the registration requirement of the Securities Act pursuant to Section 4(2) of the Securities Act and
Rule 506 of Regulation D.

## Item 3.
  
Defaults Upon Senior Securities - None

## Item 4.
  
Submission of Matters to a Vote of Securities Holders - None

## Item 5.
  
Other Information - None

## Item 6.
  
Exhibits and Reports on Form 8-K

## (a)
  
  
  
 
Exhibits

10.39+
    
Second Amended and Restated 1996 Stock Option and Incentive Plan of Arden Realty, Inc. and

    
    
    
    
    
    
    
Arden Realty Limited Partnership dated September 20th, 2001.

10.40*
    
Form of Promissory Note entered into on July 19, 2001 and September 28, 2001
between Arden Realty

    
    
    
    
    
    
    
Limited Partnership and Richard Ziman, Victor Coleman,
Andrew Sobel and Robert Peddicord,

    
    
    
    
    
    
    
respectively.

(+)
          
Incorporated by reference from Arden Realty, Inc.'s quarterly report on Form 10-Q filed on November 14,

    
    
    
    
    
    
    
2001.

(*)
          
Incorporated by reference from Arden Realty Limited Partnership's quarterly report on Form 10-Q filed on

    
    
    
    
    
    
    
November 14, 2001.

## (b)
  
  
  
 
Reports on Form 8-K

## None

21

# SIGNATURES

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

ARDEN REALTY, INC.

|Date:
 May 13, 2002 |  | By: | /s/  Andrew J. Sobel
Andrew J. Sobel
Executive Vice President - Strategic Planning

and Operations
|------------------- |  | --- | --------------------------------------------------------------------------------------------------
|                   
|                   
|                   
|Date:
 May 13, 2002 |  | By: | /s/  Richard S. Davis
Richard S. Davis
Senior Vice President and

Chief Financial Officer         
|                   
|                    | 

|
|

22