ARDEN REALTY INC, 424A, 1997-07-03

ARDEN REALTY INC
424A, 1997-07-03
OPERATORS OF NONRESIDENTIAL BUILDINGS

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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
Subject to Completion, dated June 26, 1997

PROSPECTUS

10,000,000 SHARES

[LOGO]
ARDEN REALTY, INC.
COMMON STOCK
----------------

Arden Realty, Inc., a Maryland corporation (the "Company"), is a
self-administered and self-managed real estate investment trust ("REIT") engaged
in owning, acquiring, managing, leasing and renovating office properties in
Southern California. The Company currently owns 45 office properties (the
"Properties") containing approximately 7.4 million rentable square feet, all of
which are located in Southern California. As of June 15, 1997, the Company had
executed eight contracts and entered one letter of intent to acquire nine
additional office properties containing approximately 1.2 million rentable
square feet (collectively, the "Pending Acquisitions") for a Total Acquisition
Cost (as defined below) of approximately $161.4 million.

All of the shares of the Company's common stock (the "Common Stock") offered
hereby are being sold by the Company. To assist the Company in complying with
certain qualification requirements applicable to REITs, the Company's charter
provides that no stockholder or group of affiliated stockholders may actually or
constructively own more than 9.0% of the outstanding Common Stock, subject to
certain specified exceptions. See "Capital Stock--Restrictions on Transfer."

The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "ARI." On June 24, 1997, the last reported sales price of the Common
Stock on the NYSE was $26.0625 per share.
---------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK, INCLUDING:

- - The possibility that the Company may not be able to refinance outstanding
debt upon maturity, that indebtedness might be refinanced on less favorable
terms, and that interest rates might increase on variable rate indebtedness;
and the lack of limitations in the Company's organizational documents on the
amount of indebtedness which the Company may incur;

- - Real estate investment and property management risks such as the need to
renew leases or relet space upon lease expirations, the instability of cash
flows and changes in the value of office properties owned by the Company due
to economic and other conditions;

- - Concentration of the Properties in Southern California which increases the
risk of the Company being adversely affected by a downturn in the Southern
California economy or office markets;

- - The possibility that one or more of the Pending Acquisitions will not close;

- - The lack of operating history of the Properties under the management of the
Company;

- - The possibility that the Board of Directors of the Company may in the future
amend or revise the investment, financing, borrowing, distribution and
conflicts of interest policies of the Company, without a vote of the
Company's stockholders;

- - Taxation of the Company as a regular corporation if it fails to qualify as a
REIT, and the resulting decrease in cash available for distribution; and

- - Risks that certain types of losses, such as from earthquakes, could exceed
the Company's insurance coverage which currently includes earthquake
coverage for all of the Properties.

---------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
Underwriting
Discounts
Price to and Proceeds to
Public Commissions(1) Company(2)
Per Share......................................... $ $ $
<S> <C> <C> <C>
Total(3).......................................... $ $ $
</TABLE>

(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
1,500,000 additional shares of Common Stock on the same terms and conditions
as set forth above solely to cover overallotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
---------------------------

The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of the shares
will be made at the offices of Lehman Brothers Inc., New York, New York on or
about , 1997.
---------------------------

LEHMAN BROTHERS

ALEX. BROWN & SONS
INCORPORATED

A.G. EDWARDS & SONS, INC.

MORGAN STANLEY DEAN WITTER

SMITH BARNEY INC.

<TABLE>
<S> <C> <C>
EVEREN SECURITIES, INC. RAYMOND JAMES & ASSOCIATES, INC.
</TABLE>

, 1997
<PAGE>
MAP OF SOUTHERN CALIFORNIA SHOWING THE LOCATION
OF ARDEN REALTY, INC. PROPERTIES.

PICTURES OF PROPERTIES ON INSIDE FRONT AND BACK COVER OF PROSPECTUS. PROPERTIES
SHOWN ARE: CALIFORNIA TWIN CENTRE IN BAKERSFIELD, CENTER PROMENADE IN VENTURA,
5200 WEST CENTURY IN LOS ANGELES, CROWN CABOT IN LAGUNA NIGEL, SUMITOMO BANK
BUILDING IN SHERMAN OAKS, SOUTH BAY CENTRE IN GARDENA, 8383 WILSHIRE IN BEVERLY
HILLS, 10780 SANTA MONICA IN WEST LOS ANGELES, CENTERPOINTE IN LA PALMA, 10351
SANTA MONICA IN WEST LOS ANGELES, NOBLE PROFESSIONAL CENTER IN SHERMAN OAKS, 303
GLENOAKS IN BURBANK, WHITTIER FINANCIAL CENTER IN WHITTIER AND 535 NORTH BRAND
IN GLENDALE.

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK PRIOR TO PRICING
OF THE OFFERING FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK,
THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE PRICING OF THE OFFERING TO
COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK OR FOR THE PURPOSE OF
MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY............................ 1
The Company................................. 1
Risk Factors................................ 2
Recent Developments......................... 4
Acquired Properties....................... 4
Pending Acquisitions...................... 5
Credit Facilities......................... 5
Mortgage Financing........................ 6
Business and Growth Strategies.............. 6
The Properties.............................. 7
The Offering................................ 10
Distributions............................... 10
Tax Status of the Company................... 11
Summary Selected Financial Data............. 11

RISK FACTORS.................................. 15
Real Estate Financing Risks................. 15
No Limitation on Debt....................... 16
Real Estate Investment Risks................ 16
Concentration of Properties in Southern
California................................ 18
Risk that Pending Acquisitions Will Not
Close..................................... 18
Conflicts of Interests in the Formation
Transactions and the Business of the
Company................................... 18
Risks Associated with Rapid Growth, the
Recent Acquisition of Many of the New
Properties and the Lack of Operating
History................................... 19
Changes in Policies Without Stockholder
Approval.................................. 19
Risk of Acquisition, Renovation and
Development Activities.................... 20
Potential Adverse Tax Consequences of
Failure to Qualify as a REIT.............. 20
Other Tax Liabilities....................... 21
Insurance................................... 21
Dependence on Key Personnel................. 22
Limits on Changes in Control................ 22
Possible Environmental Liabilities.......... 23
Possible Adverse Effect on Common Stock
Price of Shares Available for Future
Sale...................................... 24
Possible Adverse Effect on Holders of Common
Stock of an Issuance of Preferred Stock... 24
Influence of Executive Officers, Directors
and Principal Stockholders................ 25

<CAPTION>
PAGE
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<S> <C>
Possible Adverse Effect of Market Interest
Rates on Price of Common Stock............ 25

THE COMPANY................................... 26
General..................................... 26
The Operating Partnership................... 27

BUSINESS AND GROWTH STRATEGIES................ 28
Business Strategies......................... 28
Growth Strategies........................... 29

USE OF PROCEEDS............................... 31

PRICE RANGE OF COMMON STOCK AND DISTRIBUTION
HISTORY..................................... 31

CAPITALIZATION................................ 33

SELECTED FINANCIAL INFORMATION................ 34

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................. 38
Overview.................................... 38
Results of Operations....................... 38
Pro Forma Operating Results................. 46
Liquidity and Capital Resources............. 47
Cash Flows.................................. 48
Inflation................................... 49

SOUTHERN CALIFORNIA ECONOMY AND OFFICE
MARKETS..................................... 50
Southern California Economy................. 50

PROPERTIES.................................... 55
General..................................... 55
Properties and Pending Acquisitions......... 56
Tenant Information.......................... 59
Lease Distributions......................... 60
Lease Expirations--Portfolio Total.......... 60
Lease Expirations--Property by Property..... 61
Tenant Retention and Expansions............. 73
Historical Lease Renewals................... 73
Historical Tenant Improvements and Leasing
Commissions............................... 74
Historical Capital Expenditures............. 75
Historical Occupancy........................ 75
</TABLE>

i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Location of Properties and Pending
Acquisitions.............................. 77
Los Angeles County Office Market............ 77
Orange County Office Market................. 86
Ventura County Office Market................ 88
Kern County Office Market................... 89
Competition................................. 90
Insurance................................... 90
Environmental Regulations................... 91
Potential Eminent Domain Proceedings........ 92
Legal Proceedings........................... 92
Employees................................... 92

MANAGEMENT.................................... 93
Directors and Executive Officers............ 93
Board of Directors.......................... 95
Committees of the Board of Directors........ 96
Compensation of Directors................... 96
Executive Compensation...................... 96
Compensation Committee Interlocks and
Insider Participation..................... 98
Employment Agreements....................... 98
Stock Incentive Plan........................ 99
401(k) Plan................................. 99
Limitation of Liability and
Indemnification........................... 100

FORMATION TRANSACTIONS........................ 101
Benefits of the Formation Transactions and
the IPO to Affiliates of the Company...... 102

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES... 103
Investment Policies......................... 103
Dispositions................................ 104
Financing Policies.......................... 104
Conflict of Interest Policies............... 105
Policies with Respect to Other Activities... 106

CERTAIN TRANSACTIONS.......................... 106
Formation Transactions...................... 106
Partnership Agreement; Redemption/ Exchange
Rights.................................... 106
Registration Rights......................... 106
Acquisition of Property from Former
Director.................................. 106
Acceleration of Options Granted to Former
Officer................................... 107

PARTNERSHIP AGREEMENT......................... 107
Management.................................. 107
Transferability of Interests................ 107
<CAPTION>
PAGE
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<S> <C>
Capital Contributions....................... 108
Redemption/Exchange Rights.................. 108
Issuance of Additional OP Units, Common
Stock or Convertible Securities........... 109
Tax Matters................................. 109
Operations.................................. 109
Duties and Conflicts........................ 109
Certain Voting Rights of Limited Partners... 109
Term........................................ 110
Indemnification............................. 110

PRINCIPAL AND MANAGEMENT STOCKHOLDERS......... 111

CAPITAL STOCK................................. 112
General..................................... 112
Common Stock................................ 112
Preferred Stock............................. 112
Power to Issue Additional Shares of Common
Stock and Preferred Stock................. 113
Transfer Agent and Registrar................ 113
Restrictions on Transfer.................... 113

CERTAIN PROVISIONS OF MARYLAND LAW AND THE
COMPANY'S CHARTER AND BYLAWS................ 115
Board of Directors--Number, Classification,
Vacancies................................. 116
Removal of Directors........................ 116
Business Combinations....................... 116
Control Share Acquisitions.................. 117
Amendment to the Charter.................... 117
Dissolution of the Company.................. 118
Advance Notice of Director Nominations and
New Business.............................. 118
Anti-takeover Effect of Certain Provisions
of Maryland Law and of the Charter and
Bylaws.................................... 118
Rights to Purchase Securities and Other
Property.................................. 118

SHARES AVAILABLE FOR FUTURE SALE.............. 118
General..................................... 118
Registration Rights......................... 119

FEDERAL INCOME TAX CONSIDERATIONS............. 119
Taxation of the Company..................... 120
Failure to Qualify.......................... 125
Taxation of Taxable U.S. Stockholders
Generally................................. 125
</TABLE>

ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Backup Withholding.......................... 126
Taxation of Tax-Exempt Stockholders......... 127
Taxation of Non-U.S. Stockholders........... 127
Tax Aspects of the Operating Partnership.... 130
Other Tax Considerations.................... 133

ERISA CONSIDERATIONS.......................... 133
Employment Benefit Plans, Tax-Qualified
Pension, Profit Sharing or Stock Bonus
Plans and IRAs............................ 133
<CAPTION>
PAGE
-----
<S> <C>

Status of the Company and the Operating
Partnership under ERISA................... 134

UNDERWRITING.................................. 136

EXPERTS....................................... 137

LEGAL MATTERS................................. 138

ADDITIONAL INFORMATION........................ 138

GLOSSARY...................................... 139
</TABLE>

iii
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS INDICATED OTHERWISE, THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES
THAT (I) THE UNDERWRITERS' OVERALLOTMENT OPTION IS NOT EXERCISED, (II) THE
OFFERING PRICE FOR THE COMMON STOCK OFFERED HEREBY IS $26.0625 AND (III) NONE OF
THE LIMITED PARTNERSHIP INTERESTS ("OP UNITS") OF ARDEN REALTY LIMITED
PARTNERSHIP, A MARYLAND LIMITED PARTNERSHIP (THE "OPERATING PARTNERSHIP"),
REDEEMABLE FOR CASH OR, AT THE ELECTION OF THE COMPANY, EXCHANGEABLE FOR COMMON
STOCK HAVE BEEN SO REDEEMED OR EXCHANGED. ALTHOUGH THE COMPANY AND THE OPERATING
PARTNERSHIP ARE SEPARATE ENTITIES, FOR EASE OF REFERENCE AND UNLESS THE CONTEXT
OTHERWISE REQUIRES, ALL REFERENCES IN THIS PROSPECTUS TO THE "COMPANY" REFER TO
THE COMPANY, THE OPERATING PARTNERSHIP AND THEIR SUBSIDIARIES, COLLECTIVELY. ALL
REFERENCES IN THIS PROSPECTUS TO "NAMIZ" REFER TO NAMIZ, INC., A CALIFORNIA
CORPORATION FORMERLY KNOWN AS ARDEN REALTY GROUP, INC. AND THE COMPANY'S
IMMEDIATE PREDECESSOR. ALL REFERENCES IN THIS PROSPECTUS TO THE ACTIVITIES OF
THE COMPANY PRIOR TO OCTOBER 9, 1996 REFER TO THE ACTIVITIES OF THE "ARDEN
PREDECESSORS" WHICH INCLUDE NAMIZ AND CERTAIN OF ITS AFFILIATED ENTITIES THAT
WERE ENGAGED IN THE REAL ESTATE BUSINESS IN SOUTHERN CALIFORNIA PRIOR TO THE
COMPANY'S FORMATION AND THE CONSUMMATION OF ITS INITIAL PUBLIC OFFERING. SEE
"GLOSSARY" FOR THE DEFINITIONS OF CERTAIN TERMS USED IN THIS PROSPECTUS.

THE COMPANY

The Company is a self-administered and self-managed real estate investment
trust ("REIT") engaged in owning, acquiring, managing, leasing and renovating
commercial office properties in Southern California. The Company currently owns
a portfolio of 45 office properties (the "Properties") containing approximately
7.4 million rentable square feet. All of the Properties are located in Southern
California, with 38 in suburban Los Angeles County, three in Orange County, one
in Ventura County, two in Kern County and one in San Diego County.

Since its initial public offering in October 1996 (the "IPO"), the Company
has acquired 21 additional office properties (collectively, the "Acquired
Properties"), increasing its portfolio of office properties from the initial 24
Properties (collectively, the "Initial Properties") to 45 Properties. The
Acquired Properties contain approximately 3.4 million rentable square feet and
were purchased for a Total Acquisition Cost of approximately $366.5 million.

As of June 15, 1997, the Company had executed eight contracts and entered
into one letter of intent to acquire nine additional office properties
(collectively, the "Pending Acquisitions") containing approximately 1.2 million
rentable square feet for a Total Acquisition Cost of approximately $161.4
million. As of May 1, 1997, the Pending Acquisitions were approximately 77.1%
leased.

The Company believes that all of the Properties are located in strong
submarkets which generally have significant rent growth potential due to
employment growth, declining vacancy rates, limited new construction activity
and existing rental rates at levels below those required to make new
construction economically feasible. The Company's portfolio is comprised of
suburban office properties which have high quality finishes, are situated in
desirable locations, are well maintained and professionally managed and are
capable of achieving rental and occupancy rates which are typically above those
prevailing in their respective markets. Of the Company's 45 Properties, 36 have
been built since 1980 and 17 have been substantially renovated within the last
five years.

As of May 1, 1997, the Company's portfolio of 45 Properties (which includes
the 24 Initial Properties and the 21 Acquired Properties) was approximately
85.8% leased. The 24 Initial Properties were approximately 91.9% leased as of
May 1, 1997 as compared to 88.9% leased as of August 1, 1996.

The Company also believes, based upon its evaluation of market conditions,
that certain economic fundamentals are present in Southern California which
enhance the Company's ability to achieve its business objectives by providing an
attractive environment for owning, acquiring and operating suburban

1
<PAGE>
office properties. Specifically, the Company believes that the limited
construction of new office properties in the Southern California region since
1992 coupled with an improving Southern California economy will continue to
result in increased demand for office space and positive net absorption in the
Southern California region, particularly in the selected submarkets where most
of the Properties are located.

The Company operates from its Beverly Hills, California headquarters and is
a fully-integrated real estate company with approximately 100 full-time
employees and in-house expertise in acquisitions, finance, asset management,
leasing and construction. The Company's founders, Richard S. Ziman and Victor J.
Coleman, along with the other six senior officers of the Company, have an
average of more than 14 years of experience in the real estate industry. See
"Management--Directors and Executive Officers." Upon completion of this offering
(the "Offering"), management will own in the aggregate 6.38% of the outstanding
shares of Common Stock and OP Units.

RISK FACTORS

An investment in the Common Stock involves various risks, and prospective
investors should carefully consider the matters discussed under "Risk Factors"
prior to an investment in the Company. Such risks include, among others:

- the possibility that the Company may not be able to refinance outstanding
indebtedness upon maturity (including the $175 million Mortgage Financing
(as defined below) and the $300 million Credit Facility (as defined below)
which mature on June 10, 2004 and June 1, 2000, respectively), that
interest rates might increase on variable rate indebtedness, including any
amounts outstanding under the Credit Facility, and that such indebtedness
might be refinanced at higher interest rates or otherwise on terms less
favorable to the Company than existing indebtedness, which could adversely
affect the Company's ability to make expected distributions to
stockholders and its ability to qualify as a REIT, and the lack of
limitations in the Company's organizational documents on the amount of
indebtedness the Company may incur;

- real estate investment and property management risks such as the need to
renew leases or relet space upon lease expirations and, at times, to pay
renovation and reletting costs in connection therewith, the effect of
economic and other conditions on office property cash flows and values,
the ability of tenants to make lease payments, the ability of a property
to generate revenue sufficient to meet operating expenses, including
future debt service, and the illiquidity of real estate investments, all
of which may adversely affect the Company's ability to make expected
distributions to stockholders;

- concentration of all of the Properties in Southern California, and the
dependence of the Properties on the conditions of the economy and the
office markets of Southern California and particularly, Los Angeles
County, which increases the risk of the Company being adversely affected
by a downturn in the Southern California or Los Angeles County economy or
office markets;

- the possibility that one or more of the Pending Acquisitions will not
close and that the Company may be unable to apply proceeds from the
Offering toward other suitable acquisitions, which may adversely affect
its ability to increase distributable cash flow per share;

- given the Company's recent acquisition of many of the Properties and the
lack of operating history of such Properties under the Company's
management, the risks that newly acquired properties may have
characteristics or deficiencies unknown to the Company affecting the value
or revenue potential thereof, may fail to perform as expected, or may be
difficult to integrate into the Company's existing management operations;

- conflicts of interest involving Messrs. Ziman and Coleman in business
decisions regarding the Company, including conflicts associated with any
prepayment of debt secured by the Initial

2
<PAGE>
Properties that may arise due to the more adverse tax consequences of such
prepayment to Messrs. Ziman and Coleman as holders of OP Units;

- the possibility that the Board of Directors of the Company may in the
future amend or revise the investment, financing, borrowing, distribution
and conflicts of interest policies of the Company without a vote of the
Company's stockholders;

- taxation of the Company as a corporation if it fails to qualify as a REIT
for federal income tax purposes, the Company's liability for certain
federal, state and local income taxes in such event and the resulting
decrease in cash available for distribution;

- risks that certain types of losses, such as from earthquakes, could exceed
the Company's insurance coverage which currently includes earthquake
coverage for all of the Properties;

- dependence on certain key personnel;

- anti-takeover effect of limiting actual or constructive ownership of
Common Stock of the Company by a single person to 9.0% of the outstanding
capital stock, subject to certain specified exceptions, and of certain
other provisions contained in the organizational documents of the Company
and the Operating Partnership, which may have the effect of delaying,
deferring or preventing a transaction or change in control of the Company
that might involve a premium price for the Common Stock or otherwise be in
the best interests of the Company's stockholders;

- possible environmental liabilities in connection with the Company's
ownership and/or operation of the Properties and Pending Acquisitions; and

- effect of shares available for future sale on the price of the Common
Stock.

3
<PAGE>
RECENT DEVELOPMENTS

ACQUIRED PROPERTIES

Since the closing of the IPO on October 9, 1996 through June 15, 1997, the
Company has acquired 21 additional suburban office properties in Southern
California containing approximately 3.4 million rentable square feet for a Total
Acquisition Cost of approximately $366.5 million. The following table sets forth
certain data regarding the Acquired Properties:

<TABLE>
<CAPTION>
PERCENT TOTAL
APPROXIMATE LEASED AT PERCENT ACQUISITION
NET RENTABLE ACQUISITION LEASED AT COST(1) MONTH
PROPERTY NAME LOCATION SQUARE FEET DATE MAY 1, 1997 (MILLIONS) ACQUIRED
- -------------------------------------------- -------------- ------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
10351 Santa Monica.......................... Los Angeles 96,251 99% 98% $ 11.1 October 1996

2730 Wilshire............................... Santa Monica 55,080(2) 93% 98% 7.9(2) November 1996

Burbank Executive Plaza..................... Burbank 60,395 84% 74% 5.5 November 1996

California Federal Building................. Burbank 82,467 98% 97% 7.5 November 1996

Grand Avenue Plaza.......................... El Segundo 84,500 0%(3) 62%(3) 4.9 November 1996

Center Promenade............................ Ventura 174,837 83% 74% 11.7 December 1996

Los Angeles Corporate Center................ Monterey Park 389,293 77% 85% 42.0 December 1996

5200 West Century........................... Los Angeles 310,910 29%(4) 30%(4) 13.7 December 1996

Sumitomo Bank Building...................... Sherman Oaks 110,641 92% 92% 12.9 December 1996

10350 Santa Monica.......................... Los Angeles 42,292 88% 93% 4.3 December 1996

6800 Owensmouth............................. Canoga Park 80,014 83% 85% 7.5 March 1997

535 Brand................................... Glendale 109,187 41%(4) 51%(4) 15.1 March 1997

Whittier Financial Center................... Whittier 135,415 88% 85% 14.4 March 1997

California Twin Centre...................... Bakersfield 155,189 86% 89% 19.6 March 1997

Clarendon Crest............................. Woodland Hills 43,063 85% 85% 5.2 April 1997

10780 Santa Monica.......................... Los Angeles 92,486 78% 84% 10.6 April 1997

Noble Professional Center................... Sherman Oaks 51,828 81% 81% 6.7 April 1997

South Bay Centre............................ Gardena 202,830 86% 86% 19.1 April 1997

8383 Wilshire............................... Beverly Hills 417,463 77% 77% 59.1 May 1997

Parkway Center.............................. Bakersfield 61,333 99% 99% 7.5 May 1997

Centerpointe La Palma....................... La Palma 597,550 88% 88% 80.2 June 1997
-- --
------------ -----------

Total/Weighted Average.................. 3,353,024(2) 76% 79% $366.5(2)
------------ -----------
------------ -----------
</TABLE>

- ------------------------------

(1) "Total Acquisition Cost" includes all purchase costs, closing costs and
anticipated capital expenditures for, and carrying costs during,
renovations.

(2) Excludes the square feet and purchase price associated with the 100%
occupied, 12,740 square foot, 16-unit apartment complex at this property
which the Company also owns.

(3) Renovations were recently completed at Grand Avenue Plaza.

(4) 5200 West Century and 535 Brand are currently being renovated.

4
<PAGE>
PENDING ACQUISITIONS

As of June 15, 1997, the Company had executed eight contracts and entered
one letter of intent to acquire nine additional office properties containing
approximately 1.2 million rentable square feet for a Total Acquisition Cost of
approximately $161.4 million. The Company intends to use a portion of the net
proceeds from the Offering to complete the Pending Acquisitions within 60 days
after the closing of the Offering; however, purchase of the Pending Acquisitions
is subject to the Company's completion of due diligence and the satisfaction of
other customary conditions to closing, and there can be no assurance that any of
the Pending Acquisitions will be completed. See "Risk Factors--Risk that Pending
Acquisitions Will Not Close." The following table sets forth certain data
regarding the Pending Acquisitions:

<TABLE>
<CAPTION>
TOTAL
APPROXIMATE PERCENT ACQUISITION
NET RENTABLE LEASED AT COST(1)
PROPERTY NAME LOCATION SQUARE FEET MAY 1, 1997 (MILLIONS)
- ---------------------------------------------------------- ------------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
1100 Glendon.............................................. Los Angeles 282,013 50%(2) $ 49.9
Carlsberg Corporate Center................................ Santa Monica 103,506 87% 11.8
299 Euclid................................................ Pasadena 73,400 0% 8.1
Harbor Corporate Center................................... Gardena 63,925 77% 4.5
Pacific Gateway II........................................ Torrance 223,731 92% 25.2
Mariner Court............................................. Torrance 105,436 87% 11.8
Crown Cabot............................................... Laguna Niguel 172,900 93% 28.3
1821 Dyer................................................. Irvine 115,061 100% 7.7
1000 Town Center.......................................... Oxnard 107,653 100% 14.1
------------ --- ------
Total/Weighted Average................................ 1,247,625 77% $ 161.4
------------ ------
------------ ------
</TABLE>

- ------------------------------

(1) "Total Acquisition Cost" includes all purchase costs, anticipated closing
costs and anticipated capital expenditures for, and carrying costs during,
renovations.

(2) Renovations are currently scheduled for 1100 Glendon.

CREDIT FACILITIES

On June 11, 1997, the Company amended its then existing credit facility with
a $300 million unsecured line of credit (the "Credit Facility") from a group of
banks led by Wells Fargo (the "Lenders"). The interest rate of the Credit
Facility ranges between LIBOR plus 1.2% and LIBOR plus 1.45% depending on the
leverage ratio of the Company. Once the Company achieves a long-term, unsecured,
investment grade debt rating, the interest rate may be lowered to between LIBOR
plus 0.9% and LIBOR plus 1.15% depending on such debt rating. As of June 24,
1997, approximately $14.0 million was available under the Credit Facility. Upon
consummation of the Offering and the Pending Acquisitions, the Company expects
to have $170 million available under the Credit Facility. The Credit Facility
has been and will be used, among other things, to finance the acquisition of
properties, provide funds for tenant improvements and capital expenditures and
provide for working capital and other corporate purposes.

Pursuant to a separate agreement, Wells Fargo has advanced $26 million to
the Company which is secured by two Properties. This advance accrues interest at
the Wells Fargo Prime Rate and is scheduled to mature on July 10, 1997. Upon
receipt of the Lenders' consent to add the two Properties which currently secure
this advance to the Credit Facility's unencumbered pool of properties, the
Company will draw down $26 million from the Credit Facility to repay the
advance.

The Company also has an unsecured line of credit with a total commitment of
$10,000,000 from City National Bank (the "CNB Credit Facility"). On June 15,
1997, the aggregate outstanding balance was $10,000,000. The CNB Credit Facility
accrues interest at the City National Bank Prime Rate less 0.875% and is
scheduled to mature on August 1, 1998. The CNB Credit Facility has and will be
used, among other things, to provide funds for tenant improvements and capital
expenditures and provide for working capital and other corporate purposes.

5
<PAGE>
MORTGAGE FINANCING

On June 11, 1997, the Company refinanced its existing $175 million mortgage
financing with a new $175 million mortgage financing (the "Mortgage Financing")
from an affiliate of Lehman Brothers. The Mortgage Financing is non-recourse and
secured by fully cross-collateralized and cross-defaulted first mortgage liens
on 18 of the Properties (collectively, the "Mortgage Financing Properties"), all
of which are held by a special purpose subsidiary of the Company. The Mortgage
Financing bears interest at a fixed rate of 7.52%, is anticipated to be repaid
in seven years and requires monthly payments of interest only with all principal
due in a balloon payment at maturity.

BUSINESS AND GROWTH STRATEGIES

The Company's primary business objectives are to maximize growth in cash
flow and to enhance the value of its portfolio in order to maximize total return
to its stockholders. The Company believes it can achieve these objectives by
continuing to implement its business strategies and by capitalizing on external
and internal growth opportunities. The Company's primary business strategies are
to actively manage its portfolio and to acquire and renovate underperforming
office properties or properties which provide attractive yields with stable cash
flow in submarkets where it can utilize its local market expertise and extensive
real estate experience. When market conditions permit, the Company may also
develop new properties in submarkets where it has local market expertise.

Based on its own historical activities and its knowledge of the local
marketplace, the Company believes that opportunities continue to exist to
acquire additional office properties that: (i) provide attractive initial yields
with significant potential for growth in cash flow; (ii) are in desirable
locations within submarkets which the Company believes have economic growth
potential; and (iii) are underperforming or need renovation, and which therefore
provide opportunities for the Company to increase such properties' cash flow and
value through active management and aggressive leasing.

The Company believes that all of the Properties are located in strong
submarkets which generally have significant rent growth potential due to
employment growth, declining vacancy rates, limited new construction and
existing rental rates at levels below those required to make new construction
economically feasible. The Company also believes, based upon its evaluation of
market conditions, that certain economic fundamentals are present in Southern
California which enhance its ability to achieve its business objectives by
providing an attractive environment for owning, acquiring and operating suburban
office properties. Specifically, the Company believes that the limited
construction of new office properties in the Southern California region since
1992 coupled with an improving Southern California economy will continue to
result in increased demand for office space and positive net absorption in the
Southern California region, and particularly in the selected submarkets where
most of the Properties are located.

The Company believes it has certain competitive advantages which enhance its
ability to identify and capitalize on acquisition opportunities, including: (i)
management's significant local market expertise, experience and knowledge of
properties, submarkets and potential tenants within the Southern California
region; (ii) management's long-standing relationships with tenants, real estate
brokers and institutional and other owners of commercial real estate; (iii) its
fully integrated real estate operations which allow the Company to respond
quickly to acquisition opportunities; (iv) its access to capital as a public
company; (v) its ability to acquire properties in exchange for OP Units or
Common Stock if the sellers so desire; and (vi) management's reputation as an
experienced purchaser of office properties in Southern California which has the
ability to effectively close transactions.

The Company also may seek to take advantage of management's development
expertise to develop office space when market conditions support office building
development. The Company, however, currently intends to focus primarily on
acquisitions rather than development given its belief that opportunities to
acquire office properties at less than replacement cost continue to exist within
selected submarkets in Southern California.

6
<PAGE>
The Company believes that opportunities exist to increase cash flow from its
existing portfolio and that such opportunities will be enhanced as the Southern
California office market continues to improve. The Company intends to pursue
internal growth by: (i) continuing to maintain and improve occupancy rates
through active management and aggressive leasing; (ii) realizing fixed
contractual base rental increases or increases tied to indices such as the
Consumer Price Index (the "CPI"); (iii) re-leasing expiring leases at increasing
market rents which are expected to result over time from increased demand for
office space in Southern California; (iv) controlling operating expenses through
the implementation of cost control management and systems; (v) capitalizing on
economies of scale arising from the size of its portfolio; and (vi) increasing
revenue generated from parking facilities at certain Properties where the
Company is currently offering free parking as an amenity or charging below
market rates.

THE PROPERTIES

Management believes that the location and quality of construction of the
Properties, as well as the Company's reputation for providing a high level of
tenant service, have enabled the Company to attract and retain a diverse tenant
base. As of May 1, 1997, the Properties were 85.8% leased to over 1,200 tenants.
In addition, no single tenant accounted for more than approximately 2.1% of the
aggregate Annualized Base Rent (defined as the monthly contractual base rent
under existing leases as of May 1, 1997 multiplied by 12) of the Properties and
only ten tenants individually represented more than 1.0% of such aggregate
Annualized Base Rent.

As of June 15, 1997, the Company had executed eight contracts and entered
into one letter of intent to acquire the nine Pending Acquisitions. Upon closing
of the Pending Acquisitions the Company will own a total of 54 office properties
consisting of approximately 8.6 million rentable square feet; although there can
be no assurance that any of the Pending Acquisitions will be completed. See
"Risk Factors--Risk that Pending Acquisitions Will Not Close." As of May 1,
1997, the Pending Acquisitions were approximately 77.1% leased.

7
<PAGE>
The following table sets forth certain information regarding the Properties
and the Pending Acquisitions as of May 1, 1997:
<TABLE>
<CAPTION>
YEAR(S)
BUILT/ NO. OF
PROPERTY NAME SUBMARKET LOCATION RENOVATED BLDGS
- ----------------------------------- ---------------------------------- ------------------ ------------- -----------
<S> <C> <C> <C> <C>
INITIAL PROPERTIES
LOS ANGELES COUNTY
LOS ANGELES WEST
9665 Wilshire Beverly Hills/Century City Beverly Hills 1972/92-93 1
Beverly Atrium Beverly Hills/Century City Beverly Hills 1989 1
Century Park Center Beverly Hills/Century City Los Angeles 1972/94 1
Westwood Terrace Westwood/West Los Angeles Los Angeles 1988 1
1950 Sawtelle Westwood/West Los Angeles Los Angeles 1988/95 1
400 Corporate Pointe Marina Area/Culver City/LAX Culver City 1987 1
Bristol Plaza Marina Area/Culver City/LAX Culver City 1982 1
Skyview Center Marina Area/Culver City/LAX Los Angeles 1981,87/95 2
The New Wilshire Park Mile/West Hollywood Los Angeles 1986 1
LOS ANGELES NORTH
5601 Lindero Canyon Simi/Conejo Valley Westlake 1989 1
Calabasas Commerce Center Simi/Conejo Valley Calabasas 1990 4
Woodland Hills Financial Center West San Fernando Valley Woodland Hills 1972/95 2
16000 Ventura Central San Fernando Valley Encino 1980/96 1
425 Broadway East San Fernando Glendale 1984 1
Valley/Tri-Cities
303 Glenoaks East San Fernando Burbank 1983/96 1
Valley/Tri-Cities
70 South Lake East San Fernando Pasadena 1982/94 1
Valley/Tri-Cities
LOS ANGELES SOUTH
4811 Airport Plaza Long Beach Long Beach 1987/95 1
4900/10 Airport Plaza Long Beach Long Beach 1987/95 1
5000 Spring Long Beach Long Beach 1989/95 1
100 West Broadway Long Beach Long Beach 1987/96 1
12501 East Imperial Highway Norwalk/Cerritos Norwalk 1978/94 1
ORANGE COUNTY
5832 Bolsa West County Huntington Beach 1985 1
Anaheim City Centre Tri-Freeway Area Anaheim 1986/91 1
SAN DIEGO COUNTY
Imperial Bank Tower Central City San Diego 1982/96 1
--
Subtotal/Weighted Average--Initial Properties 29
--

ACQUIRED PROPERTIES
LOS ANGELES COUNTY
LOS ANGELES WEST
10350 Santa Monica Beverly Hills/Century City Los Angeles 1979 1
10351 Santa Monica Beverly Hills/Century City Los Angeles 1984 1
8383 Wilshire Beverly Hills/Century City Beverly Hills 1971/93 1
2730 Wilshire(1) Westwood/West Los Angeles Santa Monica 1985 1
10780 Santa Monica Westwood/West Los Angeles Los Angeles 1984 1
5200 West Century Marina Area/Culver City/LAX Los Angeles 1982 1

<CAPTION>
PERCENTAGE
OF TOTAL
APPROXIMATE PORTFOLIO PERCENT
NET RENTABLE NET RENTABLE LEASED AS OF
PROPERTY NAME SQUARE FEET SQUARE FEET MAY 1, 1997
- ----------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
INITIAL PROPERTIES
LOS ANGELES COUNTY
LOS ANGELES WEST
9665 Wilshire 158,684 1.8% 99.6%
Beverly Atrium 61,314 0.7% 85.0%
Century Park Center 243,404 2.8% 89.4%
Westwood Terrace 135,943 1.6% 95.0%
1950 Sawtelle 103,772 1.2% 88.3%
400 Corporate Pointe 164,598 1.9% 100.0%
Bristol Plaza 84,014 1.0% 88.1%
Skyview Center 391,675 4.5% 88.9%
The New Wilshire 202,704 2.4% 86.9%
LOS ANGELES NORTH
5601 Lindero Canyon 105,830 1.2% 100.0%
Calabasas Commerce Center 123,121 1.4% 97.7%
Woodland Hills Financial Center 224,955 2.6% 89.7%
16000 Ventura 174,841 2.0% 88.1%
425 Broadway 71,589 0.8% 97.6%

303 Glenoaks 175,449 2.0% 97.7%

70 South Lake 100,133 1.2% 91.9%

LOS ANGELES SOUTH
4811 Airport Plaza 121,610 1.4% 100.0%
4900/10 Airport Plaza 150,403 1.8% 100.0%
5000 Spring 163,358 1.9% 93.5%
100 West Broadway 191,727 2.2% 94.5%
12501 East Imperial Highway 122,175 1.4% 96.1%
ORANGE COUNTY
5832 Bolsa 49,355 0.6% 100.0%
Anaheim City Centre 175,391 2.0% 94.7%
SAN DIEGO COUNTY
Imperial Bank Tower 540,413 6.3% 82.1%

------------- ------------- -------------
Subtotal/Weighted Average--In 4,036,458 46.7% 91.9%

------------- ------------- -------------
ACQUIRED PROPERTIES
LOS ANGELES COUNTY
LOS ANGELES WEST
10350 Santa Monica 42,292 0.5% 93.1%
10351 Santa Monica 96,251 1.1% 97.8%
8383 Wilshire 417,463 4.8% 76.8%
2730 Wilshire(1) 55,080 0.6% 97.5%
10780 Santa Monica 92,486 1.1% 84.1%
5200 West Century 310,910 3.6% 30.1%
</TABLE>

8
<PAGE>
<TABLE>
<CAPTION>
YEAR(S)
BUILT/ NO. OF
PROPERTY NAME SUBMARKET LOCATION RENOVATED BLDGS
- ----------------------------------- ---------------------------------- ------------------ ------------- -----------
<S> <C> <C> <C> <C>
LOS ANGELES NORTH
6800 Owensmouth West San Fernando Valley Canoga Park 1986 1
Clarendon Crest West San Fernando Valley Woodland Hills 1990 1
Sumitomo Bank Building Central San Fernando Valley Sherman Oaks 1970/90-91 1
Noble Professional Center Central San Fernando Valley Sherman Oaks 1985/93 1
Burbank Executive Plaza East San Fernando Burbank 1983 1
Valley/Tri-Cities
California Federal Building East San Fernando Burbank 1978 1
Valley/Tri-Cities
535 Brand East San Fernando Glendale 1973/92 1
Valley/Tri-Cities
LOS ANGELES SOUTH
Grand Avenue Plaza El Segundo El Segundo 1979,80 2
South Bay Centre Torrance Gardena 1984 1
LOS ANGELES CENTRAL
Los Angeles Corporate Center San Gabriel Valley Monterey Park 1984,86 4
Whittier Financial Center San Gabriel Valley Whittier 1967,82 2
ORANGE COUNTY
Centerpointe La Palma North County La Palma 1986,88,90 12
VENTURA COUNTY
Center Promenade West County Ventura 1982 7
KERN COUNTY
Parkway Center Bakersfield Bakersfield 1992,95 2
California Twin Centre Bakersfield Bakersfield 1983 1
--
Subtotal/Weighted Average--Acquired Properties 44
--

PENDING ACQUISITIONS
LOS ANGELES COUNTY
LOS ANGELES WEST
1100 Glendon Westwood/West Los Angeles Los Angeles 1965 1
Carlsberg Corporate Center Westwood/West Los Angeles Santa Monica 1979 1
LOS ANGELES NORTH
299 Euclid East San Fernando Pasadena 1983 1
Valley/Tri-Cities
LOS ANGELES SOUTH
Harbor Corporate Center Torrance Gardena 1985 1
Pacific Gateway II Torrance Torrance 1982/90 1
Mariner Court Torrance Torrance 1989 1
ORANGE COUNTY
Crown Cabot South County Laguna Niguel 1989 1
1821 Dyer Greater Airport Area Irvine 1980/88 1
VENTURA COUNTY
1000 Town Center West County Oxnard 1989 1
--
Subtotal/Weighted Average--Pending Acquisitions 9
--

Total/Weighted Average--All Properties and Pending Acquisitions 82
--
--

<CAPTION>
PERCENTAGE
OF TOTAL
APPROXIMATE PORTFOLIO PERCENT
NET RENTABLE NET RENTABLE LEASED AS OF
PROPERTY NAME SQUARE FEET SQUARE FEET MAY 1, 1997
- ----------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
LOS ANGELES NORTH
6800 Owensmouth 80,014 0.9% 84.9%
Clarendon Crest 43,063 0.5% 84.7%
Sumitomo Bank Building 110,641 1.3% 92.2%
Noble Professional Center 51,828 0.6% 80.5%
Burbank Executive Plaza 60,395 0.7% 73.8%

California Federal Building 82,467 1.0% 97.0%

535 Brand 109,187 1.3% 51.0%

LOS ANGELES SOUTH
Grand Avenue Plaza 84,500 1.0% 61.5%
South Bay Centre 202,830 2.4% 85.8%
LOS ANGELES CENTRAL
Los Angeles Corporate Center 389,293 4.5% 84.9%
Whittier Financial Center 135,415 1.6% 85.2%
ORANGE COUNTY
Centerpointe La Palma 597,550 6.9% 88.2%
VENTURA COUNTY
Center Promenade 174,837 2.0% 73.7%
KERN COUNTY
Parkway Center 61,333 0.7% 99.5%
California Twin Centre 155,189 1.8% 88.5%

------------- ------------- -------------
Subtotal/Weighted Average--Ac 3,353,024 38.9% 78.6%

------------- ------------- -------------
PENDING ACQUISITIONS
LOS ANGELES COUNTY
LOS ANGELES WEST
1100 Glendon 282,013 3.3% 49.7%
Carlsberg Corporate Center 103,506 1.2% 87.3%
LOS ANGELES NORTH
299 Euclid 73,400 0.8% 0.0%

LOS ANGELES SOUTH
Harbor Corporate Center 63,925 0.7% 77.4%
Pacific Gateway II 223,731 2.6% 92.4%
Mariner Court 105,436 1.2% 86.7%
ORANGE COUNTY
Crown Cabot 172,900 2.0% 93.3%
1821 Dyer 115,061 1.3% 100.0%
VENTURA COUNTY
1000 Town Center 107,653 1.3% 100.0%

------------- ------------- -------------
Subtotal/Weighted Average--Pe 1,247,625 14.4% 77.1%

------------- ------------- -------------
Total/Weighted Average--All P 8,637,107 100.0% 84.6%

------------- -------------
------------- -------------
</TABLE>

- ------------------------------

(1) Above amounts for 2730 Wilshire exclude the 100%-occupied, 12,740 square
foot, 16-unit apartment complex which is also owned by the Company.

9
<PAGE>
THE OFFERING

All of the shares of Common Stock offered hereby are being sold by the
Company.

<TABLE>
<S> <C>
Common Stock Offered by the Company.... 10,000,000 shares

Common Stock Outstanding After the
Offering(1).......................... 31,692,833 shares

Use of Proceeds........................ Purchase of the Pending Acquisitions, repayment of
a portion of the Credit Facility, and working
capital. See "Use of Proceeds," "Capitalization,"
and "Management's Discussion and Analysis of
Financial Condition and Results of
Operations--Liquidity and Capital Resources."

New York Stock Exchange Symbol......... "ARI"
</TABLE>

- ------------------------------

(1) Includes shares of Common Stock to be issued in the Offering, 5,000 shares
issued in 1996 to employees of the Company as a stock bonus and 13,333
shares issued upon the exercise of options granted under the Company's Stock
Incentive Plan. See "Management--Executive Compensation." Does not include
(i) 2,971,756 shares of Common Stock that may be issued upon the exchange of
OP Units which are issued and outstanding, (ii) 1,500,000 shares of Common
Stock subject to the Underwriters' overallotment option and (iii) 890,000
shares of Common Stock subject to options granted under the Company's Stock
Incentive Plan. If all OP Units were exchanged for Common Stock, there would
be 34,664,589 shares of Common Stock outstanding after the Offering.

DISTRIBUTIONS

The Company currently pays regular quarterly distributions to its
stockholders. The first distribution, for the period from the closing of the IPO
through December 31, 1996, was $.36 per share, which is equivalent to a
quarterly distribution of $.40 per share and an annual distribution of $1.60 per
share. On March 31, 1997, the Company declared a distribution of $.40 per share
for the first quarter of 1997 payable on May 15, 1997 to stockholders of record
on April 30, 1997. Future distributions by the Company will be at the discretion
of the Board of Directors and will depend on the actual cash available for
distribution, its financial condition, capital requirements, the annual
distribution requirements under the REIT provisions of the Code (see "Federal
Income Tax Considerations--Taxation of the Company"), economic conditions and
such other factors as the Board of Directors deems relevant. See "Risk
Factors--Changes in Policies Without Stockholder Approval." Distributions by the
Company to the extent of its current and accumulated earnings and profits for
federal income tax purposes generally will be taxable to stockholders as
ordinary income. Distributions in excess of current and accumulated earnings and
profits will be treated as a non-taxable reduction of the stockholder's basis in
its shares of Common Stock to the extent thereof, and thereafter as taxable
gain. Distributions that are treated as a reduction of the stockholder's basis
in its shares of Common Stock will have the effect of deferring taxation until
the sale of the stockholder's shares. The Company has determined that, for
federal income tax purposes, approximately $.28 (or approximately 78%) of the
$.36 per share distribution paid for the partial fourth quarter of 1996
represented ordinary dividend income to stockholders. The Company believes that,
in the future, the portion of the distribution representing ordinary dividend
income will be higher and no assurances can be given regarding what percent of
future dividends will constitute return of capital for federal income tax
purposes.

10
<PAGE>
TAX STATUS OF THE COMPANY

The Company has operated and intends to continue to operate so as to
continue to qualify, and will elect, to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with its short taxable year ending December
31, 1996. The Company believes its organization and proposed method of operation
will enable it to continue to meet the requirements for qualification as a REIT.
To maintain REIT status, an entity must meet a number of organizational and
operational requirements, including a requirement that it currently distribute
at least 95% of its REIT taxable income (computed without regard to the
Company's net capital gain and dividends paid deduction) to its stockholders. As
a REIT, the Company generally will not be subject to federal income tax on net
income it distributes currently to its stockholders. If the Company fails to
qualify as a REIT in any taxable year, it will be subject to federal income tax
at regular corporate rates. See "Federal Income Tax Considerations" and "Risk
Factors-- Potential Adverse Tax Consequences of Failure to Qualify as a REIT;
Other Tax Liabilities." Even if the Company qualifies for taxation as a REIT,
the Company may be subject to certain federal, state and local taxes on its
income and property.

SUMMARY SELECTED FINANCIAL DATA

The following table sets forth (i) summary selected consolidated historical
financial data for the Company as of and for the three months ended March 31,
1997, as of December 31, 1996 and for the period October 9, 1996 (the date of
the Company's commencement of operations as a public REIT) to December 31, 1996,
(ii) summary selected combined historical financial data for the Arden
Predecessors as of December 31, 1995, for the period January 1, 1996 to October
8, 1996, for the three months ended March 31, 1996, and for each of the two
years in the period ended December 31, 1995, and (iii) summary selected pro
forma consolidated financial data for the Company as of and for the three months
ended March 31, 1997 and for the year ended December 31, 1996.

The summary selected consolidated historical operating and balance sheet
data of the Company as of December 31, 1996 and for the period from October 9,
1996 (the date of the Company's commencement of operations as a public REIT) to
December 31, 1996 and the summary selected combined historical operating and
balance sheet data of the Arden Predecessors as of December 31, 1995 and for the
period January 1, 1996 to October 8, 1996 and for each of the two years in the
period ended December 31, 1995 have been derived from the respective historical
consolidated and combined financial statements audited by Ernst & Young LLP,
whose reports with respect thereto are included elsewhere in this Prospectus.
The following data should be read in conjunction with (i) the pro forma
condensed consolidated financial statements and notes thereto of the Company;
(ii) the historical consolidated and combined financial statements and notes
thereto for the Company and the Arden Predecessors; and (iii) "Management's
Discussion and Analysis of Financial Condition and Results of Operations," each
included elsewhere in this Prospectus.

The summary selected pro forma consolidated financial operating data for the
three months ended March 31, 1997 and the year ended December 31, 1996 is
presented as if the IPO, the Formation Transactions, the closings of the
Mortgage Financing and the Credit Facility, the acquisition of the Properties
acquired in 1996 prior to the consummation of the IPO, 303 Glenoaks and 12501
East Imperial Highway, the Properties acquired in 1996 subsequent to the IPO,
the Properties acquired in 1997, the completion of the Offering, and the
acquisition of the Pending Acquisitions had occurred at January 1, 1996 for the
statements of operations. The selected pro forma balance sheet data as of March
31, 1997 is presented as if the completion of the Offering, the closings of the
Mortgage Financing and the Credit Facility, the acquisition of the properties
acquired subsequent to March 31, 1997 and the acquisition of the Pending
Acquisitions had occurred on March 31, 1997. The summary selected pro forma
consolidated data is based upon certain assumptions that are included in the
notes to the pro forma condensed consolidated financial statements included
elsewhere in this Prospectus. The selected pro forma consolidated financial data
is not necessarily indicative of what the financial position and results of
operations of the Company would have been as of the dates and for the periods
indicated, nor does it purport to represent or project the financial position
and results of operations for future periods.

11
<PAGE>

<TABLE>
<CAPTION>
ARDEN
COMPANY PREDECESSORS COMPANY
------------------------ ------------- -------------------------- ARDEN PREDECESSORS HISTORICAL
---------------------------------
THREE MONTHS THREE MONTHS YEAR ENDED OCT. 9, 1996 JAN. 1,
ENDED ENDED DEC. 31, TO 1996 YEARS ENDED
MAR. 31, 1997 MAR. 31, 1996 1996 DEC. 31, 1996 TO DECEMBER 31,
------------------------ ------------- ----------- ------------- OCT. 8, --------------------
PRO FORMA HISTORICAL HISTORICAL PRO FORMA HISTORICAL 1996 1995 1994
----------- ----------- ------------- ----------- ------------- ----------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
REVENUE:
Rental................. $ 33,444 $ 21,892 $ 8,607 $ 132,211 $ 17,041 $ 32,287 $ 8,832 $ 5,157
Tenant
reimbursements....... 1,367 958 638 5,643 803 2,031 403 217
Parking, net of
expenses............. 1,941 1,490 879 8,663 1,215 3,692 751 382
Other.................. 723 630 695 3,354 513 2,455 1,707 796
----------- ----------- ------------- ----------- ------------- ----------- --------- ---------
Total revenue........ 37,475 24,970 10,819 149,871 19,572 40,465 11,693 6,552
----------- ----------- ------------- ----------- ------------- ----------- --------- ---------
EXPENSES:
Property expenses...... 12,189 7,894 3,615 55,780 6,005 14,224 3,340 2,191
General and
administrative....... 1,000 918 364 4,000 753 1,758 1,377 689
Interest............... 5,359 3,024 6,662 21,436 1,280 24,521 5,537 1,673
Depreciation and
amortization......... 5,520 3,562 1,582 21,721 3,108 5,264 1,898 1,143
----------- ----------- ------------- ----------- ------------- ----------- --------- ---------
Total expenses....... 24,068 15,398 12,223 102,937 11,146 45,767 12,152 5,696
----------- ----------- ------------- ----------- ------------- ----------- --------- ---------
Equity in net (loss)
income of noncombined
entities............... -- -- (84) -- -- (336) (116) 201
----------- ----------- ------------- ----------- ------------- ----------- --------- ---------
Income (loss) before
minority interests and
extraordinary items.... 13,407 9,572 (1,488) 46,934 8,426 (5,638) (575) 1,057
Minority interests' share
of loss (income) of
Arden Predecessors..... -- -- 187 -- -- 721 (1) 1
Minority interests in
Operating
Partnership............ (1,140) (1,134) -- (3,989) (993) -- -- --
----------- ----------- ------------- ----------- ------------- ----------- --------- ---------
Income (loss) before
extraordinary items.... 12,267 8,438 (1,301) 42,945 7,433 (4,917) (576) 1,058
Extraordinary (loss) gain
on early extinguishment
of debt, net of
minority interests'
share.................. -- -- -- -- (13,105) 1,877 -- --
----------- ----------- ------------- ----------- ------------- ----------- --------- ---------
Net income (loss)........ $ 12,267 $ 8,438 $ (1,301) $ 42,945 $ (5,672) $ (3,040) $ (576) $ 1,058
----------- ----------- ------------- ----------- ------------- ----------- --------- ---------
----------- ----------- ------------- ----------- ------------- ----------- --------- ---------
Weighted average number
of shares
outstanding............ 31,921 21,921 31,680 21,680
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Net income (loss) per
common share:
Income before
extraordinary item... $ 0.38 $ 0.38 $ 1.36 $ 0.34
Extraordinary
item--loss on early
extinguishment of
debt................. -- -- -- (0.60)
----------- ----------- ----------- -------------
Net income (loss) per
common share........... $ 0.38 $ 0.38 $ 1.36 $ (0.26)
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Cash dividends declared
per common share....... $ -- $ 0.40 $ -- $ 0.36
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Supplemental net income
(loss) per share
reflecting the pro
forma effects solely of
the Offering and
repayment of debt(1)... $ 0.36 $ (0.21)
----------- -------------
----------- -------------
Pro forma net income per
share reflecting the
pro forma effects of
solely the Offering and
the purchase of the
Pending
Acquisitions(2)........ $ 0.39 $ 0.01
----------- -----------
----------- -----------
</TABLE>

12
<PAGE>

<TABLE>
<CAPTION>
COMPANY ARDEN
--------------------------------------- PREDECESSORS
HISTORICAL
MARCH 31, 1997 -------------
------------------------ DECEMBER 31, DECEMBER 31,
PRO FORMA HISTORICAL 1996 1995
----------- ----------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Commercial office properties--net of accumulated
depreciation............................................... $ 908,716 $ 580,636 $ 529,568 $ 160,874
Total assets................................................. 933,468 599,338 551,256 182,379
Mortgage loans payable and unsecured lines of credit......... 285,286 197,800 155,000 168,451
Total liabilities............................................ 307,164 219,678 173,612 174,163
Minority interests........................................... 47,563 47,563 45,667 100
Total Stockholders' equity/Owners' equity.................... 578,741 332,097 331,977 8,116
</TABLE>
<TABLE>
<CAPTION>
ARDEN
COMPANY PREDECESSORS COMPANY
------------------------ -------------- ----------------------------
THREE MONTHS THREE MONTHS YEAR OCT. 9, 1996
ENDED ENDED ENDED TO
MAR. 31, 1997 MAR. 31, 1996 DEC. 31, 1996 DEC. 31, 1996
------------------------ -------------- ------------- -------------
PRO FORMA HISTORICAL HISTORICAL PRO FORMA HISTORICAL
----------- ----------- -------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations(3):
Income (loss) before minority interests and
extraordinary items............................... $ 13,407 $ 9,572 $ (1,488) $ 46,934 $ 8,426
Depreciation and amortization....................... 5,520 3,562 1,582 21,721 3,108
----------- ----------- -------------- ------------- -------------
Funds from Operations............................... 18,927 13,134 94 68,655 11,534
Company's share percentage............................ 91.5% 88.2% -- 91.5% 88.2%
----------- ----------- -------------- ------------- -------------
Company's share of Funds from Operations.............. $ 17,318 $ 11,584 $ 94 $ 62,819 $ 10,173
----------- ----------- -------------- ------------- -------------
----------- ----------- -------------- ------------- -------------
Weighted average number of shares outstanding (in
thousands).......................................... 31,921 21,921 N/A 31,680 21,680
Cash flows from operating activities.................. -- 12,645 2,031 -- 8,665
Cash flows from investing activities.................. -- (53,677) (95,157) -- (164,763)
Cash flows from financing activities.................. -- 34,222 93,421 -- 163,730
Number of Properties owned at period end.............. 54 38 21 54 34
Gross rentable square feet of Properties owned at end
of period (in thousands)............................ 8,637 5,923 3,547 8,637 5,443
Leased percentage for Properties owned at end of
period.............................................. -- 85% 88% -- 85%

ARDEN PREDECESSORS HISTORICAL
------------------------------------
YEARS ENDED
JAN. 1, 1996 DECEMBER 31,
TO ----------------------
OCT. 8, 1996 1995 1994
------------ ---------- ----------

<S> <C> <C> <C>
OTHER DATA:
Funds from Operations(3):
Income (loss) before minority interests and
extraordinary items............................... $ (5,638) $ (575) $ 1,057
Depreciation and amortization....................... 5,264 1,898 1,143
------------ ---------- ----------
Funds from Operations............................... (374) 1,323 2,200
Company's share percentage............................ -- -- --
------------ ---------- ----------
Company's share of Funds from Operations.............. $ (374) $ 1,323 $ 2,200
------------ ---------- ----------
------------ ---------- ----------
Weighted average number of shares outstanding (in
thousands).......................................... N/A N/A N/A
Cash flows from operating activities.................. 5,221 2,830 834
Cash flows from investing activities.................. (119,083) (123,358) (17,921)
Cash flows from financing activities.................. 122,074 120,707 16,845
Number of Properties owned at period end.............. 22 17 8
Gross rentable square feet of Properties owned at end
of period (in thousands)............................ 3,739 2,634 1,130
Leased percentage for Properties owned at end of
period.............................................. 88% 88% 82%
</TABLE>

- ----------------------------------
(1) The following table sets forth the pro forma effects solely of the Offering
and repayment of debt (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1997
---------------
<S> <C> <C>
Historical net income (loss).................................................................................... $ 8,438
Pro forma decrease in interest expense associated with the repayment of debt outstanding at beginning of
period......................................................................................................... 1,042
---------------
Net income (loss) adjusted for repayment of debt................................................................ $ 9,480
---------------
---------------
Common Stock outstanding on a historical basis.................................................................. 21,921
Common Stock issued in the Offering for repayment of debt....................................................... 4,108
---------------
Common Stock outstanding--pro forma............................................................................. $ 26,029
---------------
---------------
Net income (loss) per share reflecting the pro forma effect of the repayment of debt............................ $ 0.36
---------------
---------------

<CAPTION>
OCTOBER 9, 1996

DECEMBER 31, 1996

------------------

<S> <C>
Historical net income (loss).................................................................................... $ (5,672)

Pro forma decrease in interest expense associated with the repayment of debt outstanding at beginning of
period......................................................................................................... 160

------------------

Net income (loss) adjusted for repayment of debt................................................................ $ (5,512)

------------------

Common Stock outstanding on a historical basis.................................................................. 21,680

Common Stock issued in the Offering for repayment of debt....................................................... 4,108

------------------

Common Stock outstanding--pro forma............................................................................. $ 25,788

------------------

Net income (loss) per share reflecting the pro forma effect of the repayment of debt............................ $ (0.21)

------------------

</TABLE>

13
<PAGE>
(2) The following table sets forth the pro forma effects of solely the Offering
and the purchase of the Pending Acquisitions (in thousands, except per share
data):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1997
---------------
<S> <C> <C>
Historical net income (loss).................................................................................... $ 8,438
Arden Predecessors combined net loss............................................................................ --
Pro forma net income of the Pending Acquisitions................................................................ 2,225
---------------
Pro forma net income of the Company and Pending Acquisitions.................................................... $ 10,663
---------------
---------------
Common Stock outstanding on a historical basis.................................................................. 21,921
Common Stock issued in the Offering to purchase the Pending Acquisitions........................................ 5,574
---------------
Common Stock outstanding-pro forma.............................................................................. $ 27,495
---------------
---------------
Net income per share reflecting the pro forma effects of the Offering and purchase of the Pending
Acquisitions................................................................................................... $ 0.39
---------------
---------------

YEAR ENDED

DECEMBER 31, 1996

------------------

<S> <C>
Historical net income (loss).................................................................................... $ (5,672)

Arden Predecessors combined net loss............................................................................ (3,040)

Pro forma net income of the Pending Acquisitions................................................................ 9,051

------------------

Pro forma net income of the Company and Pending Acquisitions.................................................... $ 339

------------------

Common Stock outstanding on a historical basis.................................................................. 21,680

Common Stock issued in the Offering to purchase the Pending Acquisitions........................................ 5,574

------------------

Common Stock outstanding-pro forma.............................................................................. $ 27,254

------------------

Net income per share reflecting the pro forma effects of the Offering and purchase of the Pending
Acquisitions................................................................................................... $ 0.01

------------------

</TABLE>

(3) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 (the "White Paper") defines Funds from Operations as net income
(loss) (computed in accordance with GAAP), excluding gains (or losses) from
debt restructuring and sales of property, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Management believes Funds from Operations
is helpful to investors as a measure of the performance of an equity REIT
because, along with cash flows from operating activities, financing
activities and investing activities, it provides investors with an
understanding of the ability of the Company to incur service debt and make
capital expenditures and fund other cash needs. The Company computes Funds
from Operations in accordance with standards established by the White Paper,
which may differ from the methodology for calculating Funds from Operations
utilized by other equity REITs and, accordingly, may not be comparable to
such other REITs. Further, Funds from Operations does not represent amounts
available for management's discretionary use because of needed capital
replacement or expansion, debt service obligations, or other commitments and
uncertainties. See the notes to the Company's historical financial
statements. Funds from Operations should not be considered as an alternative
to net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flows from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make distributions.

14
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE COMMON STOCK INVOLVES VARIOUS RISKS. PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION IN CONJUNCTION
WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE MAKING A DECISION
TO PURCHASE SHARES OF COMMON STOCK IN THE OFFERING.

REAL ESTATE FINANCING RISKS

INABILITY TO REPAY OR REFINANCE INDEBTEDNESS AT MATURITY. The Company will
be subject to risks normally associated with debt financing, including the risk
that the Company's cash flow will be insufficient to meet required payments of
principal and interest, the risk that any indebtedness will not be able to be
refinanced or that the terms of any such refinancing will not be as favorable as
the terms of such current indebtedness. Upon the closings of the Offering and
the Pending Acquisitions, the Company expects to have outstanding indebtedness
of approximately $285.3 million, of which $175 million will be secured by 18 of
the Properties and is anticipated to be repaid by June 10, 2004, and
approximately $110.3 million of which will be unsecured and will mature on due
June 1, 2000. If the Company's indebtedness cannot be refinanced at maturity,
extended or paid with proceeds of other capital transactions, such as the
issuance of new equity capital, the Company expects that its cash flow will not
be sufficient in all years to pay distributions at expected levels and to repay
all maturing debt. Furthermore, if prevailing interest rates or other factors at
the time of refinancing result in higher interest rates, the interest expense
relating to such refinanced indebtedness would increase, adversely affecting the
Company's cash flow and the amounts available for distributions to its
stockholders.

RISK OF FAILURE TO COVER DEBT SERVICE OF CURRENT COLLATERALIZED DEBT UNDER
THE MORTGAGE FINANCING. The Company, through a special purpose entity, has
outstanding the Mortgage Financing in the principal amount of $175 million. The
payment and other obligations under the Mortgage Financing are secured by fully
cross-collateralized and cross-defaulted first mortgage liens on the 18 Mortgage
Financing Properties and $4 million in cash collateral. The Mortgage Financing
requires monthly payments of interest only, with all principal anticipated to be
repaid on the seventh anniversary of the Mortgage Financing. If the Mortgage
Financing is not repaid or refinanced within seven years, the interest rate
increases by at least 2% and all excess cash flow from the Mortgage Financing
Properties must be used to pay down principal. If the Company is unable to meet
its obligations under the Mortgage Financing, the Mortgage Financing Properties
securing such debt could be foreclosed on, which would have a material adverse
effect on the Company and its ability to make expected distributions. Similarly,
any future indebtedness of the Company secured by any of the Properties will be
subject to this risk of foreclosure. See "Policies With Respect to Certain
Transactions--Financing Policies."

POTENTIAL EFFECT OF RISING INTEREST RATES ON COMPANY'S VARIABLE RATE
DEBT. The Company currently has an outstanding balance of $211 million under
its $300 million Credit Facility which bears interest at a variable rate. In
addition, the Company may incur other variable rate indebtedness in the future.
Increases in interest rates on such indebtedness would increase the Company's
interest expense, which could adversely affect the Company's cash flow and the
amounts available for distributions to its stockholders. The Company, however,
entered into interest rate floor and cap transactions with a notional amount of
$155 million (collectively, the "Swap Agreement") to limit its exposure to
rising interest rates. Although the Swap Agreement enables the Company to
convert floating rate liabilities to fixed rate liabilities, it exposes the
Company to the risk that the counterparty to the Swap Agreement may not perform,
which could cause the Company to lose the benefits of the Swap Agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Note 5 to the Notes to the
Financial Statements of Arden Realty, Inc. and the Arden Predecessors.

15
<PAGE>
NO LIMITATION ON DEBT

Upon completion of the Offering, the Company's debt to total market
capitalization ratio will be approximately 24.0% (20.8% if the Underwriters'
overallotment option is exercised in full). While the Company currently has a
policy of incurring debt only if upon such incurrence the debt to total market
capitalization ratio would be 50% or less, the organizational documents of the
Company contain no limitation on the amount of indebtedness the Company may
incur. Accordingly, the Board of Directors could alter or eliminate this policy.
If this policy were changed, the Company could become more highly leveraged,
resulting in an increase in debt service that could adversely affect the
Company's cash flow and, consequently, the amount available for distribution to
stockholders and could increase the risk of default on the Company's
indebtedness.

The Company has established its debt policy relative to the total market
capitalization of the Company rather than relative to the book value of its
assets. The Company has used total market capitalization because it believes
that the book value of its assets (which to a large extent is the depreciated
original cost of real property, the Company's primary tangible assets) does not
accurately reflect its ability to borrow and to meet debt service requirements.
The market capitalization of the Company, however, is more variable than book
value, and may not necessarily reflect the fair market value of the underlying
assets of the Company at all times. The Company also will consider factors other
than market capitalization in making decisions regarding the incurrence of
indebtedness, such as the purchase price of properties to be acquired with debt
financing, the estimated market value of its properties upon refinancing and the
ability of particular properties and the Company as a whole to generate cash
flow to cover expected debt service.

REAL ESTATE INVESTMENT RISKS

REAL ESTATE OWNERSHIP RISKS. Real property investments are subject to
varying degrees of risk. The yields available from equity investments in real
estate depend in large part on the amount of income generated and expenses
incurred. If the Properties do not generate revenue sufficient to meet operating
expenses, including debt service, tenant improvements, leasing commissions and
other capital expenditures, the Company may have to borrow additional amounts to
cover fixed costs, and the Company's cash flow and ability to make distributions
to its stockholders will be adversely affected.

The Company's revenue and the value of its Properties may be adversely
affected by a number of factors, including the national economic climate; the
local economic climate; local real estate conditions; the perceptions of
prospective tenants of the attractiveness of the property; the ability of the
Company to manage and maintain the Properties and secure adequate insurance; and
the potential increase in operating costs (including real estate taxes and
utilities). In addition, real estate values and income from properties are also
affected by such factors as applicable laws, including tax laws, interest rate
levels and the availability of financing.

RISK THAT COMPANY MAY BE UNABLE TO RETAIN TENANTS OR RENT SPACE UPON LEASE
EXPIRATIONS. The Company is and will be subject to the risks that upon
expiration, leases may not be renewed, the space may not be relet or the terms
of renewal or reletting (including the cost of required renovations) may be less
favorable than current lease terms. Leases on a total of approximately 8.3% and
42.0% of the leased space in the Properties will expire through the end of 1997
and 2000, respectively. If the Company is unable to promptly relet or renew
leases for all or a substantial portion of this space, or if the rental rates
upon such renewal or reletting are significantly lower than expected, the
Company's cash flow and ability to make expected distributions to stockholders
could be adversely affected.

RESTRAINTS ON COMPANY'S FLEXIBILITY TO LIQUIDATE REAL ESTATE. Equity real
estate investments are relatively illiquid. Such illiquidity will tend to limit
the ability of the Company to vary its portfolio promptly in response to changes
in economic or other conditions. In addition, the Code limits a REIT's ability
to sell

16
<PAGE>
properties held for fewer than four years, which may affect the Company's
ability to sell properties without adversely affecting returns to stockholders.

IMPACT OF COMPETITION ON OCCUPANCY LEVELS AND RENTS CHARGED. Numerous
office properties compete with the Properties and the Pending Acquisitions in
attracting tenants to lease space. Some of the competing properties may be
newer, better located or owned by parties better capitalized than the Company.
The number of competitive commercial properties in a particular area could have
a material adverse effect on (i) the ability to lease space in the Properties
and Pending Acquisitions (or at newly acquired or developed properties) and (ii)
the rents charged.

POTENTIAL INCREASES IN CERTAIN TAXES AND REGULATORY COMPLIANCE
COSTS. Because increases in income, service or transfer taxes are generally not
passed through to tenants under leases, such increases may adversely affect the
Company's cash flow and its ability to make distributions to stockholders. The
Properties and the Pending Acquisitions are also subject to various federal,
state and local regulatory requirements, such as requirements of the Americans
with Disabilities Act (the "ADA") and state 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. The Company believes that the Properties and the Pending Acquisitions
are currently in substantial compliance with all such regulatory requirements
and that any noncompliance would not have a material adverse effect on the
Company. However, there can be no assurance that these requirements will not be
changed or that new requirements will not be imposed which would require
significant unanticipated expenditures by the Company and could have an adverse
effect on the Company's cash flow and expected distributions.

IMPACT OF FINANCIAL CONDITION AND SOLVENCY OF TENANTS ON COMPANY'S CASH
FLOW. At any time, a tenant of the Properties may seek the protection of
bankruptcy laws, which could result in rejection and termination of such
tenant's lease and thereby cause a reduction in cash flow available for
distribution by the Company. Although the Company has not experienced material
losses from tenant bankruptcies, no assurance can be given 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. In addition, a tenant from time to time may experience a downturn in its
business which may weaken its financial condition and result in the failure to
make rental payments when due. If tenant leases are not affirmed following
bankruptcy or if a tenant's financial condition weakens, the Company's income
may be adversely affected.

AMERICANS WITH DISABILITIES ACT COMPLIANCE COSTS. Under the ADA, all public
accommodations and commercial facilities are required to meet certain federal
requirements related to access and use by disabled persons. These requirements
became effective in 1992. Compliance with the ADA requirements could require
removal of access barriers and non-compliance could result in imposition of
fines by the U.S. government or an award of damages to private litigants.
Although the Company believes that the Properties and the Pending Acquisitions
are substantially in compliance with these requirements, the Company may incur
additional costs to comply with the ADA. Although the Company believes that such
costs will not have a material adverse effect on the Company, if required
changes involved a greater expenditure than the Company currently anticipates,
the Company's ability to make expected distributions could be adversely
affected.

FINANCIAL DEPENDENCY AND MANAGEMENT CONFLICTS ASSOCIATED WITH PARTNERSHIP
AND JOINT VENTURE PROPERTY OWNERSHIP STRUCTURES. The Company will own its
interests in the Properties through the Operating Partnership. In addition, the
Company may also participate with other entities in property ownership through
joint ventures or partnerships in the future. The Company currently does not
have any plans to invest in joint ventures or partnerships with affiliates or
promoters of the Company. Nonetheless, partnership or joint venture investments
may, under certain circumstances, involve risks not otherwise present, including
the possibility that the Company's partners or co-venturers might become
bankrupt, that such partners or co-venturers might at any time have economic or
other business interests or goals which

17
<PAGE>
are inconsistent with the business interests or goals of the Company, and that
such partners or co-venturers may be in a position to take action contrary to
the Company's instructions or requests or contrary to the Company's policies or
objectives, including the Company's policy with respect to maintaining its
qualification as a REIT. The Company will, however, seek to maintain sufficient
control of any such partnerships or joint ventures with which it may become
involved to permit the Company's business objectives to be achieved. There is no
limitation under the Company's organizational documents as to the amount of
available funds that may be invested in partnerships or joint ventures.

CONCENTRATION OF PROPERTIES IN SOUTHERN CALIFORNIA

All of the Company's Properties are located in Southern California, with 38
of the 45 Properties located in suburban Los Angeles County. Los Angeles County
just recently began to recover from an economic recession which affected
Southern California generally and Los Angeles County in particular since the
early 1990s. The Company's revenue and the value of its Properties may be
affected by a number of factors, including the local economic climate (which may
be adversely impacted by business layoffs or downsizing, industry slowdowns,
changing demographics and other factors) and local real estate conditions (such
as oversupply of or reduced demand for office and other competing commercial
properties). Therefore, the Company's performance and its ability to make
distributions to stockholders will likely be dependent, to a large extent, on
the economic conditions in this market area.

RISK THAT PENDING ACQUISITIONS WILL NOT CLOSE

The Company has executed eight contracts and entered into one letter of
intent with respect to the acquisition of the nine Pending Acquisitions within
60 days after the Offering. While the Company has commenced its due diligence
with respect to the Pending Acquisitions, the acquisition contracts are subject
to customary closing conditions and no assurances can be made that the Company
will complete any of the Pending Acquisitions. In the event any of the Pending
Acquisitions are not acquired, there can be no assurance that the Company will
apply any remaining net proceeds from the Offering towards other acquisitions
that meet the Company's acquisition criteria. If the Company is unable to close
the acquisition of a significant number of the Pending Acquisitions or to locate
additional available acquisitions after the Offering, the Company's ability to
increase distributable cash flow per share could be adversely affected.

CONFLICTS OF INTERESTS IN THE FORMATION TRANSACTIONS AND THE BUSINESS OF THE
COMPANY

FAILURE TO ENFORCE TERMS OF FORMATION AGREEMENTS. As partners and members
in the Arden Predecessors (which owned certain of the Initial Properties
acquired by the Company in the Formation Transactions), owners of Namiz, and
recipients of cash and OP Units in the Formation Transactions, certain members
of the Company's management, including Messrs. Ziman and Coleman, have a
conflict of interest with respect to their obligations as directors or executive
officers of the Company in enforcing the terms (including customary
representations and warranties as to ownership and operation) of the agreements
relating to the transfer to the Company of their interests in the Initial
Properties and the Namiz assets. The failure to enforce the material terms of
those agreements, particularly the indemnification provisions for breaches of
representations and warranties, could result in a monetary loss to the Company,
which loss could have a material adverse effect on the Company's financial
condition or results of operations. In addition, the aggregate liability of
Messrs. Ziman and Coleman and Namiz under those agreements is limited to
approximately $43.7 million (the initial value of the OP Units received by them
in the Formation Transactions based on the IPO price of the Common Stock), and
each such party is severally liable, up to the initial value of the OP Units
received by such party, only for breaches of such party's respective
representations and warranties. The Company therefore will have no right of
recovery as to any damages in excess of such aggregate or individual amounts
that may result from breaches of such representations and warranties.

18
<PAGE>
TAX CONSEQUENCES UPON ANY PREPAYMENT OF MORTGAGE FINANCING. Certain Limited
Partners of the Operating Partnership, including Messrs. Ziman and Coleman, may
incur adverse tax consequences upon the repayment of mortgage indebtedness
relating to certain of the Mortgage Financing Properties which are different
from the tax consequences to the Company and its stockholders. Consequently,
such Limited Partners may have different objectives regarding the appropriate
timing of any such repayment. While the Company has the exclusive authority
under the Partnership Agreement to determine whether, when, and on what terms to
repay such mortgage indebtedness, any such decision would require the approval
of the Board of Directors. Messrs. Ziman and Coleman, as executive officers and
directors of the Company, have substantial influence with respect to any such
decision, and such influence could be exercised in a manner not consistent with
the interests of some, or a majority, of the Company's stockholders including in
a manner which could prevent repayment of such mortgage indebtedness.

LIMITATION UPON SALE OR REFINANCING OF CENTURY PARK CENTER. Due to the
potential adverse consequences to certain Limited Partners of the Operating
Partnership which may result from a sale of Century Park Center, for a period of
seven years following the IPO, any sale of Century Park Center (other than in
connection with the sale of all or substantially all of the assets of the
Company or a merger of the Company) requires the consent of a majority of the
Limited Partners, which may cause the Company to be unable to sell this Property
in circumstances in which it would be advantageous to do so.

OTHER REAL ESTATE INTERESTS. Messrs. Ziman and Coleman hold certain real
estate interests which were not contributed to the Company as part of the
Formation Transactions although none of such real estate interests relate to
office properties.

RISKS ASSOCIATED WITH RAPID GROWTH, THE RECENT ACQUISITION OF MANY OF THE NEW
PROPERTIES AND THE LACK OF OPERATING HISTORY

The Company is currently experiencing a period of rapid growth. As the
Company acquires additional properties, the Company will be subject to risks
associated with managing new properties, including lease-up and tenant
retention. In addition, the Company's ability to manage its growth effectively
will require it to successfully integrate its new acquisitions into its existing
management structure. No assurances can be given that the Company will be able
to succeed with such integration or effectively manage additional properties or
that newly acquired properties will perform as expected.

All of the Acquired Properties had relatively short or no operating history
under management by the Company prior to their acquisition by the Company, and
none of the Pending Acquisitions are currently managed by the Company. The
Company has had limited control over the operation of the Acquired Properties
and the Pending Acquisitions, and such properties may have characteristics or
deficiencies unknown to the Company affecting their valuation or revenue
potential, and it is also possible that the operating performance of these
properties may decline under the Company's management.

CHANGES IN POLICIES WITHOUT STOCKHOLDER APPROVAL

The investment, financing, borrowing and distribution policies of the
Company and its policies with respect to all other activities, including growth,
debt, capitalization and operations, will be determined by the Board of
Directors. Although the Board of Directors has no present intention to do so,
these policies may be amended or revised at any time and from time to time at
the discretion of the Board of Directors without a vote of the stockholders of
the Company. In addition, the Board of Directors may change the Company's
policies with respect to conflicts of interest provided that such changes are
consistent with applicable legal requirements. A change in these policies could
adversely affect the Company's financial condition, results of operations or the
market price of the Common Stock. See "Policies with Respect to Certain
Activities."

19
<PAGE>
RISK OF ACQUISITION, RENOVATION AND DEVELOPMENT ACTIVITIES

The Company intends to continue acquiring office properties. See "Business
and Growth Strategies-- Business Strategies." Acquisitions of office properties
entail risks that investments will fail to perform in accordance with
expectations. Estimates of renovation costs and costs of improvements to bring
an acquired property up to standards established for the market position
intended for that property may prove inaccurate. In addition, there are general
investment risks associated with any new real estate investment.

The Company intends to expand and/or renovate its properties from time to
time. Expansion and renovation projects generally require expenditure of capital
as well as various government and other approvals, the receipt of which cannot
be assured. While policies with respect to expansion and renovation activities
are intended to limit some of the risks otherwise associated with such
activities, the Company will nevertheless incur certain risks, including
expenditures of funds on, and devotion of management's time to, projects which
may not be completed. The Company anticipates that future acquisitions and
renovations will be financed through a combination of advances under the Credit
Facility, other lines of credit and other forms of secured or unsecured
financing. If new developments are financed through construction loans, there is
a risk that, upon completion of construction, permanent financing for newly
developed properties may not be available or may be available only on
disadvantageous terms.

While the Company has generally limited its acquisition, renovation,
management and leasing business primarily to the Southern California market, it
is possible that the Company will in the future expand its business to new
geographic markets. The Company will not initially possess the same level of
familiarity with new markets outside of Southern California, which could
adversely affect its ability to acquire, develop, manage or lease properties in
any new localities. Changing market conditions, including competition from other
purchasers of suburban office properties, may diminish the Company's
opportunities for attractive additional acquisitions.

The Company also intends to review from time to time the possibility of
developing and constructing office buildings and other commercial properties in
accordance with the Company's development and underwriting policies. See
"Business and Growth Strategies--Business Strategies." Risks associated with the
Company's development and construction activities may include: abandonment of
development opportunities; 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; financing may not be available on favorable terms for development of
a property; and construction and lease-up may not be completed on schedule,
resulting in increased debt service expense and construction costs. In addition,
new development activities, regardless of whether they would ultimately be
successful, typically require a substantial portion of management's time and
attention. 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.

POTENTIAL ADVERSE TAX CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT

The Company has operated and intends to continue to operate so as to qualify
as a REIT under the Code, commencing with its taxable year ending December 31,
1996. Although management believes that the Company is and will continue to be
organized and has operated and will continue to operate in such a manner, no
assurance can be given that the Company is now or will continue to be organized
or operated in a manner so as to qualify or remain so qualified. Qualification
as a REIT involves the satisfaction of numerous requirements (some on an annual
and quarterly basis) established under highly technical and complex Code
provisions for which there are only limited judicial and administrative
interpretations, and involves the determination of various factual matters and
circumstances not entirely within the Company's control. For example, in order
to qualify as a REIT, at least 95% of the Company's gross income in any

20
<PAGE>
year must be derived from qualifying sources and the Company must pay
distributions to stockholders aggregating annually at least 95% of its REIT
taxable income (excluding capital gains). The complexity of these provisions and
of the applicable Treasury Regulations that have been promulgated under the Code
is greater in the case of a REIT that holds its assets in partnership form. No
assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such qualification. The Company, however, is not aware of any pending
legislation that would adversely affect the Company's ability to operate as a
REIT. Latham & Watkins, counsel to the Company, will render an opinion to the
effect that, commencing with its taxable year ended December 31, 1996, the
Company has been organized and has operated in conformity with the requirements
for qualification and taxation as a REIT, and that the Company's proposed method
of operation will enable it to continue to meet the requirements for
qualification and taxation as a REIT. See "Federal Income Tax
Considerations--Taxation of the Company." Such legal opinion is based on various
assumptions and factual representations by the Company regarding the Company's
ability to meet the various requirements for qualification as a REIT, and no
assurance can be given that actual operating results will meet these
requirements. The opinion of Latham & Watkins is not binding on the IRS or any
court. Moreover, the Company's qualification and taxation as a REIT depend on
the Company's ability to meet (through actual annual operating results,
distribution levels and diversity of stock ownership) the various qualification
tests imposed under the Code, the results of which will not be reviewed by tax
counsel to the Company.

If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Moreover, unless entitled to relief under certain statutory provisions, the
Company also would be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification was lost. This treatment
would significantly reduce the net earnings of the Company available for
investment or distribution to stockholders because of the additional tax
liability to the Company for the years involved. In addition, distributions to
stockholders would no longer be required to be made. See "Federal Income Tax
Considerations--Taxation of the Company--Requirements for Qualification."

OTHER TAX LIABILITIES

Even if the Company qualifies for and maintains its REIT status, it will be
subject to certain federal, state and local taxes on its income and property. If
the Company has net income from a prohibited transaction, such income will be
subject to a 100% tax. See "Federal Income Tax Considerations."

INSURANCE

The Operating Partnership carries comprehensive liability, fire, extended
coverage and rental loss insurance which currently covers all of the Properties,
and will be expanded to cover each of the Pending Acquisitions which is
acquired, with policy specifications and insured limits which the Company
believes are adequate and appropriate under the circumstances. The Operating
Partnership also carries earthquake insurance on all of the Properties which
also will be expanded to cover each of the Pending Acquisitions which is
acquired. There are, however, certain types of losses that are not generally
insured because it is not economically feasible to insure against such losses.
Should an uninsured loss or a loss in excess of insured limits occur, the
Operating Partnership could lose its capital invested in the property, as well
as the anticipated future revenue from the property and, in the case of debt
which is with recourse to the Operating Partnership, would remain obligated for
any mortgage debt or other financial obligations related to the property. Any
such loss would adversely affect the Company. Moreover, as the sole general
partner of the Operating Partnership, the Company will generally be liable for
any unsatisfied obligations other than non-recourse obligations. The Company
believes that the Properties are, and the Pending Acquisitions will be,
adequately insured. In addition, in light of the California earthquake risk,
California building codes since the early 1970's have established construction
standards for all newly built and

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renovated buildings, including office buildings, the current and strictest
construction standards having been adopted in 1984. Of the 54 Properties and
Pending Acquisitions, 24 have been built since January 1, 1985 and the Company
believes that all of the Properties and Pending Acquisitions were constructed in
full compliance with the applicable standards existing at the time of
construction. While earthquakes have occurred in Southern California, the only
loss the Company has experienced as a result of earthquakes was minor damage to
three of its buildings due to the Northridge earthquake, which resulted in
$601,000 of damage in the year ended December 31, 1994. No assurance can be
given, however, that material losses in excess of insurance proceeds will not
occur in the future.

DEPENDENCE ON KEY PERSONNEL

The Company is dependent on the efforts of its executive officers,
particularly Messrs. Ziman and Coleman and Ms. Laing. The loss of their services
could have a material adverse effect on the operations of the Company. Each of
Messrs. Ziman and Coleman and Ms. Laing have entered into an employment
agreement with the Company. See "Management--Employment Agreements."

LIMITS ON CHANGES IN CONTROL

Certain provisions of the Charter and bylaws of the Company (the "Bylaws")
may have the effect of delaying, deferring or preventing a third party from
making an acquisition proposal for the Company and may thereby inhibit a change
in control of the Company. For example, such provisions may (i) deter tender
offers for the Common Stock, which offers may be attractive to the stockholders,
or (ii) 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. See "Capital Stock" and "Certain Provisions of
Maryland Law and the Company's Charter and Bylaws." These provisions include the
following:

LIMITS ON OWNERSHIP OF COMMON STOCK. In order for the Company to maintain
its qualification as a REIT, not more than 50% in value of the outstanding
shares of Common Stock of the Company may be owned, actually or constructively,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year (other than the first year for
which the election to be treated as a REIT has been made). In addition, if the
Company, or an owner of 10% or more of the Company, actually or constructively
owns 10% or more of a tenant of the Company (or a tenant of any partnership in
which the Company is a partner), the rent received by the Company (either
directly or through any such partnership) from such tenant will not be
qualifying income for purposes of the REIT gross income tests of the Code. See
"Federal Income Tax Considerations--Taxation of the Company." In order to
protect the Company against the risk of losing REIT status due to the
concentration of ownership among its stockholders, the Ownership Limit included
in the Charter limits actual or constructive ownership of the outstanding shares
of Common Stock by any single stockholder to 9.0% of the total of the then
outstanding shares of Common Stock. See "Capital Stock--Restrictions on
Transfer." Although the Board of Directors presently has no intention of doing
so (except as described below), the Board of Directors could waive this
restriction with respect to a particular stockholder if it were satisfied, based
upon the advice of tax counsel, that ownership by such stockholder in excess of
the Ownership Limit would not jeopardize the Company's status as a REIT and the
Board of Directors otherwise decided such action would be in the best interests
of the Company. 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 benefit of a qualified charitable organization. Such
transferee or owner shall have no right to vote such shares or be entitled to
dividends or other distributions with respect to such shares. The Board of
Directors has waived the Ownership Limit with respect to Mr. Ziman and certain
family members and affiliates and permitted such parties to actually and
constructively own up to 13.0% of the outstanding shares of Common Stock. See
"Capital Stock--Restrictions on Transfer" for additional information regarding
the Ownership Limit.

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PREFERRED STOCK. The Charter authorizes the Board of Directors to cause the
Company to issue authorized but unissued shares of Common Stock or Preferred
Stock and to classify or reclassify any unissued shares of Common Stock or
Preferred Stock and to set the preferences, rights and other terms of such
classified or unclassified shares. See "Capital Stock--Preferred Stock."
Although the 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 of
the Company that might involve a premium price for the Common Stock or otherwise
be in the best interest of the stockholders.

STAGGERED BOARD. The Company's Board of Directors is divided into three
classes of directors. The initial terms of the first, second and third classes
will expire in 1997, 1998 and 1999, respectively. Beginning in July 1997,
directors of each class will be 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 of the Company even though a
tender offer or change in control might be in the best interest of the
stockholders. See "Certain Provisions of Maryland Law and the Company's Charter
and Bylaws--Board of Directors--Number, Classification, Vacancies."

POSSIBLE ENVIRONMENTAL LIABILITIES

Under various federal, state and local environmental laws, ordinances and
regulations, 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 such property and may be held liable to a governmental
entity or to third parties for property damage and for investigation and
clean-up costs incurred by such parties in connection with the contamination.
Such 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 such laws has been interpreted to be joint and several unless
the harm is divisible and there is a reasonable basis for allocation of
responsibility. The costs of investigation, remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure properly to remediate the contamination on such property, may adversely
affect the owner's ability to sell or rent such property or to borrow using such
property as collateral. 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 such disposal or treatment facility, whether or not such
facility is owned or operated by such person. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for
damages and costs incurred in connection with the contamination. Finally, the
owner of a site may be subject to common law claims by third parties based on
damages and costs resulting from environmental contamination emanating from such
site.

Certain federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of asbestos-containing materials ("ACM")
when such materials are in poor condition or in the event of construction,
remodeling, renovation or demolition of a building. Such laws may impose
liability for release of ACM and may provide for third parties to seek recovery
from owners or operators of real properties for personal injury associated with
ACM. In connection with its ownership and operation of the Properties, the
Company may be potentially liable for such costs. Except for one Pending
Acquisition, 1100 Glendon, which is currently undergoing abatement activities,
the Company is not aware of any friable ACM at any of the Properties or Pending
Acquisitions.

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In the past few years, independent environmental consultants have conducted
or updated Phase I Environmental Assessments and other environmental
investigations as appropriate ("Environmental Site Assessments") at the
Properties and Pending Acquisitions. These Environmental Site Assessments have
included, among other things, a visual inspection of the Properties and Pending
Acquisitions and the surrounding area and a review of relevant state, federal
and historical documents. Soil and groundwater sampling were performed where
warranted and remediation, if necessary, has or is being conducted.

The Company's Environmental Site Assessments of the Properties and the
Pending Acquisitions identified 10351 Santa Monica, Burbank Executive Plaza,
California Federal Building, South Bay Centre, 8383 Wilshire, Carlsberg
Corporate Center, Imperial Bank, Skyview Center and Pacific Gateway II as
properties that may be impacted by known or suspected regional contamination.
The Environmental Site Assessments have not, however, revealed any environmental
liability that the Company believes would have a material adverse effect on the
Company's business, assets or results of operations taken as a whole, nor is the
Company aware of any such material environmental liability. Nevertheless, it is
possible that the Company's Environmental Site Assessments do not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware. Moreover, there can be no assurance that (i)
future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Properties and Pending Acquisitions will not be affected by tenants, by the
condition of land or operations in the vicinity of the Properties and Pending
Acquisitions (such as the presence of underground storage tanks), or by third
parties unrelated to the Company.

The Company believes that the Properties and the Pending Acquisitions are in
compliance in all material respects with all federal, state and local laws,
ordinances and regulations regarding hazardous or toxic substances or petroleum
products, except as noted above. The Company has not been notified by any
governmental authority, and is not otherwise aware, of any material
noncompliance, liability or claim relating to hazardous or toxic substances or
petroleum products in connection with any of its present Properties or the
Pending Acquisitions, other than as noted above.

POSSIBLE ADVERSE EFFECT ON COMMON STOCK PRICE OF SHARES AVAILABLE FOR FUTURE
SALE

Sales of a substantial number of shares of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices of
the Common Stock. In connection with the Formation Transactions, the Company
placed 2,889,071 OP Units, in addition to Common Stock sold by the Company in
the IPO. See "Formation Transactions." Messrs. Ziman and Coleman have agreed to
certain restrictions on the dispositions of the shares of Common Stock issued
upon exchange of OP Units which, pursuant to the Partnership Agreement, may
occur beginning on October 9, 1997 (the first anniversary of the closing of the
IPO). See "Underwriting." When such restrictions lapse, Common Stock issued upon
the exchange of OP Units may be sold in the public market pursuant to
registration rights that the Company has granted to certain OP Unit holders or
available exemptions from registration. In addition, 1,500,000 shares of Common
Stock have been reserved for issuance pursuant to the Company's Stock Incentive
Plan, and these shares will be available for sale in the public markets from
time to time pursuant to exemptions from registration requirements or upon
registration. Options to purchase a total of 890,000 shares of Common Stock have
been granted and stock bonus awards for a total of 5,000 shares have been
granted to certain executive officers, employees and directors. See
"Management--Compensation of Directors," "--Executive Compensation" and "--Stock
Incentive Plan." No prediction can be made about the effect that future sales of
Common Stock will have on the market prices of shares.

POSSIBLE ADVERSE EFFECT ON HOLDERS OF COMMON STOCK OF AN ISSUANCE OF PREFERRED
STOCK

The Board of Directors is empowered by the Company's Charter to designate
and issue from time to time one or more classes or series of Preferred Stock
without stockholder approval. The Board of Directors may determine the relative
rights, preferences and privileges of each class or series of Preferred Stock so
issued. See "Capital Stock--Preferred Stock." Because the Board of Directors has
the power to

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establish the preferences and rights of each class or series of Preferred Stock,
it may afford the holders in any series or class of Preferred Stock preferences,
distributions, powers and rights, voting or otherwise, senior to the rights of
holders of Common Stock. The issuance of Preferred Stock could also have the
effect of delaying, deferring or preventing a change in control of the Company.
See "--Limits on Changes in Control."

INFLUENCE OF EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS

The directors and executive officers of the Company as a group beneficially
own approximately 76.18% of the OP Units issued in the Formation Transactions
which, commencing on October 9, 1997 (the first anniversary of the closing of
the IPO), will be redeemable by the holder for cash or, at the option of the
Company, exchangeable for shares of Common Stock on a one-for-one basis.
Assuming the exchange of all of these OP Units for shares of Common Stock, all
directors and executive officers as a group would beneficially own approximately
9.27% of the total issued and outstanding shares of Common Stock. Mr. Ziman
currently serves as Chairman and Chief Executive Officer and serves, along with
Mr. Coleman, who currently serves as President and Chief Operating Officer, on
the Board of Directors of the Company. Accordingly, such persons have
substantial influence on the Company, which influence might not be consistent
with the interests of other stockholders, and may in the future have a
substantial influence on the outcome of any matters submitted to the Company's
stockholders for approval if all of their OP Units are exchanged for Common
Stock. In addition, although there is no current agreement, understanding or
arrangement for those participants in the Formation Transactions who received OP
Units to act together on any matter, such participants could be in a position to
exercise significant influence over the affairs of the Company if they were to
act together in the future. See "Principal and Management Stockholders."

POSSIBLE ADVERSE EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK

One of the factors that will influence the market price of the Common Stock
in public markets is the annual distribution rate on the shares of Common Stock.
Increasing market interest rates may lead prospective purchasers of the Common
Stock to demand a higher annual distribution rate from future distributions.
Such an increase in the required distribution rate may adversely affect the
market price of the Common Stock.

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<PAGE>
THE COMPANY

GENERAL

Since its initial public offering in October 1996 (the "IPO"), the Company
has acquired 21 additional office properties (collectively, the "Acquired
Properties"), increasing its portfolio of office properties from the 24 Initial
Properties to 45 Properties. The Acquired Properties contain approximately 3.4
million rentable square feet and were purchased for a Total Acquisition Cost of
approximately $366.5 million.

As of May 1, 1997, the Company's portfolio of 45 Properties (which includes
the 24 Initial Properties and the 21 Acquired Properties) was approximately
85.8% leased. The 24 Initial Properties were 91.9% leased as of May 1, 1997 as
compared to 88.9% leased as of August 1, 1996.

As of June 15, 1997, the Company had executed eight contracts and entered
one letter of intent to acquire the nine Pending Acquisitions comprising
approximately 1.2 million rentable square feet for a Total Acquisition Cost of
approximately $161.4 million. As of May 1, 1997, the Pending Acquisitions were
approximately 77.1% leased.

The Company believes that all of the Properties are located in strong
submarkets which generally have significant rent growth potential due to
employment growth, declining vacancy rates, limited new construction activity
and existing rental rates at levels below those required to make new
construction economically feasible. The Company's portfolio is comprised
primarily of suburban office properties which have high quality finishes, are
situated in desirable locations, are well maintained and professionally managed
and are capable of achieving rental and occupancy rates which are typically
above those prevailing in their respective markets. Of the Company's 45
Properties, 36 have been built since 1980 and 17 have been substantially
renovated within the last five years.

The Company also believes, based upon its evaluation of market conditions,
that certain economic fundamentals are present in Southern California which
enhance its ability to achieve its business objectives by providing an
attractive environment for owning, acquiring and operating suburban office
properties. Specifically, the Company believes that the limited construction of
new office properties in the Southern California region since 1992 coupled with
an improving Southern California economy will continue to result in increased
demand for office space and positive net absorption in the Southern California
region, particularly in the selected submarkets where most of the Properties are
located.

The Company operates from its Beverly Hills, California headquarters and is
a fully-integrated real estate company with approximately 100 full-time
employees and in-house expertise in acquisitions, finance, asset management,
leasing and construction. The Company's founders, Richard S. Ziman and Victor J.
Coleman, along with the other six senior officers of the Company, have an
average of more than 14 years of experience in all aspects of the real estate
industry. See "Management--Directors and Executive Officers."

The Company seeks to grow by continuing to acquire office properties that
are located in submarkets with growth potential, are underperforming or need
renovation and which offer opportunities for the Company to implement its
value-added strategy to increase cash flow. This strategy includes active
management and aggressive leasing efforts, a focused renovation and
refurbishment program for underperforming assets, reduction and containment of
operating costs and emphasis on tenant satisfaction (including efforts to
maximize tenant retention at lease expiration and programs to relocate tenants
to

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<PAGE>
other spaces within the Company's portfolio). The Company's commitment to tenant
satisfaction and retention is evidenced by its retention rate of approximately
76% (based on square feet renewed) from 1993 through May 1, 1997 and
management's on-going relationships with multi-site tenants.

Upon completion of the Offering, the founders and executive officers of the
Company will beneficially own approximately 6.52% of the Company, assuming the
exchange of all of their OP Units for Common Stock and excluding shares of
Common Stock subject to options granted under the Company's Stock Incentive
Plan.

The Company is a Maryland corporation incorporated on May 1, 1996. The
Company's executive offices are located at 9100 Wilshire Boulevard, East Tower,
Suite 700, Beverly Hills, California 90212 and its telephone number is (310)
271-8600.

THE OPERATING PARTNERSHIP

Since the closing of the IPO, substantially all of the Company's assets have
been held directly or indirectly by, and its operations conducted through, the
Operating Partnership. The Company's interest in the Operating Partnership
entitles it to share in cash distributions from, and in the profits and losses
of, the Operating Partnership in proportion to the Company's percentage
ownership, which currently is approximately 88% and will be 91% upon completion
of the Offering. Certain individuals and entities own the remaining OP Units,
including Messrs. Ziman and Coleman and Namiz, together with two entities which
were issued OP Units in connection with the Company's acquisition of certain
Properties previously owned by such entities. One such entity, CalTwin
Investors, L.L.C., a Delaware limited liability company ("CalTwin"), was issued
26,880 OP Units as partial consideration for its transfer of California Twin
Centre to the Operating Partnership in March 1997. The OP Units held by CalTwin
have a special redemption right which provides CalTwin the option to tender all
or part of its OP Units to the Operating Partnership on January 2, 1998 for a
cash redemption based on the value of such OP Units at the time of their
issuance. Any OP Units held by CalTwin afer January 2, 1998 may be tendered to
the Operating Partnership for a cash redemption based on the then current value
of the Common Stock. In lieu of such cash redemption, the Company may elect to
exchange OP Units tendered by CalTwin after January 2, 1998 for shares of Common
Stock of the Company (on a one-for-one basis), subject to certain limitations.
All other holders of OP Units are entitled to cause the Operating Partnership to
redeem its OP Units for cash beginning on October 9, 1997, the anniversary of
the consummation of the IPO. The Company may similarly elect to exchange such OP
Units for shares of Common Stock of the Company (on a one-for-one basis),
subject to certain limitations. See "Partnership Agreement--Redemption/Exchange
Rights." With each redemption or exchange of OP Units, the Company's percentage
interest in the Operating Partnership will increase.

As the sole general partner of the Operating Partnership, the Company
generally has the exclusive power under the Partnership Agreement to manage and
conduct the business of the Operating Partnership, subject to certain limited
exceptions. See "Partnership Agreement--Management." The Board of Directors will
manage the affairs of the Company by directing the affairs of the Operating
Partnership. The Operating Partnership cannot be terminated (except in
connection with a sale of all or substantially all of the assets of the Company,
a business combination or as the result of judicial decree or the redemption of
all of the OP Units held by the Limited Partners) until the year 2096 without a
vote of the partners of the Operating Partnership. For further information
regarding the Operating Partnership, see "Partnership Agreement."

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BUSINESS AND GROWTH STRATEGIES

The Company's primary business objectives are to maximize growth in cash
flow and to enhance the value of its portfolio in order to maximize total return
to its stockholders. The Company believes it can achieve these objectives by
continuing to implement its business strategies and by capitalizing on the
external and internal growth opportunities described below. The Company also
believes, based on its evaluation of market conditions, that a number of factors
will enhance its ability to achieve its business objectives, including (i) the
continuing improvement in the Southern California economy; and (ii) the limited
construction of new office properties in the Southern California region due to
the substantial cost to develop new office properties compared to current
acquisition prices and substantial building construction limitations in many
submarkets, which provides opportunities to maximize occupancy rates, rental
rates and overall portfolio value.

BUSINESS STRATEGIES

The Company's primary business strategies are to actively manage its
portfolio and to acquire and renovate underperforming office properties or
properties which provide attractive yields with stable cash flow in submarkets
where it can utilize its local market expertise and extensive real estate
experience. When market conditions permit, the Company may also develop new
properties in submarkets where it has local market expertise.

Based on its own historical activities and its knowledge of the local
marketplace, the Company believes that the Southern California region offers
opportunities for well-capitalized, experienced owners of real estate with
extensive local market expertise to take advantage of opportunities to acquire
additional office properties at attractive prices and develop office properties,
when feasible, at attractive returns. Through six regional offices, the Company
implements its business strategies by: (i) emphasizing tenant satisfaction and
retention and employing intensive property marketing programs; (ii) utilizing a
multidisciplinary approach to acquisition, management, leasing and renovation
activities that is designed to coordinate decision-making and enhance
responsiveness to market opportunities and tenant needs; and (iii) implementing
cost control management and systems that capitalize on economies of scale
arising from the size and location of the Company's portfolio. The Company
believes that the implementation of these operating practices has led to the
increased occupancy rates and rental revenue of its existing portfolio.

AGGRESSIVE LEASING. The concentration of many of the Properties within
certain office submarkets and the Company's relationships with a broad array of
tenants and brokers enable the Company to pursue aggressive leasing strategies,
to effectively monitor the office space requirements of existing and potential
tenants, and to offer tenants a variety of space alternatives across its
portfolio. In an effort to realize cost savings and exercise more control over
the lease negotiations the Company has recently implemented in-house leasing
programs for 17 Properties in selected submarkets in which it has a substantial
market presence. The Company continues, however, to employ third-party broker
listings in the submarkets in which it has a less significant market presence.

INTEGRATED DECISION-MAKING AND RESPONSIVENESS. In addition to the location
and quality of the Properties, management generally credits its ability to
maintain its Properties at above-average market occupancy levels to the
coordination of its decision-making team. Acquisition, renovation, management
and leasing activities are coordinated to enhance responsiveness to market
opportunities and tenant needs. The acquisition, leasing and renovation teams
work closely with the Company's senior management from the initial meetings with
prospective tenants or sellers, and throughout the negotiation process. This
integrated approach permits the Company to analyze the economic terms and costs
(including tenant build-out and retrofitting costs) for each lease on a timely
and efficient basis throughout lease negotiations. With respect to acquisitions,
the Company can quickly analyze the costs of upgrades and lease-up potential.
The Company is able to commit to leasing and acquisition terms quickly,
facilitate timely deal execution and build-out of space for prospective tenants
and minimize downtime between lease rollovers.

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COST CONTROL OPERATING EFFICIENCIES. The size and geographic location of
the Company's portfolio permit it to enhance portfolio value by lowering
operating costs and expenses, compared to single-site ownership and management.
The Company seeks to capitalize on economies of scale resulting from the
geographic focus of the portfolio, the ownership of multiple Properties within
certain submarkets and the maintenance of a centralized accounting system for
cost control at each of the Properties.

GROWTH STRATEGIES

EXTERNAL GROWTH: Based on its own historical activities and its knowledge
of the local marketplace, the Company believes that opportunities continue to
exist to acquire additional office properties that: (i) provide attractive
initial yields with significant potential for growth in cash flow; (ii) are in
desirable locations within submarkets which the Company believes have economic
growth potential; and (iii) are underperforming or need renovation, and which
therefore provide opportunities for the Company to increase the cash flow and
value of such properties through renovation, active management and aggressive
leasing.

The Company intends to continue to acquire office properties within
submarkets in Southern California which the Company believes present
opportunities for long-term stable and rising rental rates due to employment
growth, population movements within the region and restrictions on new
development. The Company generally targets properties which are underperforming
or need renovation and offer opportunities for the Company to implement its
value-added strategy to increase cash flow.

The Company believes it has certain competitive advantages which enhance its
ability to identify and capitalize on acquisition opportunities, including: (i)
management's significant local market expertise, experience and knowledge of
properties, submarkets and potential tenants within the Southern California
region; (ii) management's long-standing relationships with real estate brokers
and institutional and other owners of commercial real estate; (iii) its fully
integrated real estate operations which allow the Company to respond quickly to
acquisition opportunities; (iv) its access to capital as a public company,
including the Company's $300 million Credit Facility ($170 million of which will
be available following the Offering and assuming completion of the Pending
Acquisitions); (v) its ability to acquire properties in exchange for OP Units or
Common Stock if the sellers so desire; and (vi) management's reputation as an
experienced purchaser of office properties in Southern California which has the
ability to effectively close transactions.

The Company may also seek to take advantage of management's development
expertise to develop office space when market conditions support office building
development. The Company, however, currently intends to focus primarily on
acquisitions rather than development given its belief that opportunities to
acquire office properties at less than replacement cost continue to exist within
selected submarkets in Southern California.

INTERNAL GROWTH: The Company believes that opportunities exist to increase
cash flow from its existing portfolio and that such opportunities will be
enhanced as the Southern California office market continues to improve. The
Company intends to pursue internal growth by: (i) continuing to maintain and
improve occupancy rates through active management and aggressive leasing; (ii)
realizing fixed contractual base rental increases or increases tied to indices
such as the CPI; (iii) re-leasing expiring leases at increasing market rents
which are expected to result over time from increased demand for office space in
Southern California; (iv) controlling operating expenses through its cost
control management and systems; (v) capitalizing on economies of scale arising
from the size of its portfolio; and (vi) increasing revenue generated from
parking facilities at certain Properties where the Company is currently offering
free parking as an amenity or charging below market rates.

(i) MAINTAINING AND IMPROVING OCCUPANCY RATES: The Company believes that
it has been successful in attracting, expanding and retaining a diverse tenant
base by actively managing its office properties with an emphasis on tenant
retention and satisfaction. The Company strives to be responsive to the needs of
individual tenants through its on-site professional management staff and by
providing tenants with

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alternative space within the Company's portfolio to accommodate their changing
space requirements. The Company's success in maintaining and improving occupancy
rates is demonstrated, in part, by the number of existing tenants which have
renewed or released their space, leased additional space to support their
extension needs, or moved to other space within the Company's portfolio. The
Company has achieved a tenant retention rate of approximately 76% (based on
square feet renewed) from inception through May 1, 1997. See "Properties--Tenant
Retention and Expansions." The Company also seeks to improve occupancies by
aggressively marketing available space within its portfolio. As of May 1, 1997,
approximately 1,046,000 rentable square feet were unleased within the Company's
portfolio.

(ii) RE-LEASING EXPIRING LEASES TO INCREASING MARKET RENTS: Although there
can be no assurances in this regard, the Company believes that as the commercial
real estate market in Southern California continues to improve, there will be
increasing demand for office space and declining vacancies which are expected to
result over time in increasing market rents. The Company believes it will have
significant opportunities to increase cash flow during such periods of
increasing market rents by renewing or re-leasing expiring leases at the
increased market rents.

(iii) COST CONTROL MANAGEMENT AND SYSTEMS: The Company seeks to lower
operating expenses through cost control management that capitalizes on economies
of scale opportunities resulting from the size and location of the Company's
portfolio. The Company focuses on cost control in various areas of operations.
For example, the Company is seeking to significantly lower its utility costs,
which constitute over 25% of the operating costs of most of the Properties,
through the portfolio-wide installation of energy enhancement technologies,
which include lighting retrofit, replacement of heating, ventilation and air
conditioning systems, and computer-driven energy management systems which
monitor and react to the climatic requirements of individual Properties.

(iv) CAPITALIZING ON ECONOMIES OF SCALE: In order to capitalize on
economies of scale arising from the size of the Company's portfolio, the
Company's property and asset managers are responsible for several Properties,
which spreads administrative costs over such Properties and reduces per square
foot administrative expense. In addition, the Company believes that parking
operations, building and other services and tenant improvements purchased on a
portfolio-wide basis will facilitate further economies of scale.

(v) REVENUE FROM PARKING FACILITIES: The Company owns or leases parking
facilities which are attached or adjacent to many of the Properties. The Company
currently provides free parking to tenants at 13 of the Properties as an
amenity, and charges tenants at the remaining Properties at or below market
rates for parking. If the demand for Southern California office space increases
and occupancy rates rise, which the Company believes is the trend, the Company
believes that there may be opportunities to generate additional revenue from the
parking facilities associated with its Properties by charging for parking which
is currently provided for free, increasing below market rates and maintaining
its arrangements with a limited number of third-party operators of the Company's
parking facilities.

30
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the Offering, after deducting the
estimated underwriting discounts and commissions and estimated expenses of the
Offering, are estimated to be approximately $246.6 million (approximately $283.7
million if the Underwriters' overallotment option is exercised in full). The
Company intends to use approximately $137.5 million of the net proceeds from the
Offering to fund the purchase of the Pending Acquisitions, and approximately
$109.1 million to repay a portion of the outstanding balance on the Credit
Facility with the balance to be retained by the Company for working capital. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources."

If the Underwriters' overallotment option to purchase 1,500,000 shares of
Common Stock is exercised in full, the Company expects to use the additional net
proceeds (which will be approximately $37.1 million) to pay down indebtedness
and for working capital.

Pending application of net proceeds, the Company will invest such portion of
the net proceeds in interest-bearing accounts and short-term, interest-bearing
securities, which are consistent with the Company's continuing to qualify for
taxation as a REIT.

PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY

The Common Stock began trading on the NYSE on October 4, 1996 under the
symbol "ARI." On June 24, 1997, the last reported sales price per share of
Common Stock on the NYSE was $26.0625, and there were approximately 114 holders
of record of the Common Stock. The table below sets forth the quarterly high and
low closing sales price per share of Common Stock reported on the NYSE and the
distributions paid by the Company with respect to each such period.

<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW DISTRIBUTIONS
- ----------------------------------------------------------- --------- --------- -------------
<S> <C> <C> <C>
December 31, 1996 (from October 9, 1996)................... $ 27.625 $ 22.00 $ .36(1)
March 31, 1997............................................. $ 29.50 $ 26.25 $ .40(2)
June 30, 1997 (through June 24, 1997)...................... $ 27.375 $ 23.75 $ --(3)
</TABLE>

- ------------------------------

(1) The Company paid a distribution of $.36 per share of Common Stock on January
15, 1997, to stockholders of record on December 31, 1996, for the period
from October 9, 1996 (the closing of the IPO) through December 31, 1996,
which is approximately equivalent to a quarterly distribution of $.40 and an
annual distribution of $1.60 per share of Common Stock.

(2) On March 31, 1997, the Company declared a distribution of $.40 per share of
Common Stock for the first quarter of 1997 payable on May 15, 1997 to
stockholders of record on April 30, 1997.

(3) The Company expects to declare a distribution for the second quarter of 1997
on June 30, 1997 payable on July 31, 1997 to stockholders of record on July
15, 1997. PURCHASERS OF COMMON STOCK IN THIS OFFERING WILL NOT RECEIVE THIS
DISTRIBUTION IN RESPECT OF THE SHARES OF COMMON STOCK OFFERED HEREBY.

Distributions by the Company to the extent of its current and accumulated
earnings and profits for federal income tax purposes, other than capital gain
dividends, will be taxable to stockholders as ordinary dividend income. Capital
gain dividends generally will be treated as long-term capital gain.
Distributions in excess of earnings and profits generally will be treated as a
non-taxable reduction of the stockholder's basis in the Common Stock to the
extent thereof, and thereafter as capital gain. Distributions treated as a non-
taxable reduction in basis will generally have the effect of deferring taxation
until the sale of a stockholder's Common Stock. The Company has determined that
for federal income tax purposes, approximately $.28 per share (or approximately
78%) of the $.36 per share distribution paid for the partial fourth quarter of
1996 represented ordinary dividend income to stockholders. The Company believes
that, in the future, the portion of the distribution representing ordinary
dividend income will be higher. No assurances can be given regarding what
percent of future dividends will constitute return of capital for federal income
tax purposes. In order to avoid corporate income taxation of the earnings that
it distributes, the Company must make annual distributions to stockholders of at
least 95% of its REIT taxable income (determined by

31
<PAGE>
excluding any net capital gain), which the Company anticipates will be less than
its share of cash available for distribution. Under certain circumstances, the
Company may be required to make distributions in excess of cash available for
distribution in order to meet such distribution requirements. In such a case,
the Company may find it necessary to arrange for short-term (or possibly
long-term) borrowings or to raise funds through the issuance of preferred shares
or additional shares of Common Stock.

Future distributions by the Company will be at the discretion of the Board
of Directors and will depend on the actual Funds from Operations of the Company,
its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Code (see "Federal Income Tax
Considerations--Taxation of the Company"), economic conditions and such other
factors as the Board of Directors deems relevant. See "Risk Factors--Changes in
Policies Without Stockholder Approval."

32
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of March
31, 1997 on a historical and pro forma basis to give effect to (i) all Property
acquisitions completed between December 31, 1996 and June 15, 1997 and the
current borrowings under the Credit Facility incurred in connection therewith
and (ii) completion of the Offering, the application of the assumed net proceeds
therefrom and the completion of the Pending Acquisitions. See "Use of Proceeds."
The information set forth in the table should be read in connection with the
financial statements and notes thereto, the pro forma financial information and
notes thereto and the discussion under "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------
CONSOLIDATED PRO FORMA
HISTORICAL AS ADJUSTED
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Mortgage Loans....................................................................... $ 137,800 $ 175,000
Lines of Credit...................................................................... 60,000(1) 110,286
Minority interests in Operating Partnership............................................ 47,563 47,563
Stockholders' equity:
Preferred Stock, $.01 par value; 20,000,000 shares authorized; none issued and
outstanding........................................................................ -- --
Common Stock, $.01 par value; 100,000,000 shares authorized; 21,692,833 issued and
outstanding on a historical basis; and 31,692,833(2) issued and outstanding on a
pro forma basis.................................................................... 217 317
Additional Paid-in Capital........................................................... 331,880 578,424
------------ -----------
Total Stockholders' equity......................................................... 332,097 578,741
------------ -----------
Total Capitalization............................................................. $ 577,460 911,590
------------ -----------
------------ -----------
</TABLE>

- ------------------------------

(1) The balance on the Lines of Credit as of June 24, 1997 was $220.5 million.

(2) Includes 10,000,000 shares of Common Stock to be issued in the Offering,
21,674,500 shares issued in the IPO, 5,000 shares issued in 1996 to
employees of the Company as a stock bonus and 13,333 shares issued upon the
exercise of options granted under the Company's Stock Incentive Plan. See
"Management--Executive Compensation." Does not include 2,971,756 shares of
Common Stock that may be issued upon the exchange of OP Units which are
issued and outstanding, 1,500,000 shares of Common Stock subject to the
Underwriters' overallotment option or 890,000 shares of Common Stock subject
to options granted under the Company's Stock Incentive Plan.

33
<PAGE>
SELECTED FINANCIAL INFORMATION

The following table sets forth (i) selected consolidated historical
financial information for the Company as of and for the three months ended March
31, 1997, as of December 31, 1996 and for the period October 9, 1996 (the date
of the Company's commencement of operations as a public REIT) to December 31,
1996, (ii) selected combined historical financial information for the Arden
Predecessors as of each of the four years in the period ended December 31, 1995,
for the period January 1, 1996 to October 8, 1996, for the three months ended
March 31, 1996, and for each of the four years in the period ended December 31,
1995, and (iii) selected pro forma consolidated financial information for the
Company as of and for the three months ended March 31, 1997 and for the year
ended December 31, 1996.

The selected consolidated historical operating and balance sheet information
of the Company as of December 31, 1996 and for the period from October 9, 1996
(the date of the Company's commencement of operations as a public REIT) to
December 31, 1996 and the selected combined historical operating and balance
sheet information of the Arden Predecessors as of December 31, 1995 and for the
period January 1, 1996 to October 8, 1996 and for each of the two years in the
period ended December 31, 1995 have been derived from the respective historical
consolidated and combined financial statements audited by Ernst & Young LLP,
whose reports with respect thereto are included elsewhere in this Prospectus.
The following information should be read in conjunction with (i) the pro forma
condensed consolidated financial statements and notes thereto of the Company;
(ii) the historical consolidated and combined financial statements and notes
thereto for the Company and the Arden Predecessors; and (iii) "Management's
Discussion and Analysis of Financial Condition and Results of Operations," each
included elsewhere in this Prospectus.

The selected pro forma consolidated financial operating information for the
three months ended March 31, 1997 and the year ended December 31, 1996 is
presented as if the IPO, the Formation Transactions, the closings of the
Mortgage Financing and the Credit Facility, the acquisition of the Properties
acquired in 1996 prior to the consummation of the IPO, 303 Glenoaks and 12501
East Imperial Highway, the Properties acquired in 1996 subsequent to the IPO,
the Properties acquired in 1997, the completion of the Offering, and the
acquisition of the Pending Acquisitions had occurred at January 1, 1996 for the
statements of operations. The selected pro forma consolidated balance sheet
information as of March 31, 1997 is presented as if the completion of the
Offering, the closings of the Mortgage Financing and the Credit Facility, the
acquisition of the properties acquired subsequent to March 31, 1997 and the
acquisition of the Pending Acquisitions had occurred on March 31, 1997. The
selected pro forma consolidated information is based upon certain assumptions
that are included in the notes to the pro forma condensed consolidated financial
statements included elsewhere in this Prospectus. The selected pro forma
consolidated financial information is not necessarily indicative of what the
financial position and results of operations of the Company would have been as
of the dates and for the periods indicated, nor does it purport to represent or
project the financial position and results of operations for future periods.

34
<PAGE>
<TABLE>
<CAPTION>
ARDEN
PREDECESSORS ARDEN PREDECESSORS
----------- COMPANY ---------------------------------
COMPANY ------------------------
------------------------ THREE OCT. 9, HISTORICAL
MONTHS 1996 ---------------------------------
THREE MONTHS ENDED YEAR ENDED TO JAN. 1,
ENDED MAR. 31, DEC. 31, DEC. 31, 1996 YEARS ENDED
MAR. 31, 1997 1996 1996 1996 TO DECEMBER 31,
------------------------ ----------- ----------- ----------- OCT. 8, --------------------
PRO FORMA HISTORICAL HISTORICAL PRO FORMA HISTORICAL 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
REVENUE:
Rental................. $ 33,444 $ 21,892 $ 8,607 $ 132,211 $ 17,041 $ 32,287 $ 8,832 $ 5,157
Tenant
reimbursements....... 1,367 958 638 5,643 803 2,031 403 217
Parking, net of
expenses............. 1,941 1,490 879 8,663 1,215 3,692 751 382
Other.................. 723 630 695 3,354 513 2,455 1,707 796
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
Total revenue........ 37,475 24,970 10,819 149,871 19,572 40,465 11,693 6,552
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
EXPENSES:
Property expenses...... 12,189 7,894 3,615 55,780 6,005 14,224 3,340 2,191
General and
administrative....... 1,000 918 364 4,000 753 1,758 1,377 689
Interest............... 5,359 3,024 6,662 21,436 1,280 24,521 5,537 1,673
Depreciation and
amortization......... 5,520 3,562 1,582 21,721 3,108 5,264 1,898 1,143
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
Total expenses....... 24,068 15,398 12,223 102,937 11,146 45,767 12,152 5,696
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
Equity in net (loss)
income of noncombined
entities............... -- -- (84) -- -- (336) (116) 201
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
Income (loss) before
minority interests and
extraordinary items.... 13,407 9,572 (1,488) 46,934 8,426 (5,638) (575) 1,057
Minority interests' share
of loss (income) of
Arden Predecessors..... -- -- 187 -- -- 721 (1) 1
Minority interests in
Operating
Partnership............ (1,140) (1,134) -- (3,989) (993) -- -- --
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
Income (loss) before
extraordinary items.... 12,267 8,438 (1,301) 42,945 7,433 (4,917) (576) 1,058
Extraordinary (loss) gain
on early extinguishment
of debt, net of
minority interests'
share.................. -- -- -- -- (13,105) 1,877 -- --
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
Net income (loss)........ $ 12,267 $ 8,438 $ (1,301) $ 42,945 $ (5,672) $ (3,040) $ (576) $ 1,058
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
Weighted average number
of shares
outstanding............ 31,921 21,921 31,680 21,680
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss) per
common share:
Income before
extraordinary item... $ 0.38 $ 0.38 $ 1.36 $ 0.34
Extraordinary
item--loss on early
extinguishment of
debt................. -- -- -- (0.60)
----------- ----------- ----------- -----------
Net income (loss) per
common share........... $ 0.38 $ 0.38 $ 1.36 $ (0.26)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Cash dividends declared
per common share....... $ -- $ 0.40 $ -- $ 0.36
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Supplemental net income
(loss) per share
reflecting the pro
forma effects solely of
the Offering and
repayment of debt(1)... $ 0.36 $ (0.21)
----------- -----------
----------- -----------
Pro forma net income per
share reflecting the
pro forma effects of
solely the Offering and
the purchase of the
Pending
Acquisitions(2)........ $ 0.39 $ 0.01
----------- -----------
----------- -----------

<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
OPERATING DATA:
REVENUE:
Rental................. $ 3,034 $
Tenant
reimbursements....... 35
Parking, net of
expenses............. 279
Other.................. 314 324
--------- ---------
Total revenue........ 3,662 324
--------- ---------
EXPENSES:
Property expenses...... 1,480 --
General and
administrative....... 386 471
Interest............... 646 9
Depreciation and
amortization......... 499 2
--------- ---------
Total expenses....... 3,011 482
--------- ---------
Equity in net (loss)
income of noncombined
entities............... 4 --
--------- ---------
Income (loss) before
minority interests and
extraordinary items.... 655 (158)
Minority interests' share
of loss (income) of
Arden Predecessors..... -- --
Minority interests in
Operating
Partnership............ -- --
--------- ---------
Income (loss) before
extraordinary items.... 655 (158)
Extraordinary (loss) gain
on early extinguishment
of debt, net of
minority interests'
share.................. -- --
--------- ---------
Net income (loss)........ $ 655 $ (158)
--------- ---------
--------- ---------
Weighted average number
of shares
outstanding............
Net income (loss) per
common share:
Income before
extraordinary item...
Extraordinary
item--loss on early
extinguishment of
debt.................
Net income (loss) per
common share...........
Cash dividends declared
per common share.......
Supplemental net income
(loss) per share
reflecting the pro
forma effects solely of
the Offering and
repayment of debt(1)...
Pro forma net income per
share reflecting the
pro forma effects of
solely the Offering and
the purchase of the
Pending
Acquisitions(2)........
</TABLE>

35
<PAGE>
<TABLE>
<CAPTION>
COMPANY ARDEN PREDECESSORS
--------------------------------------- --------------------
MARCH 31, 1997 DECEMBER 31,
------------------------ DECEMBER 31, --------------------
PRO FORMA HISTORICAL 1996 1995 1994
----------- ----------- ------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Commercial office properties--net of accumulated depreciation...... $ 908,716 $ 580,636 $ 529,568 $ 160,874 $ 34,977
Total assets....................................................... 933,468 599,338 551,256 182,379 46,090
Mortgage loans payable and unsecured lines of credit............... 285,286 197,800 155,000 168,451 32,944
Total liabilities.................................................. 307,164 219,678 173,612 174,163 34,148
Minority interests................................................. 47,563 47,563 45,667 100 99
Total Stockholders' equity/Owners' equity.......................... 578,741 332,097 331,977 8,116 11,843

1993 1992
--------- ---------

<S> <C> <C>
BALANCE SHEET DATA:
Commercial office properties--net of accumulated depreciation...... $ 25,404 $ --
Total assets....................................................... 27,911 134
Mortgage loans payable and unsecured lines of credit............... 24,356 250
Total liabilities.................................................. 25,190 287
Minority interests................................................. -- --
Total Stockholders' equity/Owners' equity.......................... 2,721 (153)
</TABLE>
<TABLE>
<CAPTION>
ARDEN
PREDECESSORS ARDEN PREDECESSORS
----------- COMPANY ---------------------------------
COMPANY ------------------------
------------------------ THREE OCT. 9, HISTORICAL
MONTHS 1996 ---------------------------------
THREE MONTHS ENDED YEAR ENDED TO JAN. 1,
ENDED MAR. 31, DEC. 31, DEC. 31, 1996 YEARS ENDED DECEMBER
MAR. 31, 1997 1996 1996 1996 TO 31,
------------------------ ----------- ----------- ----------- OCT. 8, --------------------
PRO FORMA HISTORICAL HISTORICAL PRO FORMA HISTORICAL 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from
Operations(3):
Income (loss) before
minority interests
and extraordinary
items............. $ 13,407 $ 9,572 $ (1,488) $ 46,934 $ 8,426 $ (5,638) $ (575) $ 1,057
Depreciation and
amortization...... 5,520 3,562 1,582 21,721 3,108 5,264 1,898 1,143
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
Funds from
Operations........ 18,927 13,134 94 68,655 11,534 (374) 1,323 2,200
Company's share
percentage.......... 91.5% 88.2% -- 91.5% 88.2% -- -- --
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
Company's share of
Funds from
Operations.......... 17,318 11,584 94 62,819 10,173 (374) 1,323 2,200
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
----------- ----------- ----------- ----------- ----------- ----------- --------- ---------
Weighted average
number of shares
Outstanding (in
thousands).......... 31,921 21,921 N/A 31,680 21,680 N/A N/A N/A
Cash flows from
operating
activities.......... -- 12,645 2,031 -- 8,665 5,221 2,830 834
Cash flows from
investing
activities.......... -- (53,677) (95,157) -- (164,763) (119,083) (123,358) (17,921)
Cash flows from
financing
activities.......... -- 34,222 93,421 -- 163,730 122,074 120,707 16,845
Number of Properties
owned at period
end................. 54 38 21 54 34 22 17 8
Gross rentable square
feet of Properties
owned at end of
period (in
thousands).......... 8,637 5,923 3,547 8,637 5,443 3,739 2,634 1,130
Leased percentage for
Properties owned at
end of period....... -- 85% 88% -- 85% 88% 88% 82%

1993 1992
--------- ---------

<S> <C> <C>
OTHER DATA:
Funds from
Operations(3):
Income (loss) before
minority interests
and extraordinary
items............. $ 655 $ (158)
Depreciation and
amortization...... 499 2
--------- ---------
Funds from
Operations........ 1,154 (156)
Company's share
percentage.......... -- --
--------- ---------
Company's share of
Funds from
Operations.......... 1,154 (156)
--------- ---------
--------- ---------
Weighted average
number of shares
Outstanding (in
thousands).......... N/A N/A
Cash flows from
operating
activities.......... 1,186 (258)
Cash flows from
investing
activities.......... (25,965) --
Cash flows from
financing
activities.......... 25,632 250
Number of Properties
owned at period
end................. 3 --
Gross rentable square
feet of Properties
owned at end of
period (in
thousands).......... 530 --
Leased percentage for
Properties owned at
end of period....... 84% --
</TABLE>

- ----------------------------------

(1) The following table sets forth the pro forma effects solely of the Offering
and repayment of debt (in thousands, except per share data):

<TABLE>
<CAPTION>
THREE MONTHS OCTOBER 9, 1996
ENDED TO
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Historical net income (loss).................................................................. $ 8,438 $ (5,672)
Pro forma decrease in interest expense associated with the repayment of debt outstanding at
beginning of period.......................................................................... 1,042 160
-------------- -----------------
Net income (loss) adjusted for repayment of debt outstanding at beginning of period........... $ 9,480 $ (5,512)
-------------- -----------------
-------------- -----------------
Common Stock outstanding on a historical basis................................................ 21,921 21,680
Common Stock issued in the Offering for repayment of debt..................................... 4,108 4,108
-------------- -----------------
Common Stock outstanding--pro forma........................................................... $ 26,029 $ 25,788
-------------- -----------------
-------------- -----------------
Net income (loss) per share reflecting the pro forma effect of the repayment of debt.......... $ 0.36 $ (0.21)
-------------- -----------------
-------------- -----------------
</TABLE>

36
<PAGE>
(2) The following table sets forth the pro forma effects of solely the Offering
and purchase of the Pending Acquisitions (in thousands, except per share
data):

<TABLE>
<CAPTION>
THREE MONTHS OCTOBER 9, 1996
ENDED TO
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Historical net income (loss).................................................................. $ 8,438 $ (5,672)
Arden Predecessors combined net loss.......................................................... -- (3,040)
Pro forma net income of the Pending Acquisitions.............................................. 2,225 9,051
-------------- -----------------
Pro forma net income of the Company and Pending Acquisitions.................................. $ 10,663 $ 339
-------------- -----------------
-------------- -----------------
Common Stock outstanding on a historical basis................................................ 21,921 21,680
Common Stock issued in the Offering to purchase the Pending Acquisitions...................... 5,574 5,574
-------------- -----------------
Common Stock outstanding-pro forma............................................................ $ 27,495 $ 27,254
-------------- -----------------
-------------- -----------------
Net income per share reflecting the pro forma effects of the Offering and purchase of the
Pending Acquisitions......................................................................... $ 0.39 $ 0.01
-------------- -----------------
-------------- -----------------
</TABLE>

(3) The White Paper defines Funds from Operations as net income (loss) (computed
in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnerships and
joint ventures. Management believes Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT because, along
with cash flows from operating activities, financing activities and
investing activities, it provides investors with an understanding of the
ability of the Company to incur and service debt, make capital expenditures
and fund other cash needs. The Company computes Funds from Operations in
accordance with standards established by the White Paper, which may differ
from the methodology for calculating Funds from Operations utilized by other
equity REITs and, accordingly, may not be comparable to such other REITs.
Further, Funds from Operations does not represent amounts available for
management's discretionary use because of needed capital replacement or
expansion, debt service obligations, or other commitments and uncertainties.
See the notes to the Company's historical financial statements. Funds from
Operations should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of the Company's
financial performance or to cash flows from operating activities (determined
in accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make distributions.

37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following discussion should be read in conjunction with the Selected
Financial Information and the historical consolidated financial statements of
the Company and the combined financial statements of the Arden Predecessors and
related notes thereto included elsewhere in this Prospectus. Where appropriate,
the following discussion includes analysis of the effects of the Formation
Transactions and the IPO, the Mortgage Financing, the Offering and the purchase
of the Properties acquired in 1996 prior to the consummation of the IPO, 303
Glenoaks and 12501 East Imperial Highway, the Properties acquired in 1996
subsequent to the IPO, the Properties acquired in 1997, and the Pending
Acquisitions. These effects are reflected in the pro forma condensed
consolidated financial statements located elsewhere in this Prospectus.

Income is derived primarily from rental revenue (including tenant
reimbursements) and parking revenue from commercial office properties. The
Company has acquired its current portfolio over the last four years, with
approximately 7.4% of the Properties (as a percentage of pro forma rental
revenue for the three months ended March 31, 1997) acquired in calendar year
1993, approximately 7.0% of the Properties acquired in 1994, approximately 17.2%
acquired in 1995, approximately 33.5% acquired in 1996 and approximately 34.9%
acquired during the three months ended March 31, 1997. As a result of the
Company's and the Arden Predecessors' aggressive acquisition program, the
financial data shows significant increases in total revenue from year to year,
largely attributable to the acquisitions made during each year, and the benefit
of a full period of effective rental and other revenue for Properties acquired
in the preceding year. For the foregoing reasons, management does not believe
the year to year and quarter to quarter financial data are comparable.

The Company expects that the more significant part of its revenue growth in
the next one to two years will come from additional acquisitions rather than
from occupancy and market rent increases in its current portfolio. On the other
hand, the Company believes that if the Southern California office rental market
continues to improve, then rental rate increases will become a more substantial
part of its revenue growth over time. See "Business and Growth
Strategies--Growth Strategies."

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 TO THREE MONTHS ENDED MARCH
31, 1996. During the first three months of 1997, the Company purchased four
Properties resulting in an increase in real estate investments of approximately
$51.5 million.

The Company's management believes that in order for a meaningful analysis of
the financial statements to be made, certain transactions which occurred in 1996
should be considered in a manner which makes each accounting period comparable.
Accordingly, the revenue and expenses for the noncombined entities for the three
months ended March 31, 1996 have been included as though they were combined,
with intercompany management fees relating to the noncombined entities of
$203,000 eliminated in 1996, in the following discussion. The following section
discusses the results of operations, as adjusted and in thousands.

38
<PAGE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
REVENUE:
Revenue from rental operations:
Rental.............................................................. $ 21,892 $ 12,471
Tenant reimbursements............................................... 958 758
Parking, net of expense............................................. 1,490 1,142
Other rental operations............................................. 576 345
--------- ---------
24,916 14,716
Other income.......................................................... 54 212
--------- ---------
Total revenue..................................................... $ 24,970 $ 14,928
--------- ---------
--------- ---------
EXPENSES:
Repairs and maintenance............................................... $ 2,841 $ 1,440
Utilities............................................................. 2,423 1,137
Real estate taxes..................................................... 1,378 957
Insurance............................................................. 384 872
Ground rent........................................................... 51 47
Marketing and other................................................... 817 732
--------- ---------
Total property expenses............................................. 7,894 5,185
General and administrative............................................ 918 364
Interest.............................................................. 3,024 8,832
Depreciation and amortization......................................... 3,562 2,396
--------- ---------
Total expenses.................................................... $ 15,398 $ 16,777
--------- ---------
--------- ---------
</TABLE>

Rental revenue increased by $9.4 million or 76% for the three months ended
March 31, 1997 compared to the three months ended March 31, 1996. The increase
in rental revenue resulted primarily from a full three months of rental revenue
from Properties acquired during 1996. Rental revenue from the Properties
acquired in 1996 increased to $11.2 million for the three months ended March 31,
1997, representing a full three months of rental revenue, from $2.2 million in
the prior period. Rental revenue associated with Properties acquired in the
first three months of 1997 added an additional $123,000 to rental revenue for
the three months ended March 31, 1997.

Tenant reimbursements increased by $200,000 or 26% for the three months
ended March 31, 1997, compared to the three months ended March 31, 1996. The
increase in tenant reimbursements resulted principally from a full three months
of tenant reimbursements from properties acquired during 1996 offset in part by
a reset in the base year for leases that were renewed or retained for those
Properties that were owned for the entire three months ended March 31, 1997 and
March 31, 1996. Tenant reimbursements associated with the properties acquired in
1996 added an additional $301,000 to revenue during the three months ended March
31, 1997 offset in part by a decrease of $101,000 in tenant reimbursements
associated with the Properties owned for the entire three months ended March 31,
1995 and March 31, 1996. Parking, net of expense, increased by $348,000 or 30%
for the three months ended March 31, 1997 compared to the three months ended
March 31, 1996. The increase resulted principally from a full three months of
parking, net of expense, from Properties acquired during 1996. Parking revenue,
net of expense, associated with the Properties acquired in 1996 increased to
approximately $374,000 for the three months ended March 31, 1997 from
approximately $77,000 for the three months ended March 31, 1996.

39
<PAGE>
Other rental operations, consisting primarily of tenant charges, such as
after hours utility and HVAC charges, increased by $231,000 or 67.0% for the
three months ended March 31, 1997 compared to the prior year, primarily due to
$229,000 of other rental operations from properties acquired in 1996.

Other income decreased by $158,000 due to the decrease in management fees
from third party owned properties.

The following is a comparison of certain expenses for the three months ended
March 31, 1997 and March 31, 1996:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------------- DOLLAR PERCENT
1997 1996 CHANGE CHANGE
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
CERTAIN EXPENSES:
Repairs and maintenance.............................. $ 2,841 $ 1,440 $ 1,401 97%
Utilities............................................ 2,423 1,137 1,286 113%
Real estate taxes.................................... 1,378 957 421 44%
Insurance............................................ 384 872 (488) (56%)
Ground rent.......................................... 51 47 4 9%
Marketing and other.................................. 817 732 85 12%
--------- --------- --------- ---
Total certain expenses............................. $ 7,894 $ 5,185 $ 2,709 52.2%
--------- --------- --------- ---
--------- --------- --------- ---
</TABLE>

Total certain expenses increased to $7.9 million, or 35% of rental revenue
and tenant reimbursements, from $5.2 million or 39% of rental revenue and tenant
reimbursements for the three months ended March 31, 1997 and 1996, respectively.
The increase in total certain expenses was partially offset by a decrease in
insurance due to a more favorable insurance policy. The increase in total
certain expenses is primarily attributable to the Properties acquired during
1996. The increase in total certain expenses from the three months ended March
31, 1996 to the three months ended March 31, 1997 resulting from the Properties
acquired during 1996 was approximately $2.7 million.

General and administrative expenses increased by $554,000 or 152% for the
three months ended March 31, 1997 compared to the three months ended March 31,
1996. The increase resulted principally from the increase in portfolio size and
the increase in management and administration costs associated with the
Company's infrastructure relative to that of the Arden Predecessors.

Depreciation and amortization increased by $1.2 million or 49% primarily due
to 1996 acquisitions.

40
<PAGE>
The following is a comparison of property operating data for the 17
Properties that were owned for the entire three months ended March 31, 1997 and
March 31, 1996 (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
REVENUE:
Rental................................................................ $ 10,561 $ 10,242
Tenant reimbursements................................................. 516 617
Parking............................................................... 1,116 1,064
Other................................................................. 298 170
--------- ---------
Total revenues.................................................... $ 12,491 $ 12,093
--------- ---------
--------- ---------
EXPENSES:
Property operating, taxes, insurance, and ground rent................. $ 4,122 $ 4,064
--------- ---------
--------- ---------
</TABLE>

Rental revenues increased slightly during the first three months of 1997
compared to 1996 primarily due to an increase in occupancy. Tenant
reimbursements decreased by $101,000 during the same period, primarily resulting
from a reset in the base year for leases that were renewed or retenanted. For
the three months ended March 31, 1997, parking income increased by $52,000 over
the same period in 1996. Other income increased by $128,000 in 1997 compared to
1996 due to increases in miscellaneous tenant charges such as after hour utility
and HVAC charges. Property operating expenses, taxes, and ground rent increased
slightly in 1997 compared to the prior year primarily due to an increase in
occupancy. This was partially offset by a decrease in insurance due to a more
favorable insurance policy.

COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31,
1995. During 1996 the Company and the Arden Predecessors purchased 16
properties resulting in an increase in real estate investments of approximately
$266 million.

The Company's management believes that in order for a meaningful analysis of
the financial statements to be made, certain transactions which occurred in 1996
should be considered in a manner which makes each accounting period comparable.
Accordingly, the revenue and expenses for the noncombined entities for the year
ended December 31, 1995 and the period from January 1, 1996 to October 8, 1996
have been included as though they were combined, with intercompany management
fees relating to the noncombined entities of $704,000 and $831,000 eliminated in
1996 and 1995, respectively, in the following discussion. The following section
discusses the results of operations, as adjusted and in thousands.

41
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
REVENUE:
Revenue from rental operations:
Rental.................................................................................. $ 62,156 $ 24,442
Tenant reimbursements................................................................... 3,076 822
Parking, net of expense................................................................. 5,753 1,665
Other rental operations................................................................. 1,867 1,027
--------- ---------
72,852 27,956
Other income.............................................................................. 754 626
--------- ---------
Total revenue....................................................................... $ 73,606 $ 28,582
--------- ---------
--------- ---------
EXPENSES:
Repairs and maintenance................................................................... $ 6,446 $ 3,235
Utilities................................................................................. 7,054 3,076
Real estate taxes......................................................................... 3,741 1,590
Insurance................................................................................. 3,049 626
Ground rent............................................................................... 994 152
Marketing and other....................................................................... 4,292 1,588
--------- ---------
Total property expenses................................................................. 25,576 10,267
General and administrative................................................................ 2,512 1,404
Interest.................................................................................. 33,157 13,780
Depreciation and amortization............................................................. 11,078 4,346
--------- ---------
Total expenses...................................................................... $ 72,323 $ 29,797
--------- ---------
--------- ---------
</TABLE>

Rental revenue increased by $37.7 million or 154% for the year ended
December 31, 1996 compared to the year ended December 31, 1995. The increase in
rental revenue resulted principally from a full year of rental revenue from
Properties acquired during 1995, six of which were acquired after June 30, 1995,
and rental revenue from Properties acquired during 1996. Rental revenue from the
Properties acquired in 1995 increased to $23.2 million for the year ended
December 31, 1996, representing a full year of rental revenue, from $5.4 million
in the prior period. Rental revenue associated with Properties acquired in 1996
added an additional $19.7 million to rental revenue for the year ended December
31, 1996.

Tenant reimbursements increased by $2.3 million or 274% for the year ended
December 31, 1996, compared to the year ended December 31, 1995. The increase in
tenant reimbursements resulted principally from a full year of tenant
reimbursements from Properties acquired during 1995 and tenant reimbursements
from Properties acquired during 1996. Tenant reimbursements from Properties
acquired in 1995 added an additional $1.1 million for the year ended December
31, 1996, representing a full year of tenant reimbursements. Tenant
reimbursements associated with the Properties, net of expenses, acquired in 1996
added an additional $1.3 million to revenue during the year ended December 31,
1996.

Other rental operations, consisting primarily of miscellaneous tenant
charges such as after hours utility and HVAC charges, increased by $840,000 or
82% for the year ended December 31, 1996 compared to the prior year. The
increase in other rental operations resulted principally from a full year of
other rental operations from Properties acquired in 1995 and other rental
operations from the Properties acquired during 1996.

42
<PAGE>
Other income consisting primarily of management fees from third party owned
Properties increased $128,000 or 20% for the year ended December 31, 1996
compared to the prior year.

Parking, net of expense, increased by $4.1 million or 246% for the year
ended December 31, 1996 compared to the year ended December 31, 1995. The
increase resulted principally from a full year of parking, net of expense, from
Properties acquired during 1995 and parking, net of expense, from Properties
acquired during 1996. Parking, net of expense, from the Properties acquired in
1995 increased to $3.4 million for the year ended December 31, 1996,
representing a full year of parking, net of expense, from $586,000 in the prior
year. Parking, net of expense, associated with the Properties acquired in 1996
added an additional $1.2 million to parking, net of expense, during the year
ended December 31, 1996.

The following is a comparison of certain expenses for the years ended
December 31, 1996 and December 31, 1995:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------- DOLLAR PERCENT
1996 1995 CHANGE CHANGE
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
CERTAIN EXPENSES:
Repairs and maintenance............................................... $ 6,446 $ 3,235 $ 3,211 99%
Utilities............................................................. 7,054 3,076 3,978 129%
Real estate taxes..................................................... 3,741 1,590 2,151 135%
Insurance............................................................. 3,049 626 2,423 387%
Ground rent........................................................... 994 152 842 554%
Marketing and other................................................... 4,292 1,588 2,704 170%
--------- --------- --------- ---
Total certain expenses.............................................. $ 25,576 $ 10,267 $ 15,309 149%
--------- --------- --------- ---
--------- --------- --------- ---
</TABLE>

For the years ended December 31, 1996 and 1995, total certain expenses were
$25.6 million, or 39% of rental revenue and tenant reimbursements, and $10.3
million or 41% of rental revenue and tenant reimbursements, respectively. The
increase in total certain expenses is primarily attributable to the Properties
acquired during 1995 and 1996 and the expenses associated with the absorption of
vacant rentable space. The increase in total certain expenses from the year
ended December 31, 1995 to the year ended December 31, 1996 resulting from the
Properties acquired during 1996 was approximately $8.1 million. In addition,
total certain expenses increased by $7.4 million as a result of a full year of
operations for the properties acquired in 1995, and an increase in occupancy at
the Properties owned at both December 31, 1996 and 1995.

General and administrative expenses increased by $1.1 million or 79% for the
year ended December 31, 1996 compared to the year ended December 31, 1995.
However, general and administrative expenses during 1996 fell to 3.0% of total
revenue compared to 5.0% of total revenue during 1995, due to the economies of
scale associated with adding additional Properties.

Interest expense includes interest at the contractual current pay rate of
the mortgage loans, amortization of the loan fees paid at origination, and
accrual of additional interest due upon the retirement of the debt. Interest
expense for the year ended December 31, 1996 was approximately $33.2 million,
including interest payable upon the retirement of certain mortgage loans.
Interest expense increased by approximately $19.4 million or 141% for the year
ended December 31, 1996 compared to the year ended December 31, 1995, primarily
as a result of the increase in mortgage loans payable to fund the acquisitions
that occurred during 1995 and 1996. The interest expense associated with the
mortgage loans originated during 1996 prior to the IPO was approximately $9.1
million. In addition, the year ended December 31, 1996 included a full year of
interest expense for Properties acquired during calendar year 1995, which
increased interest expense by approximately $10.4 million.

43
<PAGE>
Depreciation and amortization increased by $6.7 million or 155% primarily
due to 1995 and 1996 acquisitions.

The following is a comparison of property operating data for the eight
Properties that were owned for the entire twelve months ended December 31, 1996
and December 31, 1995 (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
REVENUE:
Rental.................................................................................... $ 19,264 $ 18,893
Tenant reimbursements..................................................................... 553 662
Parking................................................................................... 1,102 1,081
Other..................................................................................... 524 863
--------- ---------
Total revenues.......................................................................... $ 21,443 $ 21,499
--------- ---------
--------- ---------
EXPENSES:
Property operating, taxes, insurance, and ground rent..................................... $ 7,493 $ 7,548
--------- ---------
--------- ---------
</TABLE>

Rental revenues increased slightly during 1996 compared to 1995 primarily
due to an increase in occupancy. Tenant reimbursements decreased by $109,000
during 1996 compared to 1995, primarily resulting from a reset in the base year
for leases that were renewed or retenanted. For the twelve months ended December
31, 1996, parking income increased by $21,000 over the same period in 1995.
Other income decreased by $339,000 in 1996 compared to 1995 due to non-recurring
lease buyout income earned in 1995. Property operating expenses, taxes,
insurance, and ground rent decreased slightly in 1996 compared to the prior year
primarily due to the economies of scale that the Company achieved by owning a
larger portfolio of Properties.

In connection with the IPO, the Company repaid all of the Arden
Predecessors' mortgage debt. These repayments resulted in (i) an extraordinary
gain to the Arden Predecessors of $1,877,000 relating to a partial forgiveness
of debt by one lender, and (ii) an extraordinary loss to the Company of
$14,857,000 ($13,105,000, net of minority interest) relating to additional
interest and unamortized loan fees.

COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31,
1994. During 1995, the Arden Predecessors purchased seven Properties resulting
in an increase in commercial office properties of approximately $126 million.

Rental revenue increased by $3.7 million or 71% for the year ended December
31, 1995 compared to the year ended December 31, 1994. The increase in rental
revenue resulted principally from a full year of rental revenue from the
Property acquired in 1994 and partial year rental revenue from Properties
acquired in 1995. Rental revenue from the Property acquired in 1994 increased to
$1.2 million for the year ended December 31, 1995, representing a full year of
rental revenue, from $977,000 for such Property in the prior year. Rental
revenue associated with the Properties acquired in 1995 added an additional
approximate $3.2 million to rental revenue in 1995.

Tenant reimbursements and other revenue increased by $1.1 million or 108%
for the year ended December 31, 1995 compared to the year ended December 31,
1994. Other revenue increased by $911,000, primarily representing management
fees from third-party owned properties. The increase in tenant reimbursements
and other revenue resulted principally from a full year of tenant reimbursements
from the Property acquired during 1994 and partial year tenant reimbursements
from Properties acquired during 1995 as well as the addition of one new
third-party property management agreement during 1995. Tenant reimbursements
from the Property acquired in 1994 increased to $239,000 for the year ended
December 31, 1995, representing a full year of tenant reimbursements, from
$182,000 in the prior year. Tenant

44
<PAGE>
reimbursements associated with the Properties acquired in 1995 added an
additional $150,000 to tenant reimbursements during the year ended December 31,
1995.

Parking, net of expense, increased by $368,000 or 96% for the year ended
December 31, 1995 compared to the year ended December 31, 1994. The increase
resulted principally from a full year of parking, net of expense, from the
Property acquired during 1994 and partial year parking, net of expense, from
Properties acquired during 1995. Parking, net of expense, associated with the
Properties acquired in 1995 added an additional $319,000 to parking, net of
expense, during the year ended December 31, 1995.

At December 31, 1994 the Arden Predecessors held non-controlling investments
in various entities, the noncombined entities, which own commercial office
properties. During 1995, the Arden Predecessors made an investment in an
additional entity which owns commercial office properties. These entities are
accounted for in the financial statements of the Arden Predecessors using the
equity method. Equity in net income of noncombined entities decreased by
$317,000 for the year ended December 31, 1995 compared to the year ended
December 31, 1994. This 273% decrease is due principally to significant tenant
losses in the 1995 investment.

The following is a comparison of certain expenses of the Arden Predecessors
for the years ended December 31, 1995 and December 31, 1994 (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------- DOLLAR PERCENT
1995 1994 CHANGE CHANGE
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
CERTAIN EXPENSES:
Repairs and maintenance.................................................. $ 1,027 $ 901 $ 126 14%
Utilities................................................................ 953 581 372 64%
Real estate taxes........................................................ 502 272 230 85%
Insurance................................................................ 279 50 229 458%
Ground rent.............................................................. 19 -- 19 --
Marketing and other...................................................... 560 387 173 45%
--------- --------- --------- ---
Total certain expenses................................................. $ 3,340 $ 2,191 $ 1,149 52%
--------- --------- --------- ---
--------- --------- --------- ---
</TABLE>

Total certain expenses were $3.3 million, or 36% of rental revenue and
tenant reimbursements, and $2.2 million, or 41% of rental revenue and tenant
reimbursements, for the years ended December 31, 1995 and December 31, 1994,
respectively. The increase in total certain expenses is primarily attributable
to a full year of operations for the Property acquired in 1994, the partial year
of operations for the Properties acquired in 1995, and the expenses associated
with the absorption of vacant rentable space across the portfolio. The increase
in total certain expenses from 1994 to 1995 resulting from the 1995 acquisitions
was approximately $1.4 million. In addition, total certain expenses increased by
$44,000 for the year ended December 31, 1995 as a result of a full year of
operations for the Property acquired in 1994, and the above-described increase
in occupancy at the Properties owned at both December 31, 1994 and 1995.

General and administrative expenses increased by $688,000 or 100% for the
year ended December 31, 1995, compared to the year ended December 31, 1994,
primarily due to additional employees required to manage the increased portfolio
of Properties. General and administrative expenses as a percentage of total
revenue was 12% and 11% during 1995 and 1994, respectively.

45
<PAGE>
interest expense associated with the 1995 mortgage loans was $2.7 million. In
addition, 1995 included a full year of interest expense for debt incurred to
acquire the Property in 1994, which increased interest expense by approximately
$466,000.

Depreciation and amortization increased by $755,000 or 66% primarily due to
the 1995 acquisitions and the full year effect of the 1994 acquisition.

As a result of the foregoing, the Arden Predecessors had a net loss of
$576,000 for the year ended December 31, 1995 compared to net income of $1.1
million for the year ended December 31, 1994.

The following is a comparison of the property operating data for the
Properties that were owned for the entire year ended December 31, 1995 and
December 31, 1994 (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
REVENUE:
Rental....................................................................................... $ 4,417 $ 4,180
Tenant reimbursements........................................................................ 15 36
Parking...................................................................................... 431 382
Other........................................................................................ 152 108
--------- ---------
Total revenues............................................................................. $ 5,015 $ 4,706
--------- ---------
--------- ---------
EXPENSES:
Property operating, taxes, insurance, and ground rent........................................ $ 1,724 $ 1,985
--------- ---------
--------- ---------
</TABLE>

For the year ended December 31, 1995, occupancy increased from 84% at
December 31, 1994 to 92% at December 31, 1995 and substantially all of the
revenue increase was due to this occupancy increase. Property operating
expenses, taxes, insurance, and ground rent decreased by $261,000 for the year
ended December 31, 1995 over the prior year due to the economies of scale that
the Company obtained by owning a larger portfolio of Properties. The Company was
able to allocate its personnel among more of its Properties and obtain certain
discounts by utilizing its greater purchasing power.

PRO FORMA OPERATING RESULTS

THREE MONTHS ENDED MARCH 31, 1997. On a pro forma basis, consolidated
income (before deduction of minority interests) would have been $13.4 million
for the three months ended March 31, 1997 or $12.3 million consolidated net
income of the Company (after deduction of minority interests), comparing
positively to the historical net income of $8.4 million for the three months
ended March 31, 1997. This positive comparison results from a substantial
increase in total revenue, due to the benefit of a pro forma full three months
of revenue from the properties acquired (and to be acquired) in 1997.

Pro forma total revenue is $37.5 million representing a $12.5 million
increase over historical 1997 resulting primarily from an increase of $11.6
million in rental revenue associated with properties acquired (and to be
acquired) in 1997. Pro forma revenue from tenant reimbursements and parking is
$3.3 million, representing a $860,000 increase over historical results.

The historical 1997 interest expense of 3.0 million increased to $5.4
million on a pro forma basis. Correspondingly, interest expense as a percentage
of total revenue increased from 12% of total revenue in historical 1997 to 14%
of total revenue on a pro forma basis.

YEAR ENDED DECEMBER 31, 1996. On a pro forma basis, consolidated income
(before deduction of minority interests) would have been $46.9 million for the
year ended December 31, 1996, or $42.9 million consolidated net income of the
Company (after deduction of minority interests), comparing positively to the
historical net loss of $5.7 million for the year ended December 31, 1996. This
positive comparison

46
<PAGE>
results from a significant reduction in interest expense as well as a
substantial increase in total revenue, due to the benefit of a pro forma full
year of revenue from the properties acquired in 1996 and pro forma revenue from
the properties acquired (and to be acquired) in 1997.

Pro forma total revenue is $149.9 million representing a $75.6 million
increase over the combination of the total revenue of $54.7 million of the Arden
Predecessors and the noncombined entities of the Arden Predecessors for the
period from January 1, 1996 to October 8, 1996 and the total revenue of $19.6
million of the Company for the period from October 9, 1996 to December 31, 1996,
resulting primarily from an increase of $46.9 million in rental revenue
associated with properties acquired (and to be acquired) in 1997, combined with
a full year of rental revenue from the properties acquired in 1996 totaling
$23.1 million. Revenue from tenant reimbursements and parking also increased on
a pro forma basis over historical 1996 primarily due to $3.6 million of such
revenue generated at the properties acquired (or to be acquired) in 1997.

LIQUIDITY AND CAPITAL RESOURCES

MORTGAGE FINANCING. On June 11, 1997, the Company refinanced, through a
special purpose subsidiary, its existing $175 million mortgage financing with
the new $175 million Mortgage Financing from an affiliate of Lehman Brothers.
The Mortgage Financing is non-recourse and secured by fully cross-collateralized
and cross-defaulted first mortgage liens on the 18 Mortgage Financing Properties
and has a fifteen year term. The Mortgage Financing bears interest at a fixed
rate of 7.52%, is anticipated to be repaid in seven years and requires monthly
payments of interest only with all principal due in a balloon payment at
maturity. If the Mortgage Financing is not repaid or refinanced within seven
years, the interest rate increases by at least 2% and all excess cash flow from
the Mortgage Financing Properties must be used to pay down principal. The
Mortgage Financing documentation requires the Company to comply with certain
customary financial covenants, ongoing operational restrictions, and certain
cash management procedures. In addition, the Mortgage Financing prohibits
prepayment for approximately three years from its origination.

CREDIT FACILITIES. On June 11, 1997, the Company amended its then existing
credit facility with a $300 million unsecured line of credit (the "Credit
Facility") from a group of banks led by Wells Fargo (the "Lenders"). The
interest rate of the Credit Facility ranges between LIBOR plus 1.2% and LIBOR
plus 1.45% depending on the leverage ratio of the Company. Once the Company
achieves a long-term, unsecured, investment grade debt rating, the interest rate
may be lowered to between LIBOR plus 0.9% to LIBOR plus 1.15% depending on such
debt rating. Under certain circumstances, the Company has the option to convert
the interest rate from LIBOR to the prime rate plus 0.5%. As of June 24, 1997,
approximately $14.0 million was available under the Credit Facility. Upon
consummation of the Offering and the Pending Acquisitions, the Company expects
to have $170 million available under the Credit Facility. The Credit Facility
has been and will be used, among other things, to finance the acquisition of
properties, provide funds for tenant improvements and capital expenditures and
provide for working capital and other corporate purposes. The outstanding
principal balance is due on June 1, 2000.

The Credit Facility is subject to customary conditions to borrowing,
contains representations and warranties and defaults customary in REIT
financings, and contains financial covenants, including requirements for a
minimum tangible net worth, maximum liabilities to asset values, and minimum
interest, unsecured interest and fixed charge coverage ratios (all calculated as
defined in the Credit Facility documentation) and requirements to maintain a
pool of unencumbered properties which meet certain defined characteristics and
are approved by the Lenders. The Credit Facility also contains restrictions on,
among other things, indebtedness, investments, distributions, liens and mergers.

47
<PAGE>
secure this advance to the Credit Facility's unencumbered pool of properties,
the Company will draw down $26 million from the Credit Facility to repay the
advance.

The Company also has an unsecured line of credit with a total commitment of
$10,000,000 from City National Bank (the "CNB Credit Facility"). On March 31,
1997 the aggregate outstanding balance was $10,000,000. The CNB Credit Facility
accrues interest at the City National Bank Prime Rate less 0.875%, and is
scheduled to mature on August 1, 1998. The CNB Credit Facility has and will be
used, among other things, to provide funds for tenant improvements and capital
expenditures and provide for working capital and other corporate purposes.

SWAP AGREEMENT. Effective January 2, 1997, the Company entered into
interest rate floor and cap transactions with a notional amount of $155 million
(collectively, the "Swap Agreement"), to convert floating rate liabilities to
fixed rate liabilities. The Swap Agreement enables the Company to fix the LIBOR
portion of its floating rate liabilities at 6.6% through March 2004.

ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES. The total market
capitalization of the Company at March 31, 1997 was approximately $869.9
million, based upon the market price of the issued and outstanding shares of
Common Stock and OP Units at March 31, 1997 (assuming all OP Units were
exchanged for shares of Common Stock) and the outstanding debt of approximately
$197.8 million at March 31, 1997. As a result, the Company's debt to total
market capitalization ratio at March 31, 1997 was approximately 22.7%. The
undisbursed portion of the Credit Facility combined with this low-leveraged
capital structure should enhance the Company's ability to take advantage of
acquisition opportunities as well as provide, if necessary, working capital for
tenant leasehold improvements and leasing commissions associated with new
leasing activity.

Amounts accumulated for distribution will be invested by the Company
primarily in short-term investments that are collateralized by securities of the
United States government or any of its agencies, high-grade commercial paper and
bank deposits.

The Company expects to continue meeting its short-term liquidity
requirements generally through its working capital and net cash provided by
operating activities. The Company believes that its net cash provided by
operating activities will continue to be sufficient to allow the Company to make
any distributions necessary to enable the Company to continue qualify as a REIT.
The Company also believes that the foregoing sources of liquidity will be
sufficient to fund its short-term liquidity needs for the foreseeable future,
including recurring non-revenue enhancing capital expenditures, tenant
improvements and leasing commissions.

The Company expects to meet certain long-term liquidity requirements such as
property acquisitions, scheduled debt maturities, renovations, expansions and
other non-recurring capital improvements through long-term secured and unsecured
indebtedness and the issuance of additional equity securities. The Company also
expects to use the remaining funds available under the Credit Facility to fund
acquisitions, development activities and capital improvements on an interim
basis.

CASH FLOWS

COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 TO THREE MONTHS ENDED MARCH
31, 1996. Net cash provided by operating activities increased by $10.6 million
from $2 million to $12.6 million primarily due to an increase in rental revenue.
Net cash used in investing activities decreased by $41.5 million from $95.2
million to $53.7 million mainly due to a decrease in the amount of real estate
assets purchased during the first three months of 1997 compared to the first
three months of 1996. Net cash provided by financing activities decreased by
$59.2 million from $93.4 million to $34.2 million due primarily to a decrease in
proceeds received from mortgage loans.

48
<PAGE>
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31,
1995. In October 1996 the Company completed the IPO of 18,847,500 shares of its
Common Stock at $20 per share. In addition, the underwriters exercised their
overallotment option and accordingly, the Company issued an additional 2,827,000
shares of Common Stock. Net proceeds to the Company, after underwriting
discounts and other offering costs, were approximately $397 million. In
conjunction with the Formation Transactions, certain investors contributing
interests in properties and or property partnerships received OP Units. An OP
Unit and a share of the Common Stock have essentially the same economic
characteristics in as much as they effectively share equally in the net income
or loss of the Operating Partnership. Holders of OP Units issued in connection
with the Formation Transactions will have the opportunity beginning on the first
anniversary of the consummation of the IPO (October 9, 1997) to have their OP
Units redeemed for cash equal to the fair market value thereof at the time of
redemption or, at the election of the Company, exchanged for shares of Common
Stock on a one-for-one basis. Each time an OP Unit is redeemed, the Company's
percentage interest in the Operating Partnership will be proportionately
increased.

The Company used the proceeds from the IPO (i) to repay certain mortgage
indebtedness on the Initial Properties in the amount of approximately $370
million (including payment of additional interest and other related expenses);
(ii) to acquire certain real estate properties for approximately $33 million;
and (iii) to pay approximately $26.8 million in exchange for partnership assets.

During the period October 9, 1996 to December 31, 1996, the Company
purchased an additional nine office properties. These acquisitions were
partially financed with the Company's mortgage financing and credit facility
which were in place at that time. The outstanding balances of such mortgage
financing and credit facility at December 31, 1996 were $104 and $51 million,
respectively. In connection with the purchase of one of the Properties the
Company issued 55,805 OP Units as partial consideration in the transaction.

COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31,
1994. Net cash provided by operating activities increased by $2.0 million from
$800,000 to $2.8 million primarily due to the additional cash flow generated by
the increase in the number of Properties owned. Net cash used in investing
activities increased by $105.5 million from $17.9 million to $123.4 million
primarily due to an increase in the amount of real estate assets purchased
during 1995 compared to 1994. Net cash provided by financing activities
increased by $103.9 million from $16.8 million to $120.7 million due to proceeds
received on mortgage notes offset in part by increases in mortgage loans repaid
and restricted cash.

INFLATION

Substantially all of the office leases provide for separate escalations of
real estate taxes and operating expenses over a base amount. In addition, many
of the office leases provide for fixed base rent increases or indexed
escalations (based on the CPI or other measures). The Company believes that
inflationary increases in expenses will be offset by the expense reimbursements
and contractual rent increases described above.

49
<PAGE>
SOUTHERN CALIFORNIA ECONOMY AND OFFICE MARKETS

The Company believes that current and forecast trends affecting Southern
California have created and will continue to create a favorable economic
environment in the suburban Southern California office markets where
substantially all of the Company's Properties are located. First, the Company
believes that the supply of office space in Southern California has stabilized
and is unlikely to increase significantly over the short term in large part
because in many submarkets it is still not economically feasible to develop new
office space based on rental rates currently attainable in Southern California
office markets. Second, the recent economic restructuring of many of Southern
California's primary office-using sectors including the entertainment,
export/import, managed health care, high technology, telecommunications, and
civilian and military aerospace and defense industries has caused growth in
demand for office space. Third, demand for office space relative to the level of
supply has led to higher occupancy rates and a trend toward higher rental rates
which are supportable in the office markets where the Company's Properties and
Pending Acquisitions are located. Finally, patterns of residential relocation to
suburban areas due in part to the public perception of greater personal security
and the availability of greater recreational and residential amenities, coupled
with a heightened preference for living in close proximity to work and
employers' resultant access to a broader, more skilled local labor force have
fueled growth of suburban office property demand. The Company believes that
these factors and other specific economic indicators discussed below suggest a
continued strengthening of the Southern California economy. Given the quality
and location of its Properties and Pending Acquisitions, the Company believes it
is competitively positioned to capitalize on these economic trends and the
resulting increasing demand for suburban office space.

SOUTHERN CALIFORNIA ECONOMY

OVERVIEW. The Company believes that the office markets in Southern
California, and particularly suburban Los Angeles County, have improved and will
be excellent markets in which to own and operate office properties over the long
term.

The five counties in which the Company's Properties are located include Los
Angeles, Orange, Ventura, Kern and San Diego counties which collectively
comprise approximately 50% of the statewide population and employment base in
California. Data from the U.S. Bureau of Labor Statistics indicate that the
unemployment rate in these counties peaked in 1993 during the height of the 1990
to 1993 recessionary period in Southern California. Recently, however, these
counties experienced a gradual economic recovery marked by falling unemployment
rates beginning in 1994 which, according to THE 1996 ECONOMIC REPORT OF THE
GOVERNOR OF CALIFORNIA (the "1996 ECONOMIC REPORT"), was precipitated by growth
in the services and trade employment sectors, among others, and a less
pronounced rate of decline in defense related activities in Southern California.
Since 1993, the five-county Los Angeles area economy (comprising Los Angeles,
Orange, Ventura, Riverside and San Bernardino counties) has grown at an annual
rate of over 3.9%, and, according to the Economic Development Corporation of Los
Angeles (the "LAEDC") is forecast to grow at a 6.3% rate during 1997 (as
compared to 3.5% for the United States as a whole).

50
<PAGE>
GDP FOR FIVE-COUNTY LOS ANGELES AREA

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
GDP ($ BILLIONS)
<S> <C>
1990 372.6
1991 376.4
1992 389.0
1993 296.2
1994 405.0
1995 421.5
1996 445.2
1997e 473.4
</TABLE>

- ------------------------

SOURCE: CALIFORNIA DEPARTMENT OF FINANCE, LAEDC

Unemployment in the Company's markets has also shown positive trends since
the recession. According to the U.S. Bureau of Labor Statistics, in March 1997
unemployment in Los Angeles County was 7.1% (not seasonally adjusted), its
lowest level since January 1991 and down 3.7% from its recessionary high of
10.8% (not seasonally adjusted) in July 1992. Similar trends of decreasing
unemployment have also been experienced in Orange, Ventura, Kern, and San Diego
counties, all of which experienced post-recession annual lows in unemployment in
1996.

LOS ANGELES COUNTY UNEMPLOYMENT RATE

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
UNEMPLOYMENT RATE
<S> <C>
1990 5.9%
1991 8.2%
1992 9.8%
1993 9.8%
1994 9.4%
1995 7.9%
1996 8.2%
1997e 7.4%
</TABLE>

- ------------------------

SOURCE: BUREAU OF LABOR STATISTICS, LAEDC

The LAEDC has forecast a total increase in non-farm employment for the
period from 1996 to 2005 of 19.9% and 19.5% for Los Angeles County and Orange
County, respectively, representing an average annual growth rate of 2.0% for
each. Overall, the five-county Los Angeles region is expected to experience
similar growth with an 18.6% increase in employment over the same period.

51
<PAGE>
A driving factor in the forecast employment growth within the counties in
which the Company operates is strong population growth, which is expected to
outpace the population growth in the United States for the period from 1995 to
2000, as shown below:

<TABLE>
<CAPTION>
POPULATION
POPULATION GROWTH
GROWTH 1995-2000
AREA 1990-1995 (PROJECTED)
- --------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Los Angeles County................................................... 3.1% 5.8%
Orange County........................................................ 6.4% 11.1%
Ventura County....................................................... 5.5% 6.0%
Kern County.......................................................... 13.5% 17.9%
San Diego County..................................................... 5.8% 12.2%
California........................................................... 6.2% 9.1%
United States........................................................ 5.6% 5.1%
</TABLE>

- ------------------------

SOURCE: U.S. BUREAU OF THE CENSUS, BUREAU OF ECONOMIC ANALYSIS (U.S. DEPARTMENT
OF COMMERCE), STATE OF CALIFORNIA DEPARTMENT OF FINANCE.

As primary office employment grows, office demand is expected to increase.
According to AMERICA'S OFFICE ECONOMY prepared by Cognetics, Inc., Metropolitan
Los Angeles (which includes Los Angeles County, Ventura County and Orange
County), in which 42 of the Company's 45 Properties are located, is projected to
be the number one market in the United States for primary office employment
growth from 1996 to 2006, and San Diego is ranked 17th.

TOP 20 MARKETS FOR PRIMARY OFFICE
EMPLOYMENT GROWTH (1996-2006)

<TABLE>
<C> <S>
1. LOS ANGELES
2. San Francisco-Oakland
3. Atlanta
4. Dallas-Ft. Worth
5. Washington, DC-MD-VA
6. Chicago
7. Phoenix
8. New York
9. Houston-Galveston
10. Tampa-St. Petersburg
11. Minneapolis-St. Paul
12. Boston
13. Denver-Boulder
14. Seattle
15. Miami-Ft. Lauderdale
16. Orlando
17. SAN DIEGO
18. Detroit
19. Las Vegas
20. Austin
</TABLE>

- ------------------------

SOURCE: COGNETICS, INC.

A significant factor affecting primary office employment growth in the
Metropolitan Los Angeles area is a trend within the local economy to become more
services oriented. From 1990 to 1996, the service sector in Los Angeles county
has expanded from approximately 28% of total non-farm employment to
approximately 33%, and is projected by the LAEDC to continue to expand to
approximately 38% by 2005. Data from the California Employment Development
Department show that Los Angeles County created over 85,000 new jobs in 1996,
62% of which were in the service sector. This constituted a 2.3% annual growth
rate versus 2.0% for the U.S. as a whole.

52
<PAGE>
LOS ANGELES COUNTY SERVICES EMPLOYMENT
AS PERCENTAGE OF TOTAL NON-FARM EMPLOYMENT

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
% OF TOTAL NON-FARM EMPLOYMENT
<S> <C>
1988 27.3%
1989 27.9%
1990 28.5%
1991 29.8%
1992 29.7%
1993 30.7%
1994 31.2%
1995 31.9%
1996 32.6%
1997e 33.3%
1998e 33.8%
2000e 34.9%
2005e 37.6%
</TABLE>

- ------------------------

SOURCE: CALIFORNIA EMPLOYMENT DEVELOPMENT DEPARTMENT, LAEDC

In addition to becoming a more diversified economy with a stronger emphasis
on the services sector, according to the LAEDC, Los Angeles County ranked number
one in the nation in the number of business establishments by county in 1992 and
is a major center of international trade. According to the 1996 ECONOMIC REPORT,
Los Angeles County is also the nation's leading manufacturing center. The
five-county Los Angeles area is home to 26 Fortune 500 companies, and Los
Angeles County itself comprises over 40% of the nondurable manufacturing
employment, 95% of the motion picture employment and 56% of the aerospace
employment in California. The Los Angeles Primary Metropolitan Statistical Area
("PMSA") is the largest PMSA in the United States (larger than both the New York
City PMSA and the Chicago PMSA) and accounts for approximately 28% of
California's population and employment base. Demand for office space in Los
Angeles County is expected to remain strong as a result of these
characteristics.

International trade is another major component of the Los Angeles economy,
and while growth in international trade is difficult to attribute to specific
employment sectors, it is an indicator of the general strength of the local
economy. In 1994 the Los Angeles Customs District (which is primarily comprised
of the Los Angeles/Long Beach port complex and the Los Angeles International
Airport) surpassed New York/New Jersey as the nation's leading port. According
to the U.S. Department of Commerce, international trade passing through the Los
Angeles Customs District has increased from approximately $90.0 billion in 1988
to approximately $167.6 billion in 1996, representing over 12.0% of the total
trading volume in the United States. In the ten-year period ending 1994, the
total trading volume in the region grew at an average annual rate of
approximately 11.4%, as compared to the rate of 8.0% nationally during the same
period.

53
<PAGE>
INTERNATIONAL TRADE THROUGH LOS ANGELES CUSTOMS DISTRICT

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
TOTAL TRADING VOLUME
($BILLION)
<S> <C>
1988 $ 90.0
1989 101.4
1990 106.6
1991 112.7
1992 121.8
1993 128.5
1994 145.9
1995 164.2
1996 167.6
1997e 173.5
1998e 179.1
</TABLE>

- ------------------------

SOURCE: U.S. DEPARTMENT OF COMMERCE, LAEDC

SOUTHERN CALIFORNIA OFFICE MARKETS

In the past four years the underlying fundamentals of supply and demand in
the suburban Los Angeles County and Orange County office markets have improved.
The peak in available supply occurred near the midpoint of the recession in
1991. Since that time, the local economies have been recovering and the
relationship between supply and demand has resulted in declining direct vacancy
rates in these markets. According to Cushman & Wakefield, as of December 31,
1996, the direct vacancy rate for the suburban Los Angeles County office market
and the Orange County office market was 14.8% and 15.3%, respectively, as
compared to 19.2% and 19.5% as of December 31, 1991, respectively.

HISTORICAL YEAR-END DIRECT VACANCY RATES

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
DIRECT VACANCY RATE
<S> <C> <C>
Los Angeles County (suburban) Orange County
1991 19.2% 19.5%
1992 18.9% 19.1%
1993 18.4% 17.1%
1994 17.3% 17.2%
1995 17.0% 15.5%
1996 14.8% 15.3%
</TABLE>

54
<PAGE>
PROPERTIES

GENERAL

The Company's Properties consist of 45 office properties containing
approximately 7.4 million rentable square feet, including acquisitions made
since the IPO of the 21 Acquired Properties containing approximately 3.4 million
rentable square feet. The Properties consist primarily of suburban office
properties and individually range from approximately 42,000 to 598,000 rentable
square feet. All of the Properties are located in Southern California, with 38
located in suburban Los Angeles County, three in Orange County, one in Ventura
County, two in Kern County and one in San Diego County. The Company believes
that the Properties have desirable locations with established business
communities and are well-maintained. Of the Company's 45 Properties, 36 have
been built since 1980 and 17 have been substantially renovated within the last
five years. The average age of the buildings is approximately 13 years. The
Properties offer an array of amenities including security, parking, conference
facilities, on-site management, food services and health clubs. Management
believes that the location, quality of construction and building amenities, as
well as the Company's reputation for providing a high level of tenant service,
have enabled the Company to attract and retain a diverse tenant base. As of May
1, 1997, the Properties were 85.8% leased to over 1,200 tenants, including 91.9%
and 78.6%, respectively, for the Initial Properties and the Acquired Properties.
As of May 1, 1997, no one tenant represented more than approximately 2.1% of the
aggregate Annualized Base Rent (defined as the monthly contractual base rent
under existing leases as of May 1, 1997, multiplied by 12) of the Properties and
only ten tenants individually represented more than 1.0% of such aggregate
Annualized Base Rent.

As of June 15, 1997, the Company had executed eight contracts and entered
one letter of intent to acquire the nine Pending Acquisitions within 60 days
after the Offering. Upon closing of the Pending Acquisitions the Company will
own a total of 54 office properties consisting of approximately 8.6 million
rentable square feet; although there can be no assurance that any of the Pending
Acquisitions will be completed. See "Risk Factors--Risk that Pending
Acquisitions Will Not Close." As of May 1, 1997, the Pending Acquisitions were
approximately 77.1% leased.

The Properties and Pending Acquisitions are leased to a variety of local,
national and foreign businesses. Leases are typically structured for terms of
three, five or 10 years. Most of the leases are 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. Leases typically
contain provisions permitting tenants to renew at prevailing market rates. Under
the lease, the landlord is generally responsible for structural repairs. Most
leases do not permit early termination, however, certain leases permit the
tenant to terminate upon six months' notice after the third year of a five-year
lease or the fifth year of a 10-year lease, subject to the tenant's obligation
to pay all unamortized tenant improvements and leasing commissions, a penalty of
three to six months of additional rent, and any rent concessions provided,
depending on the lease terms. Finally, tenants generally pay directly (without
regard to a base year or expense stop) for overtime use of air conditioning and
for on site monthly employee and visitor parking.

Although the leases at the Properties and the Pending Acquisitions primarily
consist of gross leases (which represented approximately 90% of the total
portfolio leased square footage as of May 1, 1997), they also include triple net
leases with a number of tenants. In general, the triple net leases require the
tenants to pay all real property taxes, insurance and expenses of maintaining
the leased space or property and have renewal and termination provisions similar
to those described above.

The Company's Properties are regionally managed under active central
control. All administration (including the formation and implementation of
policies and procedures), leasing, capital expenditures and construction
decisions are centrally administered at the Company's corporate office. The
Company employs asset managers to oversee and direct the day-to-day operations
of the Properties, as well as the on-site personnel, which may include a
manager, assistant manager and other necessary staff. Asset

55
<PAGE>
managers communicate frequently with the Company's corporate offices to
implement the Company's policies and procedures.

The on-site staffing of each Property is dictated by each Property's size,
tenant profile, number of tenants and location. The Company contracts with third
parties for cleaning services, day porters, engineers and any other personnel
necessary to operate each Property.

PROPERTIES AND PENDING ACQUISITIONS

The following table sets forth certain information regarding each of the
Properties and Pending Acquisitions as of May 1, 1997:

56
<PAGE>
<TABLE>
<CAPTION>
YEAR(S)
BUILT/
PROPERTY NAME SUBMARKET LOCATION RENOVATED
- ----------------------------------------------- ------------------------------------- ------------------- -----------
<S> <C> <C> <C>
INITIAL PROPERTIES
LOS ANGELES COUNTY
LOS ANGELES WEST
9665 Wilshire................................ Beverly Hills/Century City Beverly Hills 1972/92-93
Beverly Atrium............................... Beverly Hills/Century City Beverly Hills 1989
Century Park Center.......................... Beverly Hills/Century City Los Angeles 1972/94
Westwood Terrace............................. Westwood/West Los Angeles Los Angeles 1988
1950 Sawtelle................................ Westwood/West Los Angeles Los Angeles 1988/95
400 Corporate Pointe......................... Marina Area/Culver City/LAX Culver City 1987
Bristol Plaza................................ Marina Area/Culver City/LAX Culver City 1982
Skyview Center............................... Marina Area/Culver City/LAX Los Angeles 1981,87/95
The New Wilshire............................. Park Mile/West Hollywood Los Angeles 1986
LOS ANGELES NORTH
5601 Lindero Canyon.......................... Simi/Conejo Valley Westlake 1989
Calabasas Commerce Center.................... Simi/Conejo Valley Calabasas 1990
Woodland Hills Financial Center.............. West San Fernando Valley Woodland Hills 1972/95
16000 Ventura................................ Central San Fernando Valley Encino 1980/96
425 West Broadway............................ East San Fernando Valley/Tri-Cities Glendale 1984
303 Glenoaks................................. East San Fernando Valley/Tri-Cities Burbank 1983/96
70 South Lake................................ East San Fernando Valley/Tri-Cities Pasadena 1982/94
LOS ANGELES SOUTH
4811 Airport Plaza(5)........................ Long Beach Long Beach 1987/95
4900/10 Airport Plaza(5)..................... Long Beach Long Beach 1987/95
5000 Spring(5)............................... Long Beach Long Beach 1989/95
100 West Broadway............................ Long Beach Long Beach 1987/96
12501 East Imperial Highway.................. Norwalk/Cerritos Norwalk 1978/94
ORANGE COUNTY
5832 Bolsa................................... West County Huntington Beach 1985
Anaheim City Centre(5)....................... Tri-Freeway Area Anaheim 1986/91
SAN DIEGO COUNTY
Imperial Bank Tower(5)....................... Central City San Diego 1982/96
Subtotal/Weighted Average--Initial Properties ......................................................................
ACQUIRED PROPERTIES
LOS ANGELES COUNTY
LOS ANGELES WEST
10350 Santa Monica........................... Beverly Hills/Century City Los Angeles 1979
10351 Santa Monica........................... Beverly Hills/Century City Los Angeles 1984
8383 Wilshire................................ Beverly Hills/Century City Beverly Hills 1971/93
2730 Wilshire(6)............................. Westwood/West Los Angeles Santa Monica 1985
10780 Santa Monica........................... Westwood/West Los Angeles Los Angeles 1984
5200 West Century............................ Marina Area/Culver City/LAX Los Angeles 1982
LOS ANGELES NORTH
6800 Owensmouth.............................. West San Fernando Valley Canoga Park 1986
Clarendon Crest.............................. West San Fernando Valley Woodland Hills 1990
Sumitomo Bank Building....................... Central San Fernando Valley Sherman Oaks 1970/90-91
Noble Professional Center.................... Central San Fernando Valley Sherman Oaks 1985/93
Burbank Executive Plaza...................... East San Fernando Valley/Tri-Cities Burbank 1983
California Federal Building.................. East San Fernando Valley/Tri-Cities Burbank 1978
535 Brand.................................... East San Fernando Valley/Tri-Cities Glendale 1973/92
LOS ANGELES SOUTH
Grand Avenue Plaza........................... El Segundo El Segundo 1979,80
South Bay Centre............................. Torrance Gardena 1984
LOS ANGELES CENTRAL
Los Angeles Corporate Center................. San Gabriel Valley Monterey Park 1984,86
Whittier Financial Center.................... San Gabriel Valley Whittier 1967,82
ORANGE COUNTY
Centerpointe La Palma........................ North County La Palma 1986,88,90
VENTURA COUNTY
Center Promenade............................. West County Ventura 1982
KERN COUNTY....................................
Parkway Center Bakersfield Bakersfield 1992,95
California Twin Centre....................... Bakersfield Bakersfield 1983
Subtotal/Weighted Average--Acquired Properties .....................................................................

<CAPTION>
PERCENTAGE OF
TOTAL ANNUALIZED
APPROXIMATE PORTFOLIO PERCENT BASE
NUMBER OF NET RENTABLE NET RENTABLE LEASED AS OF RENT(1)
PROPERTY NAME BUILDINGS SQUARE FEET SQUARE FEET MAY 1, 1997 ($000S)
- ----------------------------------------------- ------------- ------------ -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
INITIAL PROPERTIES
LOS ANGELES COUNTY
LOS ANGELES WEST
9665 Wilshire................................ 1 158,684 1.8% 99.6% 4,912
Beverly Atrium............................... 1 61,314 0.7% 85.0% 1,274
Century Park Center.......................... 1 243,404 2.8% 89.4% 4,456
Westwood Terrace............................. 1 135,943 1.6% 95.0% 3,109
1950 Sawtelle................................ 1 103,772 1.2% 88.3% 1,797
400 Corporate Pointe......................... 1 164,598 1.9% 100.0% 3,181
Bristol Plaza................................ 1 84,014 1.0% 88.1% 1,234
Skyview Center............................... 2 391,675 4.5% 88.9% 5,811
The New Wilshire............................. 1 202,704 2.4% 86.9% 3,319
LOS ANGELES NORTH
5601 Lindero Canyon.......................... 1 105,830 1.2% 100.0% 1,180
Calabasas Commerce Center.................... 4 123,121 1.4% 97.7% 1,743
Woodland Hills Financial Center.............. 2 224,955 2.6% 89.7% 4,468
16000 Ventura................................ 1 174,841 2.0% 88.1% 3,014
425 West Broadway............................ 1 71,589 0.8% 97.6% 1,354
303 Glenoaks................................. 1 175,449 2.0% 97.7% 3,548
70 South Lake................................ 1 100,133 1.2% 91.9% 1,919
LOS ANGELES SOUTH
4811 Airport Plaza(5)........................ 1 121,610 1.4% 100.0% 1,051
4900/10 Airport Plaza(5)..................... 1 150,403 1.8% 100.0% 1,173
5000 Spring(5)............................... 1 163,358 1.9% 93.5% 2,944
100 West Broadway............................ 1 191,727 2.2% 94.5% 3,775
12501 East Imperial Highway.................. 1 122,175 1.4% 96.1% 2,010
ORANGE COUNTY
5832 Bolsa................................... 1 49,355 0.6% 100.0% 659
Anaheim City Centre(5)....................... 1 175,391 2.0% 94.7% 2,632
SAN DIEGO COUNTY
Imperial Bank Tower(5)....................... 1 540,413 6.3% 82.1% 7,376
--
------------ ----- ----- -----------
Subtotal/Weighted Average--Initial Properti 29 4,036,458 46.7% 91.9% 67,939
--
------------ ----- ----- -----------
ACQUIRED PROPERTIES
LOS ANGELES COUNTY
LOS ANGELES WEST
10350 Santa Monica........................... 1 42,292 0.5% 93.1% 686
10351 Santa Monica........................... 1 96,251 1.1% 97.8% 1,607
8383 Wilshire................................ 1 417,463 4.8% 76.8% 6,761
2730 Wilshire(6)............................. 1 55,080 0.6% 97.5% 1,074
10780 Santa Monica........................... 1 92,486 1.1% 84.1% 1,419
5200 West Century............................ 1 310,910 3.6% 30.1% 927
LOS ANGELES NORTH
6800 Owensmouth.............................. 1 80,014 0.9% 84.9% 1,240
Clarendon Crest.............................. 1 43,063 0.5% 84.7% 677
Sumitomo Bank Building....................... 1 110,641 1.3% 92.2% 1,990
Noble Professional Center.................... 1 51,828 0.6% 80.5% 837
Burbank Executive Plaza...................... 1 60,395 0.7% 73.8% 560
California Federal Building.................. 1 82,467 1.0% 97.0% 1,591
535 Brand.................................... 1 109,187 1.3% 51.0% 639
LOS ANGELES SOUTH
Grand Avenue Plaza........................... 2 84,500 1.0% 61.5% --
South Bay Centre............................. 1 202,830 2.4% 85.8% 3,012
LOS ANGELES CENTRAL
Los Angeles Corporate Center................. 4 389,293 4.5% 84.9% 6,741
Whittier Financial Center.................... 2 135,415 1.6% 85.2% 2,059
ORANGE COUNTY
Centerpointe La Palma........................ 12 597,550 6.9% 88.2% 8,519
VENTURA COUNTY
Center Promenade............................. 7 174,837 2.0% 73.7% 1,868
KERN COUNTY....................................
Parkway Center 2 61,333 0.7% 99.5% 1,046
California Twin Centre....................... 1 155,189 1.8% 88.5% 3,263
--
------------ ----- ----- -----------
Subtotal/Weighted Average--Acquired Propert 44 3,353,024 38.9% 78.6% 46,516
--
------------ ----- ----- -----------

<CAPTION>
ANNUALIZED
PERCENTAGE OF ANNUALIZED NET BASE RENT C&W PEER
PORTFOLIO EFFECTIVE RENT PER LEASED GROUP RENT
ANNUALIZED NUMBER OF PER LEASED SQUARE PER SQUARE
PROPERTY NAME BASE RENT LEASES SQUARE FOOT(2) FOOT(3) FOOT(4)
- ----------------------------------------------- ------------- ----------- --------------- ----------- -----------
INITIAL PROPERTIES
LOS ANGELES COUNTY
LOS ANGELES WEST
9665 Wilshire................................ 3.7% 26 $ 29.79 $ 31.09 $ 30.47
Beverly Atrium............................... 1.0% 9 22.42 24.46 30.47
Century Park Center.......................... 3.4% 81 17.98 20.47 23.92
Westwood Terrace............................. 2.4% 26 23.97 24.08 28.93
1950 Sawtelle................................ 1.4% 30 18.46 19.60 21.58
400 Corporate Pointe......................... 2.4% 19 20.80 19.33 18.02
Bristol Plaza................................ 0.9% 20 17.81 16.68 18.00
Skyview Center............................... 4.4% 46 15.97 16.68 18.65
The New Wilshire............................. 2.5% 35 19.36 18.84 21.87
LOS ANGELES NORTH
5601 Lindero Canyon.......................... 0.9% 2 10.69 11.15 20.75
Calabasas Commerce Center.................... 1.3% 11 16.16 14.48 19.41
Woodland Hills Financial Center.............. 3.4% 64 20.39 22.15 21.48
16000 Ventura................................ 2.3% 46 18.29 19.57 22.61
425 West Broadway............................ 1.0% 14 17.88 19.39 22.54
303 Glenoaks................................. 2.7% 24 20.51 20.70 22.35
70 South Lake................................ 1.5% 15 19.36 20.86 25.75
LOS ANGELES SOUTH
4811 Airport Plaza(5)........................ 0.8% 1 9.30 8.64 25.60
4900/10 Airport Plaza(5)..................... 0.9% 1 8.40 7.80 25.60
5000 Spring(5)............................... 2.2% 26 16.81 19.27 25.60
100 West Broadway............................ 2.9% 30 23.66 20.84 19.58
12501 East Imperial Highway.................. 1.5% 5 17.06 17.12 18.54
ORANGE COUNTY
5832 Bolsa................................... 0.5% 1 13.40 13.35 17.82
Anaheim City Centre(5)....................... 2.0% 14 15.48 15.85 19.14
SAN DIEGO COUNTY
Imperial Bank Tower(5)....................... 5.6% 52 17.35 16.62 20.65

----- ----- ------ ----------- -----------
Subtotal/Weighted Average--Initial Properti 51.6% 598 $ 18.07 $ 18.32 $ 22.04(7)

----- ----- ------ ----------- -----------
ACQUIRED PROPERTIES
LOS ANGELES COUNTY
LOS ANGELES WEST
10350 Santa Monica........................... 0.5% 16 $ 17.29 $ 17.44 $ 21.86
10351 Santa Monica........................... 1.2% 17 17.28 17.07 21.83
8383 Wilshire................................ 5.1% 125 21.67 21.09 23.74
2730 Wilshire(6)............................. 0.8% 29 20.68 20.00 24.00
10780 Santa Monica........................... 1.1% 29 19.14 18.23 21.96
5200 West Century............................ 0.7% 20 11.98 9.90 13.55
LOS ANGELES NORTH
6800 Owensmouth.............................. 0.9% 21 18.29 18.25 19.31
Clarendon Crest.............................. 0.5% 8 18.65 18.56 18.47
Sumitomo Bank Building....................... 1.5% 51 19.99 19.50 22.88
Noble Professional Center.................... 0.6% 13 21.51 20.05 22.13
Burbank Executive Plaza...................... 0.4% 10 19.68 12.57 22.49
California Federal Building.................. 1.2% 9 19.77 19.89 22.49
535 Brand.................................... 0.5% 15 11.44 11.47 25.28
LOS ANGELES SOUTH
Grand Avenue Plaza........................... -- 2 12.80 -- 16.40
South Bay Centre............................. 2.3% 33 17.87 17.30 17.89
LOS ANGELES CENTRAL
Los Angeles Corporate Center................. 5.1% 37 21.43 20.40 18.09
Whittier Financial Center.................... 1.6% 42 19.98 17.84 13.08
ORANGE COUNTY
Centerpointe La Palma........................ 6.5% 66 16.80 16.16 19.37
VENTURA COUNTY
Center Promenade............................. 1.4% 47 14.37 14.50 16.39
KERN COUNTY....................................
Parkway Center 0.8% 10 17.33 17.14 17.41
California Twin Centre....................... 2.5% 8 24.21 23.75 17.32

----- ----- ------ ----------- -----------
Subtotal/Weighted Average--Acquired Propert 35.2% 608 $ 18.67 $ 17.66 $ 19.24(7)

----- ----- ------ ----------- -----------
</TABLE>

57
<PAGE>
<TABLE>
<CAPTION>
YEAR(S)
BUILT/
PROPERTY NAME SUBMARKET LOCATION RENOVATED
- ----------------------------------------------- ------------------------------------- ------------------- -----------
<S> <C> <C> <C>
PENDING ACQUISITIONS
LOS ANGELES COUNTY
LOS ANGELES WEST
1100 Glendon................................. Westwood/West Los Angeles Los Angeles 1965
Carlsberg Corporate Center................... Westwood/West Los Angeles Santa Monica 1979
LOS ANGELES NORTH
299 Euclid................................... East San Fernando Valley/Tri-Cities Pasadena 1983
LOS ANGELES SOUTH
Harbor Corporate Center...................... Torrance Gardena 1985
Pacific Gateway II........................... Torrance Torrance 1982/90
Mariner Court................................ Torrance Torrance 1989
ORANGE COUNTY
Crown Cabot.................................. South County Laguna Niguel 1989
1821 Dyer.................................... Greater Airport Area Irvine 1980/88
VENTURA COUNTY
1000 Town Center............................. West County Oxnard 1989
Subtotal/Weighted Average--Pending Acquisitions ....................................................................
Total/Weighted Average--All Properties and Pending Acquisitions ....................................................

<CAPTION>
PERCENTAGE OF
TOTAL ANNUALIZED
APPROXIMATE PORTFOLIO PERCENT BASE
NUMBER NET RENTABLE NET RENTABLE LEASED AS OF RENT(1)
PROPERTY NAME OF BUILDINGS SQUARE FEET SQUARE FEET MAY 1, 1997 ($000S)
- ----------------------------------------------- ------------- ------------ -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
PENDING ACQUISITIONS
LOS ANGELES COUNTY
LOS ANGELES WEST
1100 Glendon................................. 1 282,013 3.3% 49.7% 3,345
Carlsberg Corporate Center................... 1 103,506 1.2% 87.3% 1,838
LOS ANGELES NORTH
299 Euclid................................... 1 73,400 0.8% -- --
LOS ANGELES SOUTH
Harbor Corporate Center...................... 1 63,925 0.7% 77.4% 716
Pacific Gateway II........................... 1 223,731 2.6% 92.4% 3,971
Mariner Court................................ 1 105,436 1.2% 86.7% 1,522
ORANGE COUNTY
Crown Cabot.................................. 1 172,900 2.0% 93.3% 3,342
1821 Dyer.................................... 1 115,061 1.3% 100.0% 635
VENTURA COUNTY
1000 Town Center............................. 1 107,653 1.3% 100.0% 2,056
--
------------ ----- ----- -----------
Subtotal/Weighted Average--Pending Acquisit 9 1,247,625 14.4% 77.1% 17,425
--
------------ ----- ----- -----------
Total/Weighted Average--All Properties and 82 8,637,107 100.0% 84.6% 131,880
--
--
------------ ----- ----- -----------
------------ ----- ----- -----------

----- ----- ------ ----------- -----------
Subtotal/Weighted Average--Pending Acquisit 13.2% 294 18.35 18.11 20.96(7)

----- ----- ------ ----------- -----------
Total/Weighted Average--All Properties and 100.0% 1,500 $ 18.32 $ 18.05 $ 20.80(7)

----- ----- ------ ----------- -----------
----- ----- ------ ----------- -----------
</TABLE>

- ----------------------------------
(1) Annualized base rent is calculated as monthly contractual base rent under
existing leases as of May 1, 1997, multiplied by 12.

(2) Annualized Net Effective Rent is calculated for each lease in effect at May
1, 1997. For leases in effect at the time the relevant Property was
acquired, Annualized Net Effective Rent is calculated by dividing the
remaining lease payments under the lease by the number of months remaining
under the lease and multiplying the result by 12. For leases entered into
after the relevant Property was acquired, Annualized Net Effective Rent is
calculated by dividing all lease payments under the lease by the number of
months in the lease and multiplying the result by 12. For leases at the
Acquired Properties not acquired as of May 1, 1997 and the Pending
Acquisitions, Annualized Net Effective Rent is calculated by assuming the
Properties were acquired on May 1, 1997 and by dividing the remaining lease
payments under the lease by the number of months remaining under the lease
and multiplying the result by 12. The foregoing amounts were in all cases
adjusted for tenant improvements and leasing commissions, if any, paid or
payable by the Company.

(3) Amounts in this column that may be exceeded by the counterpart amounts under
the column headed Annualized Net Effective Rent Per Leased Square Foot do so
primarily because the amounts in this column do not reflect future scheduled
rent increases.

(4) Represents the mid-point of the range of the weighted average annual asking
rents (for full-service gross leases only; any net leases have been adjusted
to full-service gross leases by adding estimated recoverable expenses for
similar properties) for the respective C&W Peer Group properties as of
approximately May 1, 1997. It should be noted for purposes of the Peer Group
analyses appearing in this Prospectus that reported asking rents do not
purport to necessarily reflect the rental rates at which properties may
actually be rented. In many instances, asking rents and actual rental rates
differ significantly.

(5) The land underlying these Properties and/or their parking structures is
leased by the Company pursuant to long term ground leases (see Note 3 of the
Notes to Financial Statements of Arden Realty, Inc. and the Arden
Predecessors).

(6) Above amounts for 2730 Wilshire exclude the 100%-occupied, 12,740-square
foot, 16-unit apartment complex which is also owned by the Company.

(7) The C&W Peer Group Rent per square foot weighted average subtotals and total
have been calculated by weighing each property by its approximate net
rentable square feet relative to the respective subtotal or total
approximate net rentable square feet.

58
<PAGE>
TENANT INFORMATION

The Properties and Pending Acquisitions are leased to 1,500 tenants which
are engaged in a variety of businesses, including financial services,
entertainment, health care services, accounting, law, computer technology,
education and publishing. The following table sets forth the Annualized Base
Rent as of May 1, 1997 derived from the 20 largest tenants at the Properties and
Pending Acqusitions:

<TABLE>
<CAPTION>
PERCENTAGE OF
WEIGHTED PERCENTAGE OF AGGREGATE
AVERAGE AGGREGATE AGGREGATE ANNUALIZED PORTFOLIO
NUMBER OF REMAINING LEASE RENTABLE LEASED SQUARE BASE RENT ANNUALIZED
TENANT LEASES TERM IN MONTHS SQUARE FEET FEET ($000S) BASE RENT
- --------------------------------------- ------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Chevron USA, Inc....................... 1 52 103,887 1.42% $ 2,755 2.09%
State Compensation Insurance Fund...... 1 10 113,513 1.55% 2,622 1.99%
McDonnell Douglas Corporation.......... 1 102 272,013 3.72% 2,224 1.69%
Atlantic Richfield Company(1).......... 2 112 117,479 1.61% 1,971 1.49%
Southern Pacific Transportation
Company.............................. 1 23 83,017 1.14% 1,943 1.47%
GTE(2)................................. 2 29 113,124 1.55% 1,752 1.33%
Pepperdine University.................. 1 68 92,343 1.26% 1,741 1.32%
Logicon, Inc........................... 1 62 74,174 1.02% 1,575 1.19%
Merrill Lynch, Pierce, Fenner & Smith,
Inc.(3).............................. 2 39 51,748 0.71% 1,441 1.09%
Maritz, Inc.(4)........................ 2 34 57,306 0.78% 1,210 0.93%
Earth Technology
Corporation(5)....................... 2 71 44,122 0.60% 1,138 0.86%
City National Bank(6).................. 3 109 42,219 0.58% 1,073 0.81%
Latham & Watkins....................... 1 82 56,814 0.78% 1,047 0.79%
Ralphs Grocery Company................. 1 8 46,416 0.64% 1,003 0.76%
DIC Entertainment, L.P................. 1 67 50,472 0.69% 993 0.75%
State of California(7)................. 7 39 55,151 0.75% 960 0.73%
Grey Advertising, Inc.(8).............. 2 100 51,148 0.70% 934 0.71%
The Hearst Corporation................. 1 36 25,731 0.35% 932 0.71%
Smith Barney, Inc.(9).................. 3 83 33,528 0.47% 873 0.66%
Tenet HealthCare Corporation........... 1 45 24,069 0.33% 871 0.66%
--
--- ----------- ----- ----------- -----
Total/Weighted Average(10)............. 36 63 1,508,274 20.65% $ 29,058 22.03%
--
--
--- ----------- ----- ----------- -----
--- ----------- ----- ----------- -----
</TABLE>

- ------------------------
(1) Atlantic Richfield Company leases 81,972 and 35,507 rentable square feet
with 108 and 120 months remaining, respectively.

(2) GTE leases 63,769 and 49,355 rentable square feet with 24 and 36 months
remaining, respectively.

(3) Merrill Lynch, Pierce, Fenner & Smith leases 19,293 and 32,455 rentable
square feet with 8 and 58 months remaining, respectively.

(4) Maritz leases 5,389 and 51,425 rentable square feet with 6 and 37 months
remaining, respectively.

(5) Earth Technology leases 6,628 and 37,494 rentable square feet with 17 and
81 months remaining, respectively.

(6) City National Bank leases 2,340, 16,496 and 23,383 rentable square feet
with 51, 108 and 116 months remaining, respectively.

(7) The State of California leases 1,261, 10,120, 3,219, 22,145, 10,083, 3,173,
and 5,150 rentable square feet with 1, 23, 25, 27, 56, 60, and 90 months
remaining, respectively.

(8) Grey Advertising leases 3,496 and 47,652 rentable square feet with 1 and
107 months remaining, respectively.

(9) Smith Barney leases 15,321, 8,792, and 9,415 rentable square feet with 65,
92, and 104 months remaining, respectively.

(10) Weighted average calculation based on aggregate rentable square footage
leased by each tenant.

59
<PAGE>
LEASE DISTRIBUTIONS

The following table sets forth information relating to the distribution of
the leases for the Properties and Pending Acquisitions, based on rentable square
feet under lease, as of May 1, 1997:

<TABLE>
<CAPTION>
SQUARE PERCENTAGE OF ANNUALIZED PERCENTAGE
FOOTAGE AGGREGATE BASE RENT OF AVERAGE BASE OF AGGREGATE
NUMBER OF PORTFOLIO EXPIRING RENT PER PORTFOLIO
SQUARE FEET OF LEASES PERCENT OF EXPIRING LEASED SQUARE LEASES SQUARE FOOT OF ANNUALIZED
UNDER LEASE EXPIRING ALL LEASES LEASES FEET ($000S) EXPIRING LEASES BASE RENT
- ----------------------- ----------- ----------- ---------- ------------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
2,500 or less.......... 849 56.60% 1,049,293 14.36% $ 20,657 $ 19.69 14.56%
2,501-5,000............ 310 20.67% 1,075,163 14.72% 20,681 19.24 14.58%
5,001-7,500............ 117 7.80% 722,784 9.89% 14,612 20.22 10.30%
7,501-10,000........... 69 4.60% 591,510 8.10% 11,549 19.52 8.14%
10,001-20,000.......... 98 6.53% 1,361,487 18.64% 27,432 20.15 19.34%
20,001-40,000.......... 32 2.13% 845,908 11.58% 17,917 21.18 12.63%
40,001 and over........ 25 1.67% 1,659,214 22.71% 29,031 17.50 20.45%
----- ----------- ---------- ------ ------------ ------ ------
Total.............. 1,500 100.00% 7,305,359 100.00% $ 141,879 $ 19.42 100.00%
----- ----------- ---------- ------ ------------ ------ ------
----- ----------- ---------- ------ ------------ ------ ------
</TABLE>

LEASE EXPIRATIONS--PORTFOLIO TOTAL

The following table sets forth a summary schedule of the total lease
expirations for the Properties and Pending Acquisitions for leases in place as
of May 1, 1997, assuming that none of the tenants exercise renewal options or
termination rights, if any, at or prior to the scheduled expirations:

<TABLE>
<CAPTION>
PERCENTAGE ANNUALIZED PERCENTAGE
SQUARE OF AGGREGATE BASE RENT OF AVERAGE BASE OF AGGREGATE
NUMBER FOOTAGE OF PORTFOLIO EXPIRING RENT PER PORTFOLIO
YEAR OF LEASE OF LEASES EXPIRING LEASED LEASES SQUARE FOOT OF ANNUALIZED
EXPIRATION EXPIRING LEASES SQUARE FEET (000S)(2) EXPIRING LEASES BASE RENT
- ----------------------------- ----------- ---------- ------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1997(1)...................... 338 906,020 12.40% $ 16,759 $ 18.50 11.81%
1998......................... 303 1,018,576 13.94% 20,407 20.03 14.38%
1999......................... 245 970,434 13.28% 18,640 19.21 13.14%
2000......................... 212 860,416 11.78% 17,858 20.75 12.59%
2001......................... 178 1,039,900 14.23% 21,023 20.22 14.82%
2002......................... 103 963,995 13.20% 18,491 19.18 13.03%
2003......................... 30 291,935 4.00% 5,404 18.51 3.81%
2004......................... 39 369,766 5.06% 7,465 20.19 5.26%
2005......................... 29 506,504 6.93% 7,097 14.01 5.00%
2006......................... 9 200,333 2.74% 4,925 24.58 3.47%
2008......................... 6 112,943 1.55% 2,409 21.33 1.70%
2010......................... 3 28,238 0.39% 765 27.09 0.54%
2013......................... 5 36,299 0.50% 636 17.52 0.45%
----- ---------- ------ ------------ ------ ------
Total.................... 1,500 7,305,359 100.00% $ 141,879 $ 19.42 100.00%
----- ---------- ------ ------------ ------ ------
----- ---------- ------ ------------ ------ ------
</TABLE>

- ------------------------
(1) All month-to-month leases are assumed to expire during 1997.

(2) Base rent is as of the date of lease expiration, including all fixed
contractual base rent increases; increases tied to indices such as the CPI
are not included.

60
<PAGE>
LEASE EXPIRATIONS--PROPERTY BY PROPERTY

The following table sets forth detailed lease expiration information for
each of the Properties and Pending Acquisitions for leases in place as of May 1,
1997, assuming that none of the tenants exercise renewal options or termination
rights, if any, at or prior to the scheduled expirations along with the C&W Peer
Group Rent per square foot for each of the Properties and Pending Acquisitions.
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1997(1) 1998 1999 2000 2001 2002
- ------------------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INITIAL PROPERTIES
9665 WILSHIRE
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 30.47
Base Rent per Sq. Foot of Expiring Leases................... $ 37.59 $ 27.51 $ 25.39 $ 32.18 $ 32.91
Square Footage of Expiring Leases........................... 20,734 8,362 19,296 37,165 54,501
Percentage of Total Leased Sq. Ft........................... 13.12% 5.29% 12.21% 23.52% 34.49%
Percentage of Total Annualized Base Rent.................... 15.90% 4.69% 10.00% 24.41% 36.61%
Number of Leases Expiring................................... 6 2 2 7 6

BEVERLY ATRIUM
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 30.47
Base Rent per Sq. Foot of Expiring Leases................... $ 23.59 $ 30.30 $ 27.74 $ 21.60
Square Footage of Expiring Leases........................... 11,128 4,158 6,261 18,489
Percentage of Total Leased Sq. Ft........................... 21.36% 7.98% 12.02% 35.48%
Percentage of Total Annualized Base Rent.................... 20.22% 9.70% 13.38% 30.76%
Number of Leases Expiring................................... 2 2 2 1

CENTURY PARK CENTER
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 23.92
Base Rent per Sq. Foot of Expiring Leases................... $ 20.19 $ 19.17 $ 19.16 $ 17.43 $ 36.62 $ 19.24
Square Footage of Expiring Leases........................... 29,215 32,728 26,114 39,397 30,843 36,335
Percentage of Total Leased Sq. Ft........................... 13.42% 15.03% 12.00% 18.10% 14.17% 16.69%
Percentage of Total Annualized Base Rent.................... 12.31% 13.10% 10.44% 14.33% 23.58% 14.59%
Number of Leases Expiring................................... 21 17 13 15 6 4

WESTWOOD TERRACE
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 28.93
Base Rent per Sq. Foot of Expiring Leases................... $ 21.43 $ 16.51 $ 20.31 $ 28.93 $ 21.17 $ 22.80
Square Footage of Expiring Leases........................... 19,867 7,527 25,877 62,175 5,128 8,524
Percentage of Total Leased Sq. Ft........................... 15.39% 5.83% 20.04% 48.16% 3.97% 6.60%
Percentage of Total Annualized Base Rent.................... 13.40% 3.91% 16.54% 56.62% 3.42% 6.12%
Number of Leases Expiring................................... 6 2 6 9 2 1

1950 SAWTELLE
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 21.58
Base Rent per Sq. Foot of Expiring Leases................... $ 20.53 $ 19.79 $ 18.50 $ 19.88 $ 18.37
Square Footage of Expiring Leases........................... 22,944 40,032 4,763 8,231 14,219
Percentage of Total Leased Sq. Ft........................... 25.03% 43.67% 5.20% 8.98% 15.51%
Percentage of Total Annualized Base Rent.................... 25.97% 43.69% 4.86% 9.02% 14.41%
Number of Leases Expiring................................... 7 9 3 5 5

<CAPTION>
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006+ TOTAL
- ------------------------------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INITIAL PROPERTIES
9665 WILSHIRE
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 22.89 $ 31.01
Square Footage of Expiring Leases........................... 17,945 158,003
Percentage of Total Leased Sq. Ft........................... 11.36% 100%
Percentage of Total Annualized Base Rent.................... 8.38% 100%
Number of Leases Expiring................................... 3 26
BEVERLY ATRIUM
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 28.58 $ 27.46 $ 24.92
Square Footage of Expiring Leases........................... 4,668 7,404 52,108
Percentage of Total Leased Sq. Ft........................... 8.96% 14.21 100%
Percentage of Total Annualized Base Rent.................... 10.28% 15.66% 100%
Number of Leases Expiring................................... 1 1 9
CENTURY PARK CENTER
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 21.64 $ 24.83 $ 25.20 $ 22.01
Square Footage of Expiring Leases........................... 5,008 14,849 3,207 217,696
Percentage of Total Leased Sq. Ft........................... 2.30% 6.82% 1.47% 100%
Percentage of Total Annualized Base Rent.................... 2.26% 7.70% 1.69% 100%
Number of Leases Expiring................................... 2 2 1 81
WESTWOOD TERRACE
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 24.61
Square Footage of Expiring Leases........................... 129,098
Percentage of Total Leased Sq. Ft........................... 100%
Percentage of Total Annualized Base Rent.................... 100%
Number of Leases Expiring................................... 26
1950 SAWTELLE
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 25.20 $ 19.79
Square Footage of Expiring Leases........................... 1,476 91,665
Percentage of Total Leased Sq. Ft........................... 1.61% 100%
Percentage of Total Annualized Base Rent.................... 2.05% 100%
Number of Leases Expiring................................... 1 30
</TABLE>

- ----------------------------------

(1) Represents lease expirations data from May 1, 1997 to December 31, 1997.

(2)"C&W Peer Group Rent" represents, for each of the Properties and Pending
Acquisitions, the mid-point of the range of the weighted average annual
asking rents (for full service gross leases only) for such property's C&W
Peer Group as of approximately May 1, 1997. Any net leases for properties in
the applicable C&W Peer Group have been adjusted to full-service gross leases
by adding estimated recoverable expenses for similar properties. Asking rents
may differ significantly from actual rents.

61
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1997(1) 1998 1999 2000 2001 2002
- ------------------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>

400 CORPORATE POINTE
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 18.02
Base Rent per Sq. Foot of Expiring Leases................... $ 15.80 $ 29.42 $ 19.03 $ 15.44 $ 22.62
Square Footage of Expiring Leases........................... 9,969 22,347 6,087 14,106 92,195
Percentage of Total Leased Sq. Ft........................... 6.06% 13.58% 3.70% 8.57% 56.01%
Percentage of Total Annualized Base Rent.................... 4.40% 18.38% 3.24% 6.09% 58.33%
Number of Leases Expiring................................... 4 2 3 2 6

BRISTOL PLAZA
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 18.00
Base Rent per Sq. Foot of Expiring Leases................... $ 23.51 $ 20.56 $ 16.22 $ 15.97
Square Footage of Expiring Leases........................... 3,889 23,912 13,976 13,505
Percentage of Total Leased Sq. Ft........................... 5.26% 32.32% 18.89% 18.25%
Percentage of Total Annualized Base Rent.................... 6.68% 35.91% 16.56% 15.75%
Number of Leases Expiring................................... 3 6 4 6

SKYVIEW CENTER
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 18.65
Base Rent per Sq. Foot of Expiring Leases................... $ 16.58 $ 16.61 $ 14.80 $ 13.47 $ 15.06 $ 22.87
Square Footage of Expiring Leases........................... 21,009 17,548 15,316 18,487 24,316 102,623
Percentage of Total Leased Sq. Ft........................... 6.03% 5.04% 4.40% 5.31% 6.98% 29.46%
Percentage of Total Annualized Base Rent.................... 5.52% 4.62% 3.59% 3.94% 5.80% 37.17%
Number of Leases Expiring................................... 8 8 8 5 4 4

THE NEW WILSHIRE
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 21.87
Base Rent per Sq. Foot of Expiring Leases................... $ 15.60 $ 26.80 $ 18.01 $ 22.62 $ 20.04
Square Footage of Expiring Leases........................... 21,892 29,796 6,652 44,879 6,990
Percentage of Total Leased Sq. Ft........................... 12.43% 16.91% 3.78% 25.47% 3.97%
Percentage of Total Annualized Base Rent.................... 8.83% 20.65% 3.10% 26.26% 3.62%
Number of Leases Expiring................................... 9 8 3 9 2

5601 LINDERO CANYON
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 20.75
Base Rent per Sq. Foot of Expiring Leases................... $ 12.18
Square Footage of Expiring Leases........................... 105,830
Percentage of Total Leased Sq. Ft........................... 100.00%
Percentage of Total Annualized Base Rent.................... 100.00%
Number of Leases Expiring................................... 2

<CAPTION>
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006+ TOTAL
- ------------------------------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
400 CORPORATE POINTE
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 17.18 $ 21.73
Square Footage of Expiring Leases........................... 19,894 164,598
Percentage of Total Leased Sq. Ft........................... 12.09% 100%
Percentage of Total Annualized Base Rent.................... 9.56% 100%
Number of Leases Expiring................................... 2 19
BRISTOL PLAZA
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 18.36 $ 18.50
Square Footage of Expiring Leases........................... 18,711 73,993
Percentage of Total Leased Sq. Ft........................... 25.29% 100%
Percentage of Total Annualized Base Rent.................... 25.09% 100%
Number of Leases Expiring................................... 1 20
SKYVIEW CENTER
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 17.10 $ 15.13 $ 14.64 $ 22.30 $ 18.13
Square Footage of Expiring Leases........................... 32,521 44,459 45,687 26,334 348,300
Percentage of Total Leased Sq. Ft........................... 9.34% 12.76% 13.12% 7.56% 100%
Percentage of Total Annualized Base Rent.................... 8.81% 10.65% 10.59% 9.30% 100%
Number of Leases Expiring................................... 2 3 2 2 46
THE NEW WILSHIRE
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 20.40 $ 22.37 $ 21.94
Square Footage of Expiring Leases........................... 12,513 53,447 176,169
Percentage of Total Leased Sq. Ft........................... 7.10% 30.34% 100%
Percentage of Total Annualized Base Rent.................... 6.60% 30.93% 100%
Number of Leases Expiring................................... 2 2 35
5601 LINDERO CANYON
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 12.18
Square Footage of Expiring Leases........................... 105,830
Percentage of Total Leased Sq. Ft........................... 100%
Percentage of Total Annualized Base Rent.................... 100%
Number of Leases Expiring................................... 2
</TABLE>

- ----------------------------------

(1) Represents lease expirations data from May 1, 1997 to December 31, 1997.

62
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<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1997(1) 1998 1999 2000 2001 2002
- ------------------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>

CALABASAS COMMERCE CENTER
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 19.41
Base Rent per Sq. Foot of Expiring Leases................... $ 14.52 $ 25.08 $ 17.89 $ 18.00 $ 19.20 $ 17.00
Square Footage of Expiring Leases........................... 59,477 4,413 17,194 3,157 10,841 15,984
Percentage of Total Leased Sq. Ft........................... 49.44% 3.67% 14.29% 2.62% 9.01% 13.29%
Percentage of Total Annualized Base Rent.................... 42.91% 5.50% 15.28% 2.82% 10.34% 13.50%
Number of Leases Expiring................................... 2 1 2 1 1 3

WOODLAND HILLS FINANCIAL CENTER
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 21.48
Base Rent per Sq. Foot of Expiring Leases................... $ 19.39 $ 24.04 $ 21.02 $ 27.10 $ 21.12 $ 22.10
Square Footage of Expiring Leases........................... 9,777 41,203 32,637 39,096 34,791 5,662
Percentage of Total Leased Sq. Ft........................... 4.85% 20.43% 16.18% 19.38% 17.25% 2.81%
Percentage of Total Annualized Base Rent.................... 4.03% 21.07% 14.60% 22.55% 15.64% 2.66%
Number of Leases Expiring................................... 10 15 13 12 6 2

16000 VENTURA
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 22.61
Base Rent per Sq. Foot of Expiring Leases................... $ 22.67 $ 19.98 $ 17.80 $ 19.23 $ 20.38 $ 20.26
Square Footage of Expiring Leases........................... 43,519 29,613 44,352 7,987 24,523 3,993
Percentage of Total Leased Sq. Ft........................... 28.26% 19.23% 28.80% 5.19% 15.93% 2.59%
Percentage of Total Annualized Base Rent.................... 31.80% 19.08% 25.45% 4.95% 16.12% 2.61%
Number of Leases Expiring................................... 14 8 10 4 8 2

425 BROADWAY
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 22.54
Base Rent per Sq. Foot of Expiring Leases................... $ 18.53 $ 19.51 $ 19.43 $ 21.00 $ 19.20
Square Footage of Expiring Leases........................... 5,749 25,901 29,540 4,308 4,344
Percentage of Total Leased Sq. Ft........................... 8.23% 37.09% 42.30% 6.17% 6.22%
Percentage of Total Annualized Base Rent.................... 7.84% 37.17% 42.21% 6.65% 6.13%
Number of Leases Expiring................................... 2 6 4 1 1

303 GLENOAKS
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 22.35
Base Rent per Sq. Foot of Expiring Leases................... $ 23.00 $ 22.92 $ 21.16 $ 20.00 $ 22.19 $ 20.95
Square Footage of Expiring Leases........................... 3,300 8,570 26,990 31,831 36,748 51,820
Percentage of Total Leased Sq. Ft........................... 1.92% 5.00% 15.74% 18.57% 21.43% 30.23%
Percentage of Total Annualized Base Rent.................... 2.09% 5.41% 15.73% 17.53% 22.46% 29.90%
Number of Leases Expiring................................... 2 3 4 6 5 2

<CAPTION>
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006+ TOTAL
- ------------------------------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CALABASAS COMMERCE CENTER
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 21.00 $ 16.73
Square Footage of Expiring Leases........................... 9,243 120,309
Percentage of Total Leased Sq. Ft........................... 7.68% 100%
Percentage of Total Annualized Base Rent.................... 9.64% 100%
Number of Leases Expiring................................... 1 11
WOODLAND HILLS FINANCIAL CENTER
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 26.35 $ 16.27 $ 74.85 $ 20.28 $ 23.30
Square Footage of Expiring Leases........................... 22,047 7,019 489 8,983 201,704
Percentage of Total Leased Sq. Ft........................... 10.93% 3.48% 0.24% 4.45% 100%
Percentage of Total Annualized Base Rent.................... 12.36% 2.43% 0.78% 3.88% 100%
Number of Leases Expiring................................... 2 2 1 1 64
16000 VENTURA
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 20.14
Square Footage of Expiring Leases........................... 153,987
Percentage of Total Leased Sq. Ft........................... 100%
Percentage of Total Annualized Base Rent.................... 100%
Number of Leases Expiring................................... 46
425 BROADWAY
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 19.47
Square Footage of Expiring Leases........................... 69,842
Percentage of Total Leased Sq. Ft........................... 100%
Percentage of Total Annualized Base Rent.................... 100%
Number of Leases Expiring................................... 14
303 GLENOAKS
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 19.20 $ 20.64 $ 21.18
Square Footage of Expiring Leases........................... 1,039 11,142 171,440
Percentage of Total Leased Sq. Ft........................... 0.61% 6.50% 100%
Percentage of Total Annualized Base Rent.................... 0.55% 6.33% 100%
Number of Leases Expiring................................... 1 1 24
</TABLE>

- ----------------------------------

(1) Represents lease expirations data from May 1, 1997 to December 31, 1997.

63
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1997(1) 1998 1999 2000 2001 2002
- ------------------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>

70 SOUTH LAKE
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 25.75
Base Rent per Sq. Foot of Expiring Leases................... $ 18.00 $ 23.07 $ 19.04 $ 22.95
Square Footage of Expiring Leases........................... 8,394 33,272 34,825 6,075
Percentage of Total Leased Sq. Ft........................... 9.13% 36.17% 37.86% 6.60%
Percentage of Total Annualized Base Rent.................... 7.74% 39.31% 33.95% 7.14%
Number of Leases Expiring................................... 1 6 5 2

4811 AIRPORT PLAZA
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 25.60
Base Rent per Sq. Foot of Expiring Leases...................
Square Footage of Expiring Leases...........................
Percentage of Total Leased Sq. Ft...........................
Percentage of Total Annualized Base Rent....................
Number of Leases Expiring...................................

4900/10 AIRPORT PLAZA
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 25.60
Base Rent per Sq. Foot of Expiring Leases...................
Square Footage of Expiring Leases...........................
Percentage of Total Leased Sq. Ft...........................
Percentage of Total Annualized Base Rent....................
Number of Leases Expiring...................................

5000 SPRING
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 25.60
Base Rent per Sq. Foot of Expiring Leases................... $ 21.20 $ 19.08 $ 20.85 $ 19.21 $ 18.39 $ 21.84
Square Footage of Expiring Leases........................... 9,346 4,418 27,939 36,035 52,217 6,654
Percentage of Total Leased Sq. Ft........................... 6.12% 2.89% 18.29% 23.59% 34.19% 4.36%
Percentage of Total Annualized Base Rent.................... 6.56% 2.79% 19.28% 22.92% 31.80% 4.81%
Number of Leases Expiring................................... 3 3 5 5 7 1

100 WEST BROADWAY
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 19.58
Base Rent per Sq. Foot of Expiring Leases................... $ 29.04 $ 17.50 $ 20.72 $ 16.60 $ 16.30 $ 19.47
Square Footage of Expiring Leases........................... 8,010 17,837 8,220 4,806 22,868 51,414
Percentage of Total Leased Sq. Ft........................... 4.42% 9.85% 4.54% 2.65% 12.63% 28.39%
Percentage of Total Annualized Base Rent.................... 5.55% 7.45% 4.06% 1.90% 8.89% 23.88%
Number of Leases Expiring................................... 3 6 5 2 4 5

<CAPTION>
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006+ TOTAL
- ------------------------------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
70 SOUTH LAKE
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 24.60 $ 21.23
Square Footage of Expiring Leases........................... 9,415 91,981
Percentage of Total Leased Sq. Ft........................... 10.24% 100%
Percentage of Total Annualized Base Rent.................... 11.86% 100%
Number of Leases Expiring................................... 1 15
4811 AIRPORT PLAZA
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 9.96 $ 9.96
Square Footage of Expiring Leases........................... 121,610 121,610
Percentage of Total Leased Sq. Ft........................... 100.00% 100%
Percentage of Total Annualized Base Rent.................... 100.00% 100%
Number of Leases Expiring................................... 1 1
4900/10 AIRPORT PLAZA
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 9.00 $ 9.00
Square Footage of Expiring Leases........................... 150,403 150,403
Percentage of Total Leased Sq. Ft........................... 100.00% 100%
Percentage of Total Annualized Base Rent.................... 100.00% 100%
Number of Leases Expiring................................... 1 1
5000 SPRING
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 21.60 $ 25.32 $ 19.78
Square Footage of Expiring Leases........................... 13,588 2,532 152,729
Percentage of Total Leased Sq. Ft........................... 8.90% 1.66% 100%
Percentage of Total Annualized Base Rent.................... 9.72% 2.12% 100%
Number of Leases Expiring................................... 1 1 26
100 WEST BROADWAY
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 22.74 $ 36.60 $ 21.00 $ 17.38 $ 23.14
Square Footage of Expiring Leases........................... 20,385 37,494 3,352 6,730 181,116
Percentage of Total Leased Sq. Ft........................... 11.26% 20.70% 1.85% 3.72% 100%
Percentage of Total Annualized Base Rent.................... 11.06% 32.74% 1.68% 2.79% 100%
Number of Leases Expiring................................... 2 1 1 1 30
</TABLE>

- ----------------------------------

(1) Represents lease expirations data from May 1, 1997 to December 31, 1997.

64
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1997(1) 1998 1999 2000 2001 2002
- ------------------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>

12501 EAST IMPERIAL HIGHWAY
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 18.54
Base Rent per Sq. Foot of Expiring Leases................... $ 17.80 $ 17.14 $ 16.28 $ 16.92
Square Footage of Expiring Leases........................... 27,913 63,769 23,702 1,972
Percentage of Total Leased Sq. Ft........................... 23.78% 54.34% 20.20% 1.68%
Percentage of Total Annualized Base Rent.................... 24.73% 54.40% 19.20% 1.66%
Number of Leases Expiring................................... 1 1 2 1

5832 BOLSA
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 17.82
Base Rent per Sq. Foot of Expiring Leases................... $ 14.59
Square Footage of Expiring Leases........................... 49,355
Percentage of Total Leased Sq. Ft........................... 100.00%
Percentage of Total Annualized Base Rent.................... 100.00%
Number of Leases Expiring................................... 1

ANAHEIM CITY CENTRE
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 19.14
Base Rent per Sq. Foot of Expiring Leases................... $ 16.80 $ 12.96 $ 17.19 $ 17.46 $ 19.60
Square Footage of Expiring Leases........................... 4,732 56,397 48,768 13,780 32,373
Percentage of Total Leased Sq. Ft........................... 2.85% 33.96% 29.37% 8.30% 19.49%
Percentage of Total Annualized Base Rent.................... 2.73% 25.08% 28.77% 8.26% 21.78%
Number of Leases Expiring................................... 2 2 4 3 2

IMPERIAL BANK TOWER
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 20.65
Base Rent per Sq. Foot of Expiring Leases................... $ 16.01 $ 17.78 $ 16.28 $ 24.57 $ 15.87 $ 18.64
Square Footage of Expiring Leases........................... 19,161 28,457 20,369 40,764 38,764 94,343
Percentage of Total Leased Sq. Ft........................... 4.32% 6.41% 4.59% 9.19% 8.73% 21.26%
Percentage of Total Annualized Base Rent.................... 3.56% 5.87% 3.85% 11.63% 7.14% 20.42%
Number of Leases Expiring................................... 9 5 4 5 5 9

INITIAL PROPERTIES SUBTOTAL
C&W Peer Group Rent per Sq. Ft.(2)(3)....................... $ 22.04
Base Rent per Sq. Foot of Expiring Leases................... $ 19.97 $ 20.05 $ 19.23 $ 21.77 $ 20.45 $ 20.42
Square Footage of Expiring Leases........................... 312,590 446,496 468,637 458,143 388,038 689,702
Percentage of Total Leased Sq. Ft........................... 8.43% 12.04% 12.63% 12.35% 10.46% 18.59%
Percentage of Total Annualized Base Rent.................... 8.53% 12.23% 12.31% 13.63% 10.84% 19.25%
Number of Leases Expiring................................... 111 107 99 96 70 53

<CAPTION>
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006+ TOTAL
- ------------------------------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
12501 EAST IMPERIAL HIGHWAY
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 17.12
Square Footage of Expiring Leases........................... 117,356
Percentage of Total Leased Sq. Ft........................... 100%
Percentage of Total Annualized Base Rent.................... 100%
Number of Leases Expiring................................... 5
5832 BOLSA
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 14.59
Square Footage of Expiring Leases........................... 49,355
Percentage of Total Leased Sq. Ft........................... 100%
Percentage of Total Annualized Base Rent.................... 100%
Number of Leases Expiring................................... 1
ANAHEIM CITY CENTRE
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 38.92 $ 17.54
Square Footage of Expiring Leases........................... 10,009 166,059
Percentage of Total Leased Sq. Ft........................... 6.03% 100%
Percentage of Total Annualized Base Rent.................... 13.37% 100%
Number of Leases Expiring................................... 1 14
IMPERIAL BANK TOWER
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 19.52 $ 18.18 $ 20.01 $ 30.12 $ 19.41
Square Footage of Expiring Leases........................... 36,967 79,227 64,225 21,508 443,785
Percentage of Total Leased Sq. Ft........................... 8.33% 17.85% 14.47% 4.85% 100%
Percentage of Total Annualized Base Rent.................... 8.37% 16.72% 14.92% 7.52% 100%
Number of Leases Expiring................................... 4 4 5 2 52
INITIAL PROPERTIES SUBTOTAL
C&W Peer Group Rent per Sq. Ft.(2)(3).......................
Base Rent per Sq. Foot of Expiring Leases................... $ 21.14 $ 21.84 $ 13.41 $ 24.72 $ 19.73
Square Footage of Expiring Leases........................... 135,184 206,040 469,891 134,415 3,709,136
Percentage of Total Leased Sq. Ft........................... 3.64% 5.55% 12.67% 3.62% 100%
Percentage of Total Annualized Base Rent.................... 3.90% 6.15% 8.61% 4.55% 100%
Number of Leases Expiring................................... 14 18 20 10 598
</TABLE>

- ----------------------------------

(1) Represents lease expirations data from May 1, 1997 to December 31, 1997.

(3)The C&W Peer Group Rent per square foot weighted average subtotals and total
have been calculated by weighing each property by its approximate net
rentable square feet relative to the respective subtotal or total approximate
net rentable square feet.

65
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1997(1) 1998 1999 2000 2001 2002
- ------------------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>

ACQUIRED PROPERTIES
10350 SANTA MONICA
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 21.86
Base Rent per Sq. Foot of Expiring Leases................... $ 18.59 $ 18.71 $ 17.15 $ 17.07 $ 19.20 $ 17.76
Square Footage of Expiring Leases........................... 6,085 12,169 3,776 10,765 1,899 4,661
Percentage of Total Leased Sq. Ft........................... 15.46% 30.92% 9.59% 27.35% 4.83% 11.84%
Percentage of Total Annualized Base Rent.................... 15.96% 32.14% 9.14% 25.93% 5.15% 11.68%
Number of Leases Expiring................................... 3 6 2 2 1 2

10351 SANTA MONICA
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 21.83
Base Rent per Sq. Foot of Expiring Leases................... $ 18.17 $ 18.11 $ 16.82 $ 17.95 $ 21.00 $ 16.08
Square Footage of Expiring Leases........................... 23,396 3,759 15,432 3,261 16,088 11,977
Percentage of Total Leased Sq. Ft........................... 24.84% 3.99% 16.39% 3.46% 17.08% 12.72%
Percentage of Total Annualized Base Rent.................... 25.28% 4.05% 15.43% 3.48% 20.08% 11.45%
Number of Leases Expiring................................... 6 1 3 2 1 1

8383 WILSHIRE
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 23.74
Base Rent per Sq. Foot of Expiring Leases................... $ 22.45 $ 22.46 $ 19.84 $ 20.25 $ 18.26 $ 18.83
Square Footage of Expiring Leases........................... 62,551 40,742 29,228 37,865 52,570 44,278
Percentage of Total Leased Sq. Ft........................... 19.51% 12.71% 9.12% 11.81% 16.40% 13.81%
Percentage of Total Annualized Base Rent.................... 21.03% 13.71% 8.69% 11.48% 14.38% 12.49%
Number of Leases Expiring................................... 36 24 16 18 15 6

2730 WILSHIRE
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 24.00
Base Rent per Sq. Foot of Expiring Leases................... $ 14.07 $ 20.41 $ 19.92 $ 21.95 $ 20.75 $ 21.21
Square Footage of Expiring Leases........................... 4,276 4,195 3,595 7,705 19,676 3,673
Percentage of Total Leased Sq. Ft........................... 7.96% 7.81% 6.69% 14.34% 36.63% 6.84%
Percentage of Total Annualized Base Rent.................... 5.40% 7.68% 6.43% 15.17% 36.62% 6.99%
Number of Leases Expiring................................... 3 4 2 5 7 3

10780 SANTA MONICA
C&W Peer Group Rent per Sq. Ft.(2).......................... $ 21.96
Base Rent per Sq. Foot of Expiring Leases................... $ 18.83 $ 20.26 $ 18.14 $ 21.01 $ 17.84 $ 20.04
Square Footage of Expiring Leases........................... 23,216 17,725 10,396 7,090 14,045 5,348
Percentage of Total Leased Sq.Ft............................ 29.83% 22.78% 13.36% 9.11% 18.05% 6.87%
Percentage of Total Annualized Base Rent.................... 29.31% 24.08% 12.64% 9.98% 16.79% 7.18%
Number of Leases Expiring................................... 11 8 4 2 3 1

<CAPTION>
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006+ TOTAL
- ------------------------------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ACQUIRED PROPERTIES
10350 SANTA MONICA
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 18.01
Square Footage of Expiring Leases........................... 39,355
Percentage of Total Leased Sq. Ft........................... 100%
Percentage of Total Annualized Base Rent.................... 100%
Number of Leases Expiring................................... 16
10351 SANTA MONICA
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 14.43 $ 21.00 $ 17.86
Square Footage of Expiring Leases........................... 12,980 7,286 94,179
Percentage of Total Leased Sq. Ft........................... 13.78% 7.74% 100%
Percentage of Total Annualized Base Rent.................... 11.14% 9.10% 100%
Number of Leases Expiring................................... 2 1 17
8383 WILSHIRE
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 24.60 $ 24.36 $ 25.80 $ 10.66 $ 20.82
Square Footage of Expiring Leases........................... 10,845 23,266 11,740 7,505 320,590
Percentage of Total Leased Sq. Ft........................... 3.38% 7.26% 3.66% 2.34% 100%
Percentage of Total Annualized Base Rent.................... 4.00% 8.49% 4.54% 1.20% 100%
Number of Leases Expiring................................... 1 7 1 1 125
2730 WILSHIRE
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 22.80 $ 22.81 $ 22.91 $ 20.75
Square Footage of Expiring Leases........................... 2,254 6,165 2,176 53,715
Percentage of Total Leased Sq. Ft........................... 4.20% 11.48% 4.05% 100%
Percentage of Total Annualized Base Rent.................... 4.61% 12.62% 4.47% 100%
Number of Leases Expiring................................... 1 2 2 29
10780 SANTA MONICA
C&W Peer Group Rent per Sq. Ft.(2)..........................
Base Rent per Sq. Foot of Expiring Leases................... $ 19.17
Square Footage of Expiring Leases........................... 77,820
Percentage of Total Leased Sq.Ft............................ 100%
Percentage of Total Annualized Base Rent.................... 100%
Number of Leases Expiring................................... 29
</TABLE>

- ----------------------------------

(1) Represents lease expirations data from May 1, 1997 to December 31, 1997.

66
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1997(1) 1998 1999 2000 2001
- -------------------------------------------------------------------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
5200 WEST CENTURY
C&W Peer Group Rent per Sq. Ft.(2).................................. $ 13.55
Base Rent per Sq. Foot of Expiring Leases........................... $ 10.20 $ 9.29 $ 12.50
Square Footage of Expiring Leases................................... 12,682 10,311 11,332
Percentage of Total Leased Sq. Ft................................... 13.54% 11.01% 12.10%
Percentage of Total Annualized Base Rent............................ 10.79% 7.99% 11.82%
Number of Leases Expiring........................................... 6 4 3

6800 OWENSMOUTH
C&W Peer Group Rent per Sq. Ft.(2).................................. $ 19.31
Base Rent per Sq. Foot of Expiring Leases........................... $ 18.90 $ 18.96 $ 21.86 $ 15.71 $ 15.96
Square Footage of Expiring Leases................................... 9,361 1,181 19,500 8,548 2,993
Percentage of Total Leased Sq. Ft................................... 13.78% 1.74% 28.70% 12.58% 4.40%
Percentage of Total Annualized Base Rent............................ 14.19% 1.80% 33.91% 10.78% 3.83%
Number of Leases Expiring........................................... 4 1 6 5 1

CLARENDON CREST
C&W Peer Group Rent per Sq. Ft.(2).................................. $ 18.47
Base Rent per Sq. Foot of Expiring Leases........................... 19.80 $ 19.20 $ 18.00
Square Footage of Expiring Leases................................... 5,560 3,015 25,027
Percentage of Total Leased Sq. Ft................................... 15.24% 8.27% 68.62%
Percentage of Total Annualized Base Rent............................ 16.09% 8.46% 65.85%
Number of Leases Expiring........................................... 1 1 4

SUMITOMO BANK BUILDING
C&W Peer Group Rent per Sq. Ft.(2).................................. $ 22.88
Base Rent per Sq. Foot of Expiring Leases........................... 22.74 $ 20.75 $ 24.36 $ 13.48 $ 21.75
Square Footage of Expiring Leases................................... 16,384 28,384 22,312 20,995 12,678
Percentage of Total Leased Sq. Ft................................... 16.06% 27.82% 21.87% 20.58% 12.43%
Percentage of Total Annualized Base Rent............................ 17.82% 28.16% 25.99% 13.53% 13.18%
Number of Leases Expiring........................................... 10 19 10 6 5

NOBLE PROFESSIONAL CENTER
C&W Peer Group Rent per Sq. Ft.(2).................................. $ 22.13
Base Rent per Sq. Foot of Expiring Leases........................... 21.00 $ 26.89 $ 19.53 $ 21.71 $ 20.35
Square Footage of Expiring Leases................................... 1,721 7,424 9,565 11,759 8,280
Percentage of Total Leased Sq. Ft................................... 4.12% 17.79% 22.91% 28.17% 19.84%
Percentage of Total Annualized Base Rent............................ 3.98% 22.00% 20.59% 28.13% 18.57%
Number of Leases Expiring........................................... 1 1 4 2 4

<CAPTION>
YEAR OF LEASE EXPIRATION 2002 2003 2004 2005 2006+
- -------------------------------------------------------------------- --------- --------- --------- --------- -----------
<S> <C>
5200 WEST CENTURY
C&W Peer Group Rent per Sq. Ft.(2)..................................
Base Rent per Sq. Foot of Expiring Leases........................... $ 14.34 $ 12.86 $ 15.43
Square Footage of Expiring Leases................................... 15,745 25,655 17,913
Percentage of Total Leased Sq. Ft................................... 16.81% 27.40% 19.13%
Percentage of Total Annualized Base Rent............................ 18.83% 27.52% 23.06%
Number of Leases Expiring........................................... 5 1 1
6800 OWENSMOUTH
C&W Peer Group Rent per Sq. Ft.(2)..................................
Base Rent per Sq. Foot of Expiring Leases........................... $ 18.00 $ 18.00 $ 15.00 $ 15.60
Square Footage of Expiring Leases................................... 5,716 8,518 5,150 6,985
Percentage of Total Leased Sq. Ft................................... 8.41% 12.54% 7.58% 10.28%
Percentage of Total Annualized Base Rent............................ 8.25% 12.30% 6.20% 8.74%
Number of Leases Expiring........................................... 1 1 1 1
CLARENDON CREST
C&W Peer Group Rent per Sq. Ft.(2)..................................
Base Rent per Sq. Foot of Expiring Leases........................... $ 18.60 $ 29.74
Square Footage of Expiring Leases................................... 1,771 1,100
Percentage of Total Leased Sq. Ft................................... 4.86% 3.02%
Percentage of Total Annualized Base Rent............................ 4.81% 4.78%
Number of Leases Expiring........................................... 1 1
SUMITOMO BANK BUILDING
C&W Peer Group Rent per Sq. Ft.(2)..................................
Base Rent per Sq. Foot of Expiring Leases........................... $ 21.84
Square Footage of Expiring Leases................................... 1,265
Percentage of Total Leased Sq. Ft................................... 1.24%
Percentage of Total Annualized Base Rent............................ 1.32%
Number of Leases Expiring........................................... 1
NOBLE PROFESSIONAL CENTER
C&W Peer Group Rent per Sq. Ft.(2)..................................
Base Rent per Sq. Foot of Expiring Leases........................... $ 20.40
Square Footage of Expiring Leases................................... 2,993
Percentage of Total Leased Sq. Ft................................... 7.17%
Percentage of Total Annualized Base Rent............................ 6.73%
Number of Leases Expiring........................................... 1

<CAPTION>
YEAR OF LEASE EXPIRATION TOTAL
- -------------------------------------------------------------------- ---------
5200 WEST CENTURY
C&W Peer Group Rent per Sq. Ft.(2)..................................
Base Rent per Sq. Foot of Expiring Leases........................... $ 12.81
Square Footage of Expiring Leases................................... 93,638
Percentage of Total Leased Sq. Ft................................... 100%
Percentage of Total Annualized Base Rent............................ 100%
Number of Leases Expiring........................................... 20
6800 OWENSMOUTH
C&W Peer Group Rent per Sq. Ft.(2)..................................
Base Rent per Sq. Foot of Expiring Leases........................... $ 18.35
Square Footage of Expiring Leases................................... 67,952
Percentage of Total Leased Sq. Ft................................... 100%
Percentage of Total Annualized Base Rent............................ 100%
Number of Leases Expiring........................................... 21
CLARENDON CREST
C&W Peer Group Rent per Sq. Ft.(2)..................................
Base Rent per Sq. Foot of Expiring Leases........................... $ 18.76
Square Footage of Expiring Leases................................... 36,473
Percentage of Total Leased Sq. Ft................................... 100%
Percentage of Total Annualized Base Rent............................ 100%
Number of Leases Expiring........................................... 8
SUMITOMO BANK BUILDING
C&W Peer Group Rent per Sq. Ft.(2)..................................
Base Rent per Sq. Foot of Expiring Leases........................... $ 20.50
Square Footage of Expiring Leases................................... 102,018
Percentage of Total Leased Sq. Ft................................... 100%
Percentage of Total Annualized Base Rent............................ 100%
Number of Leases Expiring........................................... 51
NOBLE PROFESSIONAL CENTER
C&W Peer Group Rent per Sq. Ft.(2)..................................
Base Rent per Sq. Foot of Expiring Leases........................... $ 21.74
Square Footage of Expiring Leases................................... 41,742
Percentage of Total Leased Sq. Ft................................... 100%
Percentage of Total Annualized Base Rent............................ 100%
Number of Leases Expiring........................................... 13
</TABLE>

- ----------------------------------

(1) Represents lease expirations data from May 1, 1997 to December 31, 1997.

67
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1997(1) 1998 1999 2000 2001 2002
- ----------------------------------------------------------- ----------- --------- --------- --------- --------- ---------

<S> <C> <C> <C> <C> <C> <C>
BURBANK EXECUTIVE PLAZA
C&W Peer Group Rent per Sq. Ft.(2)......................... $ 22.49
Base Rent per Square Foot of Expiring Leases............... 18.47 $ 18.74 $ 21.60
Square Footage of Expiring Leases.......................... 6,737 13,110 2,545
Percentage of Total Leased Square Footage.................. 15.11% 29.41% 5.71%
Percentage Total Annualized Base Rent...................... 12.87% 25.41% 5.68%
Number of Leases Expiring.................................. 3 3 1

CALIFORNIA FEDERAL BUILDING
C&W Peer Group Rent per Sq. Ft.(2)......................... $ 22.49
Base Rent per Square Foot of Expiring Leases............... 19.44 $ 20.57 $ 23.48
Square Footage of Expiring Leases.......................... 16,024 28,609 22,549
Percentage of Total Leased Square Footage.................. 20.03% 35.76% 28.19%
Percentage Totoal Annualized Base Rent..................... 18.57% 35.08% 31.56%
Number of Leases Expiring.................................. 3 2 3

535 BRAND
C&W Peer Group Rent per Sq. Ft.(2)......................... $ 25.28
Base Rent per Sq. Foot of Expiring Leases.................. 17.73 $ 18.81 $ 19.20 $ 15.00
Square Footage of Expiring Leases.......................... 17,505 4,202 1,665 400
Percentage of Total Leased Sq. Ft.......................... 31.42% 7.54% 2.99% 0.72%
Percentage of Total Annualized Base Rent................... 48.66% 12.39% 5.01% 0.94%
Number of Leases Expiring.................................. 9 3 1 1

GRAND AVENUE PLAZA
C&W Peer Group Rent per Sq. Ft.(2)......................... $ 16.40
Base Rent per Sq. Foot of Expiring Leases.................. $ 16.20
Square Footage of Expiring Leases.......................... 11,527
Percentage of Total Leased Sq. Ft.......................... 22.18%
Percentage of Total Annualized Base Rent................... 23.39%
Number of Leases Expiring.................................. 1

SOUTH BAY CENTRE
C&W Peer Group Rent per Sq. Ft.(2)......................... $ 17.89
Base Rent per Sq. Foot of Expiring Leases.................. $ 18.06 $ 19.34 $ 17.60 $ 20.87 $ 15.67 $ 19.62
Square Footage of Expiring Leases.......................... 18,466 11,010 17,988 56,405 10,823 2,369
Percentage of Total Leased Sq. Ft.......................... 10.61% 6.32% 10.33% 32.40% 6.22% 1.36%
Percentage of Total Annualized Base Rent................... 10.53% 6.72% 9.99% 37.18% 5.36% 1.47%
Number of Leases Expiring.................................. 9 6 5 4 3 2

<CAPTION>
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006+ TOTAL
- ----------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BURBANK EXECUTIVE PLAZA
C&W Peer Group Rent per Sq. Ft.(2).........................
Base Rent per Square Foot of Expiring Leases............... $ 22.80 $ 24.67 $ 21.69
Square Footage of Expiring Leases.......................... 2,947 19,242 44,581
Percentage of Total Leased Square Footage.................. 6.61% 43.16% 100%
Percentage Total Annualized Base Rent...................... 6.95% 49.09% 100%
Number of Leases Expiring.................................. 1 2 10
CALIFORNIA FEDERAL BUILDING
C&W Peer Group Rent per Sq. Ft.(2).........................
Base Rent per Square Foot of Expiring Leases............... $ 19.36 $ 20.97
Square Footage of Expiring Leases.......................... 12,816 79,998
Percentage of Total Leased Square Footage.................. 16.02% 100%
Percentage Totoal Annualized Base Rent..................... 14.79% 100%
Number of Leases Expiring.................................. 1 9
535 BRAND
C&W Peer Group Rent per Sq. Ft.(2).........................
Base Rent per Sq. Foot of Expiring Leases.................. $ 6.59 $ 11.45
Square Footage of Expiring Leases.......................... 31,947 55,719
Percentage of Total Leased Sq. Ft.......................... 57.34% 100%
Percentage of Total Annualized Base Rent................... 33.00% 100%
Number of Leases Expiring.................................. 1 15
GRAND AVENUE PLAZA
C&W Peer Group Rent per Sq. Ft.(2).........................
Base Rent per Sq. Foot of Expiring Leases.................. $ 15.12 $ 15.36
Square Footage of Expiring Leases.......................... 40,449 51,976
Percentage of Total Leased Sq. Ft.......................... 77.82% 100%
Percentage of Total Annualized Base Rent................... 76.61% 100%
Number of Leases Expiring.................................. 1 2
SOUTH BAY CENTRE
C&W Peer Group Rent per Sq. Ft.(2).........................
Base Rent per Sq. Foot of Expiring Leases.................. $ 16.18 $ 15.49 $ 18.19
Square Footage of Expiring Leases.......................... 39,364 17,667 174,092
Percentage of Total Leased Sq. Ft.......................... 22.61% 10.15% 100%
Percentage of Total Annualized Base Rent................... 20.11% 8.64% 100%
Number of Leases Expiring.................................. 3 1 33
</TABLE>

- ----------------------------------

(1) Represents lease expirations data from May 1, 1997 to December 31, 1997.

68
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1997(1) 1998 1999 2000 2001 2002
- --------------------------------------------------------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
LOS ANGELES CORPORATE CENTER
C&W Peer Group Rent per Sq. Ft.(2)....................... $ 18.09
Base Rent per Sq. Foot of Expiring Leases................ $ 20.20 $ 22.82 $ 23.15 $ 20.99 $ 16.78 $ 18.01
Square Footage of Expiring Leases........................ 13,618 126,314 94,306 16,923 49,505 29,718
Percentage of Total Leased Sq. Ft........................ 4.12% 38.23% 28.54% 5.12% 14.98% 8.99%
Percentage of Total Annualized Base Rent................. 3.90% 40.81% 30.92% 5.03% 11.76% 7.58%
Number of Leases Expiring................................ 4 15 4 8 4 2

WHITTIER FINANCIAL CENTER
C&W Peer Group Rent per Sq. Ft.(2)....................... $ 13.08
Base Rent per Sq. Foot of Expiring Leases................ $ 19.21 $ 18.27 $ 19.39 $ 21.44 $ 18.37 $ 17.84
Square Footage of Expiring Leases........................ 17,836 12,162 3,906 17,206 10,917 1,589
Percentage of Total Leased Sq. Ft........................ 15.46% 10.54% 3.39% 14.91% 9.46% 1.38%
Percentage of Total Annualized Base Rent................. 14.13% 9.16% 3.12% 15.21% 8.27% 1.17%
Number of Leases Expiring................................ 11 6 3 7 4 2

CENTERPOINTE LA PALMA
C&W Peer Group Rent per Sq. Ft.(2)....................... $ 19.37
Base Rent per Sq. Foot of Expiring Leases................ $ 18.07 $ 18.64 $ 15.65 $ 15.94 $ 19.96 $ 10.14
Square Footage of Expiring Leases........................ 28,829 104,972 87,919 44,333 33,364 75,184
Percentage of Total Leased Sq. Ft........................ 5.47% 19.91% 16.68% 8.41% 6.33% 14.26%
Percentage of Total Annualized Base Rent................. 5.39% 20.25% 14.24% 7.31% 6.89% 7.89%
Number of Leases Expiring................................ 9 11 20 10 6 5

CENTER PROMENADE
C&W Peer Group Rent per Sq. Ft.(2)....................... $ 16.39
Base Rent per Sq. Foot of Expiring Leases................ $ 17.10 $ 12.72 $ 14.86 $ 14.42 $ 15.56 $ 17.70
Square Footage of Expiring Leases........................ 10,816 16,040 37,862 23,824 19,676 18,544
Percentage of Total Leased Sq. Ft........................ 8.40% 12.45% 29.39% 18.49% 15.27% 14.40%
Percentage of Total Annualized Base Rent................. 9.40% 10.37% 28.60% 17.46% 15.56% 16.69%
Number of Leases Expiring................................ 7 9 8 12 6 4

PARKWAY CENTER
C&W Peer Group Rent per Sq. Ft.(2)....................... $ 17.41
Base Rent per Sq. Foot of Expiring Leases................ $ 17.40 $ 17.40 $ 16.80 $ 16.80 $ 14.35
Square Footage of Expiring Leases........................ 1,469 8,962 13,520 20,611 10,350
Percentage of Total Leased Sq. Ft........................ 2.41% 14.69% 22.15% 33.77% 16.96%
Percentage of Total Annualized Base Rent................. 2.40% 14.63% 21.31% 32.48% 13.93%
Number of Leases Expiring................................ 1 1 1 1 4

<CAPTION>
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006+ TOTAL
- --------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
LOS ANGELES CORPORATE CENTER
C&W Peer Group Rent per Sq. Ft.(2).......................
Base Rent per Sq. Foot of Expiring Leases................ $ 21.37
Square Footage of Expiring Leases........................ 330,384
Percentage of Total Leased Sq. Ft........................ 100%
Percentage of Total Annualized Base Rent................. 100%
Number of Leases Expiring................................ 37
WHITTIER FINANCIAL CENTER
C&W Peer Group Rent per Sq. Ft.(2).......................
Base Rent per Sq. Foot of Expiring Leases................ $ 23.56 $ 23.55 $ 18.21 $ 19.07 $ 21.02
Square Footage of Expiring Leases........................ 22,428 22,712 3,137 3,489 115,382
Percentage of Total Leased Sq. Ft........................ 19.44% 19.68% 2.72% 3.02% 100%
Percentage of Total Annualized Base Rent................. 21.79% 22.06% 2.36% 2.74% 100%
Number of Leases Expiring................................ 4 2 1 2 42
CENTERPOINTE LA PALMA
C&W Peer Group Rent per Sq. Ft.(2).......................
Base Rent per Sq. Foot of Expiring Leases................ $ 9.36 $ 25.51 $ 18.33
Square Footage of Expiring Leases........................ 13,396 139,160 527,157
Percentage of Total Leased Sq. Ft........................ 2.54% 26.41% 100%
Percentage of Total Annualized Base Rent................. 1.30% 36.74% 100%
Number of Leases Expiring................................ 1 4 66
CENTER PROMENADE
C&W Peer Group Rent per Sq. Ft.(2).......................
Base Rent per Sq. Foot of Expiring Leases................ $ 18.44 $ 15.27
Square Footage of Expiring Leases........................ 2,060 128,822
Percentage of Total Leased Sq. Ft........................ 1.60% 100%
Percentage of Total Annualized Base Rent................. 1.93% 100%
Number of Leases Expiring................................ 1 47
PARKWAY CENTER
C&W Peer Group Rent per Sq. Ft.(2).......................
Base Rent per Sq. Foot of Expiring Leases................ $ 27.90 $ 24.18 $ 17.47
Square Footage of Expiring Leases........................ 3,984 2,129 61,025
Percentage of Total Leased Sq. Ft........................ 6.53% 3.49% 100%
Percentage of Total Annualized Base Rent................. 10.43% 4.83% 100%
Number of Leases Expiring................................ 1 1 10
</TABLE>

- ----------------------------------

(1) Represents lease expirations data from May 1, 1997 to December 31, 1997.

69
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1997(1) 1998 1999 2000 2001 2002 2003
- ------------------------------------------------ ----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CALIFORNIA TWIN CENTRE
C&W Peer Group Rent per Sq. Ft.(2).............. $ 17.32
Base Rent per Sq. Foot of Expiring Leases....... $ 18.96 $ 18.84 $ 17.11 $ 26.00 $ 16.20
Square Footage of Expiring Leases............... 6,617 4,409 5,048 109,023 3,691
Percentage of Total Leased Sq. Ft............... 4.82% 3.21% 3.67% 79.36% 2.69%
Percentage of Total Annualized Base Rent........ 3.75% 2.48% 2.58% 84.74% 1.79%
Number of Leases Expiring....................... 1 1 1 3 1

ACQUIRED PROPERTIES SUBTOTAL
C&W Peer Group Rent per Sq. Ft.(2)(3)........... $ 19.24
Base Rent per Sq. Foot of Expiring Leases....... $ 19.20 $ 20.18 $ 19.10 $ 18.46 $ 20.52 $ 15.34 $ 15.78
Square Footage of Expiring Leases............... 303,149 416,976 408,836 286,912 432,669 250,399 144,995
Percentage of Total Leased Sq. Ft............... 11.51% 15.83% 15.52% 10.89% 16.43% 9.51% 5.50%
Percentage of Total Annualized Base Rent........ 11.51% 16.64% 15.44% 10.47% 17.56% 7.59% 4.52%
Number of Leases Expiring....................... 138 121 95 86 73 43 13

PENDING ACQUISITIONS
1100 GLENDON
C&W Peer Group Rent per Sq. Ft.(2).............. $ 25.63
Base Rent per Sq. Foot of Expiring Leases....... $ 24.28 $ 24.66 $ 27.64 $ 28.46 $ 23.72 $ 45.60 $ 20.70
Square Footage of Expiring Leases............... 69,309 32,793 8,347 3,432 19,181 665 923
Percentage of Total Leased Sq. Ft............... 49.49% 23.42% 5.96% 2.45% 13.70% 0.47% 0.66%
Percentage of Total Annualized Base Rent........ 50.16% 24.11% 6.88% 2.91% 13.56% 0.90% 0.57%
Number of Leases Expiring....................... 65 34 17 6 10 1 1

CARLSBERG CORPORATE CENTER
C&W Peer Group Rent per Sq. Ft.(2).............. $ 22.03
Base Rent per Sq. Foot of Expiring Leases....... $ 20.57 $ 20.18 $ 21.15 $ 21.13 $ 19.88 $ 21.96
Square Footage of Expiring Leases............... 15,423 16,959 26,919 3,107 25,069 2,902
Percentage of Total Leased Sq. Ft............... 17.06% 18.76% 29.78% 3.44% 27.74% 3.21%
Percentage of Total Annualized Base Rent........ 17.09% 18.43% 30.67% 3.54% 26.84% 3.43%
Number of Leases Expiring....................... 12 7 11 2 5 1

299 EUCLID
C&W Peer Group Rent per Sq. Ft.(2).............. $ 19.44
Base Rent per Sq. Foot of Expiring Leases.......
Square Footage of Expiring Leases...............
Percentage of Total Leased Sq. Ft...............
Annualized Base Rent of Expiring Leases.........
Percentage of Total Annualized Base Rent........
Number of Leases Expiring.......................

<CAPTION>
YEAR OF LEASE EXPIRATION 2004 2005 2006+ TOTAL
- ------------------------------------------------ --------- --------- --------- ----------
<S> <C> <C> <C> <C>
CALIFORNIA TWIN CENTRE
C&W Peer Group Rent per Sq. Ft.(2)..............
Base Rent per Sq. Foot of Expiring Leases....... $ 18.12 $ 24.35
Square Footage of Expiring Leases............... 8,597 137,385
Percentage of Total Leased Sq. Ft............... 6.26% 100%
Percentage of Total Annualized Base Rent........ 4.66% 100%
Number of Leases Expiring....................... 1 8
ACQUIRED PROPERTIES SUBTOTAL
C&W Peer Group Rent per Sq. Ft.(2)(3)...........
Base Rent per Sq. Foot of Expiring Leases....... $ 17.98 $ 21.69 $ 23.50 $ 19.20
Square Footage of Expiring Leases............... 157,548 36,613 195,906 2,634,003
Percentage of Total Leased Sq. Ft............... 5.98% 1.39% 7.44% 100%
Percentage of Total Annualized Base Rent........ 5.60% 1.57% 9.10% 100%
Number of Leases Expiring....................... 19 9 11 608
PENDING ACQUISITIONS
1100 GLENDON
C&W Peer Group Rent per Sq. Ft.(2)..............
Base Rent per Sq. Foot of Expiring Leases....... $ 5.56 $ 23.95
Square Footage of Expiring Leases............... 5,400 140,050
Percentage of Total Leased Sq. Ft............... 3.86% 100%
Percentage of Total Annualized Base Rent........ 0.89% 100%
Number of Leases Expiring....................... 1 135
CARLSBERG CORPORATE CENTER
C&W Peer Group Rent per Sq. Ft.(2)..............
Base Rent per Sq. Foot of Expiring Leases....... $ 20.54
Square Footage of Expiring Leases............... 90,379
Percentage of Total Leased Sq. Ft............... 100%
Percentage of Total Annualized Base Rent........ 100%
Number of Leases Expiring....................... 38
299 EUCLID
C&W Peer Group Rent per Sq. Ft.(2)..............
Base Rent per Sq. Foot of Expiring Leases.......
Square Footage of Expiring Leases...............
Percentage of Total Leased Sq. Ft...............
Annualized Base Rent of Expiring Leases.........
Percentage of Total Annualized Base Rent........
Number of Leases Expiring.......................
</TABLE>

- ----------------------------------
(1) Represents lease expirations data from May 1, 1997 to December 31, 1997.
(2)"C&W Peer Group Rent" represents, for each of the Properties and Pending
Acquisitions, the mid-point of the range of the weighted average annual
asking rents (for full service gross leases only) for such property's C&W
Peer Group as of approximately May 1, 1997. Any net leases for properties in
the applicable C&W Peer Group have been adjusted to full-service gross leases
by adding estimated recoverable expenses for similar properties. Asking rents
may differ significantly from actual rents.
(3)The C&W Peer Group Rent per square foot weighted average subtotals and total
have been calculated by weighting each property by its approximate net
rentable square feet relative to the respective subtotal or total approximate
net rentable square feet.

70
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1997(1) 1998 1999 2000 2001 2002
- ---------------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
HARBOR CORPORATE CENTER
C&W Peer Group Rent per Sq. Ft.(2)........................ $ 15.44
Base Rent per Sq. Foot of Expiring Leases................. $ 16.10 $ 14.92 $ 13.84 $ 16.01 $ 12.60
Square Footage of Expiring Leases......................... 8,571 14,022 7,334 7,265 12,308
Percentage of Total Annualized Base Rent.................. 17.32% 28.33% 14.82% 14.68% 24.86%
Percentage of Total Annualized Base Rent.................. 19.16% 29.06% 14.09% 16.16% 21.54%
Number of Leases Expiring................................. 4 6 3 1 3

PACIFIC GATEWAY II
C&W Peer Group Rent per Sq. Ft.(2)........................ $ 20.11
Base Rent per Sq. Foot of Expiring Leases................. $ 21.46 $ 20.21 $ 18.83 $ 20.01 $ 21.97 $ 21.00
Square Footage of Expiring Leases......................... 48,969 11,612 6,280 34,324 54,333 2,309
Percentage of Total Leased Sq. Ft......................... 23.68% 5.62% 3.04% 16.60% 26.28% 1.12%
Percentage of Total Annualized Base Rent.................. 24.66% 5.51% 2.78% 16.12% 28.01% 1.14%
Number of Leases Expiring................................. 3 7 3 7 7 1

MARINER COURT
C&W Peer Group Rent per Sq. Ft.(2)........................ $ 20.34
Base Rent per Sq. Foot of Expiring Leases................. $ 16.50 $ 15.63 $ 15.91 $ 19.94 $ 15.31 $ 23.72
Square Footage of Expiring Leases......................... 982 36,214 17,960 14,098 10,276 11,898
Percentage of Total Leased Sq. Ft......................... 1.07% 39.61% 19.64% 15.42% 11.24% 13.01%
Percentage of Total Annualized Base Rent.................. 1.02% 35.63% 17.99% 17.69% 9.91% 17.76%
Number of Leases Expiring................................. 1 13 7 4 3 1

CROWN CABOT
C&W Peer Group Rent per Sq. Ft.(2)........................ $ 21.14
Base Rent per Sq. Foot of Expiring Leases................. $ 26.75 $ 20.50 $ 20.67 $ 20.95 $ 20.08 $ 23.18
Square Footage of Expiring Leases......................... 31,966 40,292 20,587 18,123 44,291 6,120
Percentage of Total Leased Sq. Ft......................... 19.81% 24.97% 12.76% 11.23% 27.45% 3.79%
Percentage of Total Annualized Base Rent.................. 24.31% 23.48% 12.10% 10.79% 25.29% 4.03%
Number of Leases Expiring................................. 3 7 8 6 5 3

1821 DYER
C&W Peer Group Rent per Sq. Ft.(2)........................ $ 15.59
Base Rent per Sq. Foot of Expiring Leases................. $ 5.52
Square Footage of Expiring Leases......................... 115,061
Percentage of Total Leased Sq. Ft......................... 100%
Percentage of Total Annualized Base Rent.................. 100%
Number of Leases Expiring................................. 1

<CAPTION>
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006+ TOTAL
- ---------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
HARBOR CORPORATE CENTER
C&W Peer Group Rent per Sq. Ft.(2)........................
Base Rent per Sq. Foot of Expiring Leases................. $ 14.55
Square Footage of Expiring Leases......................... 49,500
Percentage of Total Annualized Base Rent.................. 100%
Percentage of Total Annualized Base Rent.................. 100%
Number of Leases Expiring................................. 17
PACIFIC GATEWAY II
C&W Peer Group Rent per Sq. Ft.(2)........................
Base Rent per Sq. Foot of Expiring Leases................. $ 22.44 $ 21.60 $ 18.48 $ 20.61
Square Footage of Expiring Leases......................... 3,443 3,402 42,092 206,764
Percentage of Total Leased Sq. Ft......................... 1.67% 1.65% 20.36% 100%
Percentage of Total Annualized Base Rent.................. 1.81% 1.72% 18.25% 100%
Number of Leases Expiring................................. 1 1 1 31
MARINER COURT
C&W Peer Group Rent per Sq. Ft.(2)........................
Base Rent per Sq. Foot of Expiring Leases................. $ 17.38
Square Footage of Expiring Leases......................... 91,428
Percentage of Total Leased Sq. Ft......................... 100%
Percentage of Total Annualized Base Rent.................. 100%
Number of Leases Expiring................................. 29
CROWN CABOT
C&W Peer Group Rent per Sq. Ft.(2)........................
Base Rent per Sq. Foot of Expiring Leases................. $ 21.80
Square Footage of Expiring Leases......................... 161,379
Percentage of Total Leased Sq. Ft......................... 100%
Percentage of Total Annualized Base Rent.................. 100%
Number of Leases Expiring................................. 32
1821 DYER
C&W Peer Group Rent per Sq. Ft.(2)........................
Base Rent per Sq. Foot of Expiring Leases................. $ 5.52
Square Footage of Expiring Leases......................... 115,061
Percentage of Total Leased Sq. Ft......................... 100%
Percentage of Total Annualized Base Rent.................. 100%
Number of Leases Expiring................................. 1
</TABLE>

71
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1997(1) 1998 1999 2000 2001 2002 2003
- ------------------------------------------- --------- ---------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1000 TOWN CENTER
C&W Peer Group Rent per Sq. Ft.(2)......... $ 19.90
Base Rent per Sq. Foot of Expiring Leases.. $ 16.20 $ 16.52 $ 27.38 $ 15.97 $ 21.96
Square Footage of Expiring Leases.......... 3,212 5,534 35,012 53,735 7,390
Percentage of Total Leased Sq. Ft.......... 2.98% 5.14% 32.52% 49.91% 6.86%
Percentage of Total Annualized Base Rent... 2.39% 4.19% 43.96% 39.35% 7.44%
Number of Leases Expiring.................. 1 2 4 2 1

PENDING ACQUISITIONS SUBTOTAL
C&W Peer Group Rent per Sq. Ft.(2)(3)...... $ 20.96
Base Rent per Sq. Foot of Expiring Leases.. $ 16.17 $ 19.59 $ 19.61 $ 22.42 $ 19.19 $ 23.71 $ 22.00
Square Footage of Expiring Leases.......... 290,281 155,104 92,961 115,361 219,193 23,894 11,756
Percentage of Total Leased Sq. Ft.......... 30.17% 16.12% 9.66% 11.99% 22.78% 2.48% 1.22%
Percentage of Total Annualized Base Rent... 25.92% 16.78% 10.06% 14.27% 23.22% 3.13% 1.43%
Number of Leases Expiring.................. 89 75 51 30 35 7 3

PORTFOLIO TOTAL
C&W Peer Group Rent per Sq. Ft.(2)(3)...... 20.80
Base Rent per Sq. Foot of Expiring Leases.. $ 18.50 $ 20.03 $ 19.21 $ 20.75 $ 20.22 $ 19.18 $ 18.51
Square Footage of Expiring Leases.......... 906,020 1,018,576 970,434 860,416 1,039,900 963,995 291,935
Percentage of Total Leased Sq. Ft.......... 12.40% 13.94% 13.28% 11.78% 14.24% 13.20% 4.00%
Percentage of Total Annualized Base Rent... 11.81% 14.38% 13.14% 12.59% 14.82% 13.03% 3.81%
Number of Leases Expiring.................. 338 303 245 212 178 103 30

<CAPTION>
YEAR OF LEASE EXPIRATION 2004 2005 2006+ TOTAL
- ------------------------------------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
1000 TOWN CENTER
C&W Peer Group Rent per Sq. Ft.(2).........
Base Rent per Sq. Foot of Expiring Leases.. $ 21.02 $ 20.26
Square Footage of Expiring Leases.......... 2,776 107,659
Percentage of Total Leased Sq. Ft.......... 2.58% 100%
Percentage of Total Annualized Base Rent... 2.68% 100%
Number of Leases Expiring.................. 1 11
PENDING ACQUISITIONS SUBTOTAL
C&W Peer Group Rent per Sq. Ft.(2)(3)......
Base Rent per Sq. Foot of Expiring Leases.. $ 21.34 $ 17.01 $ 18.83
Square Footage of Expiring Leases.......... 6,178 47,492 962,220
Percentage of Total Leased Sq. Ft.......... 0.64% 4.94% 100%
Percentage of Total Annualized Base Rent... 0.73% 4.46% 100%
Number of Leases Expiring.................. 2 2 294
PORTFOLIO TOTAL
C&W Peer Group Rent per Sq. Ft.(2)(3)......
Base Rent per Sq. Foot of Expiring Leases.. $ 20.19 $ 14.01 $ 23.12 $ 19.42
Square Footage of Expiring Leases.......... 369,766 506,504 377,813 7,305,359
Percentage of Total Leased Sq. Ft.......... 5.06% 6.93% 5.17% 100%
Percentage of Total Annualized Base Rent... 5.26% 5.00% 6.16% 100%
Number of Leases Expiring.................. 39 29 23 1,500
</TABLE>

72
<PAGE>
TENANT RETENTION AND EXPANSIONS

The Company believes that its relationship with tenants contributes
significantly to its success in attracting, expanding and retaining its quality
and diverse tenant base. The Company strives to develop and maintain good
relationships with tenants through its active management style and
responsiveness to individual tenant's needs. The Company services tenants
primarily through its on-site, professional management staff. Management
believes that tenant satisfaction fosters long-term tenant relationships and
creates expansion opportunities, which enhance the Company's ability to maintain
and increase occupancy rates. The Company's success in this area is demonstrated
in part by the number of existing tenants which have re-leased their space,
leased additional space to support their expansion needs or moved to other space
within the Company's portfolio.

HISTORICAL LEASE RENEWALS

The following table sets forth certain historical information regarding
tenants at the Properties who renewed an existing lease at or prior to the
expiration of the existing lease:

<TABLE>
<CAPTION>
TOTAL/
JANUARY 1 TO WEIGHTED
1993 1994 1995 1996 MAY 1, 1997 AVERAGE
--------- --------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Number of leases expired during calendar year... 3 28 33 61 49 174
Number of lease renewals........................ 3 20 21 48 35 127
Percentage of leases renewed.................... 100% 71% 64% 79% 71% 73%
Aggregate rentable square footage of expiring
leases........................................ 2,870 112,539 99,577 189,615 154,385 558,986
Aggregate rentable square footage of lease
renewals...................................... 2,870 92,057 75,213 140,507 113,786 424,433
Percentage of expiring rentable square footage
renewed....................................... 100% 82% 76% 74% 74% 76%
</TABLE>

73
<PAGE>
HISTORICAL TENANT IMPROVEMENTS AND LEASING COMMISSIONS

The following table sets forth certain historical information regarding
Tenant Improvement ("TI") and Leasing Commission ("LC") costs for tenants at the
Properties. Based on square footage, the majority of leases signed relate to
renewals and re-tenanted space (84%), while leases signed relating to shell
space comprised 16%. Shell space remaining at the Properties is less than 2% of
the aggregate rentable square footage of the Properties.

<TABLE>
<CAPTION>
JANUARY 1 TOTAL/
TO MAY 1 WEIGHTED
1993 1994 1995 1996 1997 AVERAGE
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
RENEWALS
Number of leases.......................... 3 20 20(1) 48 35 126
Square feet of renewals................... 2,870 92,057 57,181(1) 140,507 113,786 406,401
TI per square foot........................ $ 3.58 $ 2.23 $ 4.67(1) $ 5.28 $ 5.39 $ 4.52
LC per square foot........................ 0.09 3.44 1.11(1) 2.42 3.00 2.61
--------- ---------- ---------- ---------- ------------ ------------
Total TI and LC per square foot....... $ 3.67 $ 5.67 $ 5.78(1) $ 7.70 $ 8.39 $ 7.13
--------- ---------- ---------- ---------- ------------ ------------
--------- ---------- ---------- ---------- ------------ ------------
RE-TENANTED SPACE(2)
Number of leases.......................... 7 13 47 61 71 199
Square feet of re-tenanted space.......... 9,910 22,265 108,430 143,657 267,788 552,050
TI per square foot........................ $ 2.22 $ 9.04 $ 9.82 $ 8.52 $ 10.33 $ 9.56
LC per square foot........................ 0.31 2.72 3.05 3.51 4.25 3.69
--------- ---------- ---------- ---------- ------------ ------------
Total TI and LC per square foot....... $ 2.53 $ 11.76 $ 12.87 $ 12.03 $ 14.58 $ 13.25
--------- ---------- ---------- ---------- ------------ ------------
--------- ---------- ---------- ---------- ------------ ------------
SHELL SPACE(3)
Number of leases.......................... 5 8 10 17 0 40
Square feet of shell space................ 17,389 16,130 53,876 100,308 -- 187,703
TI per square foot........................ $ 31.22 $ 36.25 $ 26.29 $ 21.17 $ -- $ 24.87
LC per square foot........................ 3.65 7.19 4.83 6.17 -- 5.64
--------- ---------- ---------- ---------- ------------ ------------
Total TI and LC per square foot....... $ 34.87 $ 43.44 $ 31.12 $ 27.34 $ -- $ 30.51
--------- ---------- ---------- ---------- ------------ ------------
--------- ---------- ---------- ---------- ------------ ------------
TOTAL
Number of leases.......................... 15 41 77 126 106 365
Square feet............................... 30,169 130,452 219,487 384,472 381,574 1,146,154
TI per square foot........................ $ 19.06 $ 7.60 $ 12.52 $ 10.64 $ 8.86 $ 10.28
LC per square foot........................ 2.22 3.78 2.98 3.80 3.88 3.63
--------- ---------- ---------- ---------- ------------ ------------
Total TI and LC per square foot....... $ 21.28 $ 11.38 $ 15.50 $ 14.44 $ 12.74 $ 13.91
--------- ---------- ---------- ---------- ------------ ------------
--------- ---------- ---------- ---------- ------------ ------------
</TABLE>

- ------------------------------

(1) Excludes tenant improvement and leasing commission costs relating to one
lease signed at Anaheim City Centre for which the Company incurred
substantial renovation costs in connection with a full floor retrofit.

(2) Does not include shell space build-out for 187,703 square feet.

(3) Shell space remaining at the Properties is less than 2% of the aggregate
rentable square footage of the Properties.

74
<PAGE>
HISTORICAL CAPITAL EXPENDITURES

The following table sets forth information relating to the recurring
historical capital expenditures of the Company's Properties:

<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Number of Properties(1).................................... 3 8 10 16
Number of square feet...................................... 529,673 1,129,855 1,408,468 2,634,057
Capital expenditures incurred ($000s)...................... $ 9.5 $ 51.6 $ 200.8 $ 673.3
Weighted average capital expenditures per square foot(2)... $ 0.02 $ 0.06 $ 0.15 $ 0.26
Four year weighted average per square foot................. $ 0.17
</TABLE>

- ------------------------------

(1) Represents the actual number of Properties and square feet for which
recurring capital expenditures were incurred during the year.

(2) For those Properties owned less than a full year, computes the per square
foot amount by annualizing the capital expenditures amount to a pro forma
full year cost.

HISTORICAL OCCUPANCY

The table below sets forth the historical weighted average occupancy rates,
based on square feet leased, of the Company's Properties at the indicated dates:

<TABLE>
<CAPTION>
APPROXIMATE AGGREGATE PERCENTAGE OF RENTABLE
DATE RENTABLE SQUARE FEET SQUARE FEET OCCUPIED
- ---------------------------------------------------------- --------------------- -----------------------
<S> <C> <C>
December 31, 1993......................................... 529,673 84%
June 30, 1994............................................. 635,503 87%
December 31, 1994......................................... 1,129,855 82%
June 30, 1995............................................. 1,408,468 84%
December 31, 1995......................................... 2,634,057 88%
June 30, 1996............................................. 3,547,107 89%
December 31, 1996......................................... 5,443,124 85%
</TABLE>

75
<PAGE>
OFFICE SUBMARKETS AND PROPERTY INFORMATION

The Company owns and operates 45 Properties comprising approximately 7.4
million rentable square feet located in suburban Los Angeles County, Orange
County, Ventura County, Kern County and San Diego County. The following map
shows the relative geographic location of these counties.

MAP OF LOS ANGELES COUNTY, ORANGE COUNTY, VENTURA COUNTY,
KERN COUNTY AND SAN DIEGO COUNTY

76
<PAGE>
LOCATION OF PROPERTIES AND PENDING ACQUISITIONS

The Company's Properties and the Pending Acquisitions consist of
approximately 8.6 million rentable square feet and are located in the following
office market sectors and submarkets within suburban Los Angeles County, Orange
County, Ventura County, Kern County and San Diego County:

OFFICE MARKET SECTORS AND SUBMARKETS
AS OF MAY 1, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
APPROXIMATE PORTFOLIO ADJUSTED
NUMBER OF NUMBER OF NET RENTABLE RENTABLE BASE RENT
PROPERTIES BUILDINGS SQUARE FEET SQUARE FEET ($000S)
--------------- --------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
LOS ANGELES COUNTY
LOS ANGELES WEST
Beverly Hills/Century City................ 6 6 1,019,408 11.8% $ 19,696
Westwood/West Los Angeles................. 6 6 772,800 8.9% 12,581
Marina Area/Culver City................... 4 5 951,197 11.0% 11,153
Park Mile/West Hollywood.................. 1 1 202,704 2.3% 3,319
LOS ANGELES NORTH
Simi/Conejo Valley........................ 2 5 228,951 2.7% 2,923
West Valley............................... 3 4 348,032 4.0% 6,385
Central Valley............................ 3 3 337,310 3.9% 5,841
East Valley/Tri-Cities.................... 7 7 672,620 7.8% 9,612
LOS ANGELES SOUTH
El Segundo................................ 1 2 84,500 1.0% 0
Torrance.................................. 4 4 595,922 6.9% 9,221
Long Beach................................ 5 5 749,273 8.7% 10,952
LOS ANGELES CENTRAL
San Gabriel Valley........................ 2 6 524,708 6.1% 8,800
ORANGE COUNTY
South County.............................. 1 1 172,900 2.0% 3,342
Greater Airport Area...................... 1 1 115,061 1.3% 635
West County............................... 1 1 49,355 0.6% 659
Tri-Freeway Area.......................... 1 1 175,391 2.0% 2,632
North County.............................. 1 12 597,550 6.9% 8,519
VENTURA COUNTY
West County............................... 2 8 282,490 3.3% 3,924
KERN COUNTY
Bakersfield............................... 2 3 216,522 2.5% 4,309
SAN DIEGO COUNTY
Central City.............................. 1 1 540,413 6.3% 7,377
-- --
------------ ----- ----------
Total................................. 54 82 8,637,107 100.0% $ 131,880
-- --
-- --
------------ ----- ----------
------------ ----- ----------

PERCENTAGE
OF PORTFOLIO
ANNUALIZED
BASE RENT
-------------
<S> <C>
LOS ANGELES COUNTY
LOS ANGELES WEST
Beverly Hills/Century City................ 14.9%
Westwood/West Los Angeles................. 9.5%
Marina Area/Culver City................... 8.5%
Park Mile/West Hollywood.................. 2.5%
LOS ANGELES NORTH
Simi/Conejo Valley........................ 2.2%
West Valley............................... 4.8%
Central Valley............................ 4.4%
East Valley/Tri-Cities.................... 7.3%
LOS ANGELES SOUTH
El Segundo................................ 0.0%
Torrance.................................. 7.0%
Long Beach................................ 8.3%
LOS ANGELES CENTRAL
San Gabriel Valley........................ 6.7%
ORANGE COUNTY
South County.............................. 2.5%
Greater Airport Area...................... 0.5%
West County............................... 0.5%
Tri-Freeway Area.......................... 2.0%
North County.............................. 6.5%
VENTURA COUNTY
West County............................... 3.0%
KERN COUNTY
Bakersfield............................... 3.3%
SAN DIEGO COUNTY
Central City.............................. 5.6%

-----
Total................................. 100.0%

-----
-----
</TABLE>

LOS ANGELES COUNTY OFFICE MARKET

According to Cushman & Wakefield, the Los Angeles County office market
(including suburban Los Angeles County and downtown Los Angeles), contained
office space inventory of approximately 170 million square feet and had a direct
vacancy rate of 17.5% as of March 31, 1997, reflecting a 1.2% improvement since
year end 1995. Cushman & Wakefield divides Los Angeles County into four office

77
<PAGE>
market sectors, namely, Los Angeles West, Los Angeles North, Los Angeles South,
and Los Angeles Central, with each of these sectors composed of a number of
submarkets as illustrated on the map below.

MAP OF THE FOUR OFFICE MARKET SECTORS
WITHIN LOS ANGELES COUNTY

The table below sets forth salient statistics on each of the four office
market sectors within the Los Angeles county office market.

LOS ANGELES COUNTY
OFFICE MARKET STATISTICS AS OF MARCH 31, 1997

<TABLE>
<CAPTION>
DIRECT NET WTD. AVG.
NO. OF DIRECT VACANCY ABSORPTION ASKING
OFFICE MARKET SECTOR INVENTORY BLDGS. AVAILABILITY(1) RATE YTD 1997 RENTAL RATE
- --------------------------------------- ------------- --------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Los Angeles West....................... 50,252,599 368 7,687,323 15.3% 258,506 $ 21.31
Los Angeles North...................... 41,003,114 489 5,763,525 14.1% (53,108) $ 20.37
Los Angeles South...................... 26,727,075 233 4,796,301 17.9% 51,968 $ 17.51
Los Angeles Central.................... 52,184,928 251 11,450,055 21.9% (43,574) $ 17.25
------------- --------- ------------- --- ----------- -----------
Total.............................. 170,167,716 1,341 29,697,204 17.5% 213,792 $ 18.95
------------- --------- ------------- --- ----------- -----------
------------- --------- ------------- --- ----------- -----------
</TABLE>

- ------------------------
Source: Cushman & Wakefield

(1) Does not include currently leased but available sublease space.

LOS ANGELES WEST OFFICE MARKET SECTOR

The Los Angeles West office market sector encompasses several distinct
office submarkets, including, among others, the Beverly Hills, Century City,
Westwood, West Los Angeles, Marina Area, Culver City, LAX, Hollywood, and West
Hollywood submarkets. According to Cushman & Wakefield, the Los Angeles West
office market sector contains approximately 50.3 million square feet of office
space or roughly 30% of the total inventory in Los Angeles County. As of March
31, 1997, the Los Angeles West office market

78
<PAGE>
sector had a direct vacancy rate of 15.3% and a weighted average asking rental
rate of $21.31 per square foot.

MAP OF THE OFFICE SUBMARKETS IN THE
LOS ANGELES WEST OFFICE MARKET SECTOR

Several of the office submarkets in the Los Angeles West office market
sector, including Westwood, Beverly Hills, and Century City are considered among
the most prestigious and desirable office locations in Los Angeles County and
command premium rental rates, with average annual asking rents of $30.00,
$25.44, and $24.00 per square foot, respectively, as of March 31, 1997. The
tenant base of office space users in the Los Angeles West office market sector
is primarily composed of firms in the entertainment, advertising, professional
and financial services, legal, accounting, insurance and real estate industries.

Nine of the Initial Properties, six of the Acquired Properties, and two of
the Pending Acquisitions are located in the Los Angeles West market sector and
collectively contain approximately 2,946,109 net rentable square feet which
represents approximately 34.1% of the total rentable square footage of the
Properties and Pending Acquisitions. The Properties are located in the office
submarkets of Beverly Hills, Century City, Westwood, West Los Angeles, Culver
City/Westchester, LAX and the 6000 Block of Wilshire Boulevard (a segment of the
Miracle Mile office submarket adjacent to Beverly Hills). No new development of
mid-rise or high-rise properties is permitted in the Beverly Hills office
submarket as the City of Beverly Hills has enacted zoning limitations that
impose a three-story height limit for all new commercial development.

DESCRIPTION OF ACQUIRED PROPERTIES LOCATED IN THE LOS ANGELES WEST OFFICE MARKET
SECTOR:

10350 SANTA MONICA. 10350 Santa Monica is a three-story, garden-style
office building containing approximately 42,292 rentable square feet. Developed
in 1979, the property has a steel frame striped with horizontal bands of solar
reflective glass and features a central open-air atrium. A four-level
subterranean garage provides 98 parking spaces. The building is located in the
Century City submarket, within walking distance of the Century City Shopping
Center and Marketplace and a number of other retail establishments and
restaurants. At the date of acquisition, the property was 88.0% leased. As of
May 1, 1997, the property was 93.1% leased at an average base rental rate of
$17.44 per square foot.

79
<PAGE>
10351 SANTA MONICA. 10351 Santa Monica consists of a 96,251-square foot,
four-story office building over a four-level, 274 space subterranean parking
garage. The building's steel frame is clad in red brick veneer and aluminum
frame sliders. The building was completed in 1984 and is located in the Century
City submarket, within walking distance of the Century Plaza Hotel, the Century
City Shopping Center and Marketplace, and numerous other retail, restaurant, and
entertainment amenities. The property was 97.8% leased as of May 1, 1997, at an
average base rental rate of $17.07 per square foot.

8383 WILSHIRE. 8383 Wilshire is a 10-story, 417,463 square foot office
building in the Beverly Hills submarket. The property was developed in 1971 and
renovated in 1993. The building is a concrete structure with a reinforced
concrete and tempered glass exterior and has a 20-foot high lobby with a rotunda
ceiling. A three-level, subterranean garage and a surface lot provide 1,125
parking spaces. 8383 Wilshire is the largest office building in Beverly Hills
and tenants of the building include a full-service post office, three banks,
several restaurants, a travel agency and a print shop. The Company believes that
8383 Wilshire has a unique position in its market because current planning and
zoning restrictions limit the size of any new construction to three stories. As
of May 1, 1997, the property was 76.8% leased, which the Company believes is
significantly below market occupancy levels, and had an average base rental rate
of $21.09 per square foot.

2730 WILSHIRE. 2730 Wilshire is a six-story office building in the Santa
Monica submarket, which the Company believes is one of the most desirable
submarkets in the Los Angeles West office market sector. Developed in 1985 of
steel frame construction and covered with an aluminum and glass curtain wall
system, the property contains approximately 55,080 rentable square feet. The
three-level, subterranean garage provides approximately 199 parking spaces. The
property is located just five blocks from the Santa Monica (10) Freeway, which
together with nearby Interstate 405, provides access to all areas of greater Los
Angeles. As of May 1, 1997, the property was 97.5% leased, with base rents
averaging $20.00 per square foot.

10780 SANTA MONICA. Located in the Westwood submarket, 10780 Santa Monica
is a four-story office building containing approximately 92,486 rentable square
feet. The property was completed in 1984 and is of steel-frame construction with
precast concrete bands and aluminum-framed strip glazing. A four-level
subterranean garage provides 249 parking spaces. Interstate 405 is just West of
the property, and a variety of retail, restaurant, and entertainment amenities,
including the Century City Shopping Center and Marketplace, are accessible by
way of Santa Monica Boulevard. At the date of acquisition, the property was
78.1% leased. As of May 1, 1997, the property was 84.1% leased, with an average
base rental rate of $18.23 per square foot.

5200 WEST CENTURY. 5200 West Century is a 10-story office complex
consisting of two connected towers situated in the LAX submarket. The property
was developed in 1982 and contains approximately 310,910 rentable square feet.
The building's steel frame is clad in reflective monolithic glass, and a
landscaped courtyard and covered walkway connect the office towers to a
seven-level parking structure with 940 spaces. The property benefits from
immediate access to both the Interstate 405 and the 105 Freeway and from its
proximity to the Los Angeles International Airport. The Company acquired the
property for $11.4 million and intends to invest approximately $2.3 million over
the next two years in capital improvements including refinishing the exterior
panels and refurbishing the lobby. As of May 1, 1997, the property was 30.1%
leased and had an average base rental rate of $9.90.

DESCRIPTION OF PENDING ACQUISITIONS LOCATED IN THE LOS ANGELES WEST OFFICE
MARKET SECTOR:

1100 GLENDON. 1100 Glendon is a 22-story office building located in the
Westwood submarket. Completed in 1965, the property consists of 15 office floors
totaling 282,013 rentable square feet with six above-grade and two subterranean
parking levels providing 606 spaces. The building is constructed of steel and
concrete with precast concrete marble aggregate panels and tinted glass and
aluminum windows and is located near Interstate 405 and Interstate 10 with easy
access to other West Los Angeles markets,

80
<PAGE>
downtown Los Angeles, the San Fernando Valley and the Los Angeles International
Airport. In addition, the property is adjacent to the Westwood Village retail
area and the University of California at Los Angeles campus. The Company has
entered a letter of intent to purchase the property for $29.5 million and the
Company intends to invest approximately $21.9 million over the next two years
for renovations, including exterior refinishing, lobby renovation, common area
remodeling and upgrading of the building's operating systems and parking
facilities.

CARLSBERG CORPORATE CENTER. Carlsberg Corporate Center is a three-story
office building located in the Santa Monica submarket. The property was
completed in 1979 and contains approximately 103,506 rentable square feet with
346 surface parking spaces. The building has a steel frame with aluminum and
glass curtain walls. The property is located south of the Interstate 10 Freeway
in the southeastern portion of the City of Santa Monica. As of May 1, 1997, the
property was 87.3% leased, with an average base rental rate of $20.34 per square
foot, which the Company believes is below market rental rates.

LOS ANGELES NORTH OFFICE MARKET SECTOR

The Los Angeles North office market sector, as defined by Cushman &
Wakefield, spans four market areas located in the San Fernando, Santa Clarita,
and Conejo valleys and portions of southeastern Ventura County. The four primary
submarkets in this sector (Simi/Conejo Valley, West San Fernando Valley, Central
San Fernando Valley, and East San Fernando Valley/Tri-Cities) account for
approximately 41.0 million square feet of office space, representing
approximately 24.1% of Los Angeles County's total inventory. As of March 31,
1997, the Los Angeles North office market sector had a direct vacancy rate of
14.1%, with annual asking rental rates averaging $20.37 per square foot.

MAP OF THE OFFICE SUBMARKETS IN THE
LOS ANGELES NORTH OFFICE MARKET SECTOR

Seven of the Initial Properties, seven of the Acquired Properties, and one
of the Pending Acquisitions are located in the Los Angeles North office market
sector and collectively contain approximately 586,913 rentable square feet which
represents approximately 18.4% of the total rentable square footage of the

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Properties and Pending Acquisitions. The Properties and Pending Acquisitions are
located in the office submarkets of Westlake Village, Calabasas, Woodland Hills,
Encino, Glendale, Burbank City Center, Pasadena, Canoga Park/Chatsworth, and
Sherman Oaks.

DESCRIPTION OF ACQUIRED PROPERTIES LOCATED IN THE LOS ANGELES NORTH OFFICE
MARKET SECTOR:

6800 OWENSMOUTH. 6800 Owensmouth is a four-story suburban office building
containing approximately 80,014 rentable square feet. Developed in 1986, the
property has a steel frame with stucco veneer and horizontal bands of solar
tempered glass and a total of 275 parking spaces. The building is conveniently
located adjacent to the Warner Center master-planned office park and within
walking distance of the Topanga Plaza Shopping Center. The property was 84.9%
leased as of May 1, 1997, and had an average base rental rate of $18.25 per
square foot.

CLARENDON CREST. Clarendon Crest is a three-story office building in the
Woodland Hills submarket. The property was completed in 1990 and contains
approximately 43,063 rentable square feet. The building's steel frame is clad in
stucco with solar glass set in aluminum frames. A subterranean garage provides
138 parking spaces. The property offers excellent visibility from and access to
the 101 Freeway and is conveniently located near the Warner Center post office
and numerous other amenities. As of May 1, 1997, the property was 84.7% leased
at an average base rental rate of $18.56 per square foot.

SUMITOMO BANK BUILDING. Sumitomo Bank Building, located in the Sherman Oaks
submarket, is a 12-story office tower containing approximately 110,641 rentable
square feet. The building was constructed in 1970 and was the runner-up for the
1991 BOMA Los Angeles award for the Best Renovated office building based on its
1990-1991 renovation. The building consists of a concrete structure clad in
anodized aluminum, solar bronze glass, and mirrored spandrels. A three-level
concrete parking structure provides approximately 312 spaces. Located on Ventura
Boulevard near Interstates 405 and 101, the property also benefits from an
extensive amenity base, with the Sherman Oaks Galleria within walking distance
and a number of other retail establishments and restaurants nearby. As of May 1,
1997, the property was 92.2% leased at an average base rental rate of $19.50 per
square foot.

NOBLE PROFESSIONAL CENTER. Situated in the Sherman Oaks submarket, Noble
Professional Center is a four-story office building containing approximately
51,828 rentable square feet. The building, which was completed in 1985 and
renovated in 1993, has a steel frame and red brick exterior with glass set in
bronze aluminum frames. The lobby is finished with oak paneling and brass
accents. Parking is provided by 32 surface spaces and a 140-space subterranean
garage. The property is located on Ventura Boulevard and benefits from immediate
access to both Interstate 405 and Interstate 101. The Sherman Oaks Galleria and
a number of other retail establishments offer amenities nearby. As of May 1,
1997, the property was 80.5% leased and had an average base rental rate of
$20.05 per square foot.

BURBANK EXECUTIVE PLAZA. Burbank Executive Plaza is a six-story office
building located in the Burbank submarket. Completed in 1983, the property
consists of approximately 60,395 rentable square feet and has a steel-frame
structure clad in an exposed aggregate finish with tinted horizontal glass
ribbons. A five-level parking structure, shared with the California Federal
Building, provides a total of 372 spaces. Burbank Executive Plaza is one of
seven properties that the Company owns in the Tri-Cities area, allowing the
Company to realize significant economies of scale with respect to operations and
management. As of May 1, 1997, the property was 73.8% leased and had an average
base rental rate of approximately $12.57 per square foot.

CALIFORNIA FEDERAL BUILDING. Located in the Burbank submarket, the
California Federal Building is a six-story office building consisting of
approximately 82,467 rentable square feet. Completed in 1978, the property has a
steel-frame structure and an exterior of tinted bronze and spandrel glass panels
in bronze anodized aluminum. As of May 1, 1997, the property was 97.0% leased
and had an average base rental rate of approximately $19.89 per square foot.

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535 BRAND. Situated in the Glendale submarket, 535 Brand is an 11-story
office tower containing approximately 109,187 rentable square feet. The property
was completed in 1973 and provides a total of 188 parking spaces. The Company
acquired the property for $10.2 million, and intends to invest an additional
approximately $4.9 million over the next two years in capital expenditures to
renovate the property including exterior refinishing, lobby and entry
renovation, common area remodeling, and upgrading of the building's operating
systems and parking structure. The building is located in the heart of
Glendale's office district, one of the premier submarkets in Los Angeles County.
The C&W Peer Group vacancy rate for this building is 6.9% while the property's
occupancy is only 51.0%.

DESCRIPTION OF PENDING ACQUISITION LOCATED IN THE LOS ANGELES NORTH OFFICE
MARKET SECTOR:

299 EUCLID. 299 Euclid is a five-story office building located in the
Pasadena submarket. The property was completed in 1983 and contains
approximately 73,400 rentable square feet. The building has a steel frame clad
in solar reflective glass and red brick. A two-level subterranean garage
provides 293 parking spaces. Located one block south of Interstate 210, the
property enjoys excellent freeway access. The property, previously occupied by a
single-tenant user, was 100% vacant as of May 1, 1997. The Company believes the
property contains the largest block of contiguous office space for comparable
buildings in the Pasadena office submarket.

LOS ANGELES SOUTH OFFICE MARKET SECTOR

The Los Angeles South office market sector, the smallest of Los Angeles
County's four office market sectors, consists of three submarkets, namely, El
Segundo, Torrance, and Long Beach. These three submarkets, located primarily in
the South Bay, are comprised of nine constituent office concentrations that
total approximately 26.7 million square feet or 15.7% of Los Angeles County's
total inventory of office space. As of March 31, 1997, the Los Angeles South
office market sector had a direct vacancy rate of 17.9% and an average rental
rate of $17.51 per square foot.

MAP OF THE OFFICE SUBMARKETS IN THE
LOS ANGELES SOUTH OFFICE MARKET SECTOR

Five of the Initial Properties, two of the Acquired Properties, and three of
the Pending Acquisitions are located in the Los Angeles South office market
sector and collectively contain approximately 1,429,695

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rentable square feet, which represents approximately 19% of the total rentable
square footage of the Properties and Pending Acquisitions. The Properties and
Pending Acquisitions within the Los Angeles South office market sector are
located in the Long Beach Airport/I-405 Freeway Corridor, Downtown Long Beach,
Cerritos/Norwalk, El Segundo, 190th Street Corridor, and Central Torrance
submarkets.

DESCRIPTION OF ACQUIRED PROPERTIES LOCATED IN THE LOS ANGELES SOUTH OFFICE
MARKET SECTOR:

GRAND AVENUE PLAZA. Grand Avenue Plaza is an office complex consisting of
two three-story office buildings, each containing approximately 42,250 rentable
square feet. The property is located in the El Segundo submarket and was
developed between 1979 and 1980. The buildings have steel frames and stucco
exterior finishes and provide a total of 303 surface parking spaces. The Company
purchased the vacant buildings in November 1996 for $3.5 million, and has
completed a $1.4 million renovation program. Since the completion of the
renovation program, through May 1, 1997, the Company has leased approximately
61.5% of the property. The property is just south of the Los Angeles
International Airport and enjoys excellent access to both the Interstate 405 and
the 105 Freeway.

SOUTH BAY CENTRE. Located in the 190th Street Corridor of the Torrance
submarket, South Bay Centre is a five-story office complex consisting of two
interconnected towers totaling 202,820 rentable square feet. The building was
constructed in 1984 and has a steel-frame structure with concrete panels and
dark tinted glass. Surface parking provides approximately 800 spaces. Situated
just west of Interstate 405, the property benefits from superior freeway access
and visibility. As of May 1, 1997, the property was 85.8% leased and had an
average base rental rate of $17.30 per square foot.

DESCRIPTION OF PENDING ACQUISITIONS LOCATED IN THE LOS ANGELES SOUTH OFFICE
MARKET SECTOR:

HARBOR CORPORATE CENTER. Harbor Corporate Center is a two-story office
building situated in the 190th Street Corridor of the Torrance submarket. The
property was completed in 1985 and contains approximately 63,925 rentable square
feet and 251 surface parking spaces. Located just southwest of the Interstate
405 and 110 Freeway interchange, the property benefits from exceptional freeway
access and visibility. As of May 1, 1997, the property was 77.4% leased and had
an average base rental rate per square foot of $14.47.

PACIFIC GATEWAY II. Pacific Gateway II is a 10-story office tower
containing 223,731 rentable square feet and 710 surface parking spaces. Located
in the heart of the 190th Street Corridor of the Torrance submarket, the
property benefits from excellent access to and visibility from the Interstate
405 and the 110 Freeway. Completed in 1982, the building underwent an extensive
renovation in 1990, with a majority of the space rebuilt from essentially shell
condition. As a result of this renovation coupled with its freeway access and
visibility, quality construction, interior finishes, and a state-of-the-art
building system, Pacific Gateway II is considered one of the premier office
towers in the 190th Street Corridor submarket. The Company believes that it can
benefit from operational economies of scale at this property due to its
concentration of ownership in the Torrance submarket, where it will own four
properties comprising 595,922 square feet, assuming completion of the Pending
Acquisitions.

MARINER COURT. Mariner Court is a three-story office building situated in
the Torrance submarket. Completed in 1989 of steel frame construction with a
brick veneer and stucco exterior, the property contains approximately 105,436
rentable square feet and 362 surface parking spaces. As of May 1, 1997, the
property was 86.7% leased with base rental rates averaging $16.65 per square
foot.

LOS ANGELES CENTRAL OFFICE MARKET SECTOR

The Los Angeles Central office market sector, the largest of Los Angeles
County's four office market sectors, consists of three submarkets, namely,
Downtown Los Angeles, Mid-Wilshire, and the San Gabriel

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Valley. According to Cushman & Wakefield, the Los Angeles Central market sector
contains approximately 52.2 million square feet of office space or roughly 31%
of the total inventory in Los Angeles County. As of March 31, 1997, the Los
Angeles Central office market sector had a direct vacancy rate of 21.9% and a
weighted average asking rental rate of $17.25 per square foot.

MAP OF THE OFFICE SUBMARKETS IN THE
LOS ANGELES CENTRAL OFFICE MARKET SECTOR

Two of the Acquired Properties are located in the Los Angeles Central office
market sector, in the Alhambra/Monterey Park and Whittier/City of Commerce
submarkets and collectively contain approximately 524,708 rentable square feet
which represents approximately 6.7% of the total rentable square footage of the
Properties and Pending Acquisitions.

DESCRIPTION OF ACQUIRED PROPERTIES LOCATED IN THE LOS ANGELES CENTRAL OFFICE
MARKET SECTOR:

LOS ANGELES CORPORATE CENTER. Located in the Alhambra/Monterey Park
submarket, Los Angeles Corporate Center is a suburban office complex containing
approximately 389,293 rentable square feet. Generally regarded as one of the
premier office parks in its submarket, the property won the 1996 BOMA Award for
Suburban Office Parks in Greater Los Angeles in recognition of its superior
design and well-landscaped master-planned setting. The property enjoys excellent
access to Interstate 10 and the Pomona and Long Beach Freeways. A 4.5 acre pad
on the northern portion of the property is zoned for office use. As of May 1,
1997, the property was 84.9% leased and had an average base rental rate per
square foot of $14.47.

WHITTIER FINANCIAL CENTER. Located at 15111 and 15141 Whittier Boulevard in
the Whittier/City of Commerce submarket, Whittier Financial Center consists of
one four-story and one five-story office building. The Company believes the
property is the premier office building in its submarket based in part on its
location near various amenities, including several restaurants, the Whitwood
Mall, the Whittier Quad Shopping Center and the Whittier Hospital Medical
Center. The property also benefits from easy access to the I-5, I-605, 60, 91
and 57 freeways. As of May 1, 1997, the property was 85.2% leased and had an
average base rental rate per square foot of $17.84.

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ORANGE COUNTY OFFICE MARKET

The Orange County office market contains several distinct office submarkets,
namely, West County, Tri-Freeway Area, Central County, Greater Airport Area,
South County, and North County, each of which is composed of numerous office
concentrations as highlighted in the table below. According to Cushman &
Wakefield, the Orange County office market has approximately 52.3 million square
feet of inventory among 691 office buildings. As of March 31, 1997, the
countywide direct vacancy rate was 13.6%, with annual asking rents averaging
$17.76 per square foot.

MAP OF THE ORANGE COUNTY OFFICE MARKET

Two of the Initial Properties, one of the Acquired Properties, and two of
the Pending Acquisitions are located in the Orange County office market in the
Huntington Beach, Anaheim Stadium Area, La Palma/ Buena Park, Laguna
Niguel/Laguna Beach, and Irvine office submarkets and collectively contain
approximately 1,110,257 rentable square feet which represents approximately
12.9% of the total rentable square footage of the Properties and Pending
Acquisitions.

DESCRIPTION OF THE ACQUIRED PROPERTY LOCATED IN THE ORANGE COUNTY OFFICE MARKET:

CENTERPOINTE LA PALMA. Completed in three phases between 1986 and 1990,
Centerpointe La Palma is a 12-building suburban mixed-use development
encompassing approximately 563,974 rentable square feet of office space and
33,576 square feet of retail space. The property is located in the City of La
Palma near the Los Angeles/Orange County border and is part of a well-landscaped
commercial master plan bounded by the Interstate 5, Interstate 605, and 91
Freeway. The property benefits from excellent freeway proximity and visibility,
which provide tenants with superior access to destinations in both Orange and
Los

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Angeles counties. Of the ten office buildings at the property, the largest three
account for approximately 314,723 rentable square feet and have steel frames
with aluminum curtain walls and solar reflective glass. Ranging from four to
seven stories, these three primary office buildings have dramatic two-story
lobbies with nine-foot glass entry doors and marble or tile floors with carpet
inlays. The other seven office buildings are constructed of concrete tilt-up
panels with aluminum windows and solar reflective glass. The two retail
buildings of the property have exteriors of cement stucco and aluminum
storefronts. The property also includes an approximately one acre development
parcel, which the Company believes can support an additional 60,000 square foot
office building when market conditions favor the development of additional
space. As of May 1, 1997, the property was 88.2% leased with base rental rates
averaging $16.16 per square foot. Atlantic Richfield, the property's largest
tenant, occupies 117,479 square feet under leases ending in 2006 and 2007. Other
major tenants include Kaiser Foundation Health Plan, A.D.P., Honeywell, City
National Bank, Xerox and Northern Telecom.

DESCRIPTION OF PENDING ACQUISITIONS LOCATED IN THE ORANGE COUNTY OFFICE MARKET:

CROWN CABOT. Crown Cabot is a six-story office building located in the
Laguna Niguel/Mission Viejo submarket. The property was developed in 1989 and
contains approximately 172,900 rentable square feet. The building's steel frame
is covered in solar reflective glass. The two-story high lobby is finished in
German marble and polished chrome accents. A 3.5-level parking structure and
surface lot provide a total of 641 spaces. Situated on a terraced hillside
overlooking Interstate 5, the property provides excellent freeway visibility and
access. At May 1, 1997, the property was 93.3% leased at an average base rental
rate of $20.71 per square foot. Major tenants include Ralston Purina, Maxtor
International, Motorola, and Quaker Oats.

1821 DYER. 1821 Dyer is a two-story office building located in the Irvine
submarket. Completed in 1980, the property was renovated in 1988 and contains
approximately 115,061 rentable square feet and 330 surface parking spaces. The
building is of concrete tilt-up construction with stucco finishes and a glass
curtain wall. The property is located approximately 100 yards east of the 55
Freeway in the northern portion of the master-planned Irvine Business complex.
Matria Healthcare currently occupies 100% of the net leasable area and will
vacate the building upon the expiration of its lease term on December 31, 1997.
The Company believes that the building, with some of the largest vacant blocks
of space in its submarket, will appeal particularly to high-tech tenants that
occupy much of the office space in the Greater Airport Area submarket.

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VENTURA COUNTY OFFICE MARKET

According to Cushman & Wakefield, the Ventura County office market is
divided into two submarkets, namely, Simi/Conejo Valley and West County. The
Simi/Conejo Valley submarket is considered part of the Los Angeles North market
sector and has been included in such. The West County submarket, which includes
the areas of Ventura, Oxnard/Port Hueneme, and Camarillo, contains approximately
2.9 million square feet of office space. As of March 31, 1997, the West County
submarket had a direct vacancy rate of 20.3%

MAP OF THE VENTURA COUNTY OFFICE MARKET

One of the Acquired Properties and one of the Pending Acquisitions are
located in the Ventura County office market and collectively contain
approximately 282,490 rentable square feet which represent approximately 3.3% of
the total rentable square footage of the Properties and Pending Acquisitions.
The Properties are located in the office submarkets of Ventura and Oxnard/Port
Hueneme.

DESCRIPTION OF THE ACQUIRED PROPERTY LOCATED IN THE VENTURA COUNTY OFFICE
MARKET:

CENTER PROMENADE. Center Promenade is a low-rise office park completed in
1982 on approximately 11.2 well-landscaped acres in the heart of the City of
Ventura. The property's seven buildings vary from one to three stories, have
reflective glass and brick exteriors and contain a total of 174,837 rentable
square feet. Surface parking provides 719 spaces. The property enjoys convenient
access to both the US 101 and State 126 freeways and benefits from its proximity
to the Ventura County Government Center and to a number of restaurants and
retail establishments. Center Promenade was 73.7% leased as of May 1, 1997, with
base rental rates averaging approximately $14.50 per square foot. Major tenants
include the County of Ventura which occupies 11,454 rentable square feet and the
State of California which occupies 13,293 rentable square feet.

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DESCRIPTION OF THE PENDING ACQUISITION LOCATED IN THE VENTURA COUNTY OFFICE
MARKET:

1000 TOWN CENTER. 1000 Town Center is a six-story office building located
in the Oxnard/Port Hueneme submarket. The property was developed in 1989 and
contains approximately 107,653 rentable square feet and 431 surface parking
spaces. The building has a steel frame and an exterior consisting of limestone
panels and a glass curtain wall. The property is located in the City of Oxnard
just north of Highway 101. As of May 1, 1997, the property was 100% leased and
had an average base rental rate of $19.10 per square foot.

KERN COUNTY OFFICE MARKET

The Kern County office market, which consists primarily of the City of
Bakersfield, contains approximately 6.2 million square feet of inventory among
267 office buildings. According to Cushman & Wakefield, Kern County had a direct
vacancy rate of 14.3% and a weighted average rental rate of $14.09 per square
foot as of March 31, 1997.

MAP OF THE KERN COUNTY OFFICE MARKET

Two of the Acquired Properties are located in the Kern County office market
and collectively contain approximately 216,522 rentable square feet which
represent approximately 2.5% of the total rentable square footage of the
Properties and Pending Acquisitions. Both of these Properties are located in
Bakersfield.

DESCRIPTION OF ACQUIRED PROPERTIES LOCATED IN THE KERN COUNTY OFFICE MARKET:

PARKWAY CENTER. Parkway Center consists of a three-story and a single-story
office building located at 4200 and 4260 Truxton Avenue. 4200 Truxton contains
approximately 46,154 rentable square feet and was constructed in 1992 of steel
and concrete with solar reflective glass. Built in 1995, 4260 Truxton is a
concrete tilt-up structure containing approximately 15,179 rentable square feet.
Visible from Highway 99, the project provides easy access to all areas of
Bakersfield, including Central Bakersfield and the Stockdale Business District.
Major tenants include Bakersfield Cellular Telephone Co., which occupies 20,611
square

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feet, and IBM, which occupies 8,962 square feet. As of May 31, 1997, the
property was 99.5% leased and had an average base rental rate of $17.14 per
square foot.

CALIFORNIA TWIN CENTRE. California Twin Centre is a 4-story office complex
containing approximately 155,189 rentable square feet of office space and 649
surface parking spaces. Built in 1983 in the heart of Bakersfield's business
district, the building has a steel-frame structure with dryvit insulated panels
and a curtain wall of reflective glass. The property is located near the 99
Freeway and the Bakersfield/Kern County Airport. Chevron occupies over 75% of
the building. As of May 1, 1997, the property was 88.5% leased and had an
average base rental rate of $23.75 per square foot.

COMPETITION

The Company may be competing for acquisition opportunities with other owners
and developers that have greater resources and more experience than the Company.
Additionally, the number of competitive properties in any particular market in
which the Company's Properties and Pending Acquisitions are located could have a
material adverse effect on both the Company's ability to lease space at the
Properties and Pending Acquisitions and on the rents charged at the Properties
and Pending Acquisitions. The Company believes that the Offering, the Credit
Facility and its access as a public company to the capital markets to raise
funds during periods when conventional sources of financing may be unavailable
or prohibitively expensive will provide the Company with substantial competitive
advantages. Further, the Company believes that the number of real estate
developers has decreased as a result of the recessionary market conditions and
tight credit markets during the early 1990's as well as the reluctance on the
part of more conventional financing sources to fund development and acquisition
projects.

INSURANCE

The Operating Partnership carries comprehensive liability, fire, extended
coverage and rental loss insurance that currently covers all of the Properties,
and will be expanded to cover each of the Pending Acquisitions which is
acquired, with policy specifications and insured limits which the Company
believes are adequate and appropriate under the circumstances. The Operating
Partnership also carries earthquake insurance on all of the Properties which
also will be expanded to cover each of the Pending Acquisitions which is
acquired. There are, however, certain types of losses that are not generally
insured because they are either uninsurable or not economically feasible to
insure. Should an uninsured loss or a loss in excess of insured limits occur,
the Operating Partnership could lose its capital invested in the Property, as
well as the anticipated future revenues from the Property and, in the case of
debt which is with recourse to the Operating Partnership, would remain obligated
for any mortgage debt or other financial obligations related to the Property.
Any such loss would adversely affect the Company. Moreover, as the sole general
partner of the Operating Partnership, the Company will generally be liable for
any unsatisfied obligations other than non-recourse obligations. The Company
believes that the Properties are, and the Pending Acquisitions will be,
adequately insured. In addition, in light of the California earthquake risk,
California building codes since the early 1970's have established construction
standards for all newly built and renovated buildings, including office
buildings, the current and strictest construction standards having been adopted
in 1984. Of the 54 Properties and Pending Acquisitions, 24 have been built since
January 1, 1985 and the Company believes that all of the Properties were
constructed in full compliance with the applicable standards existing at the
time of construction. While earthquakes have occurred in Southern California,
the only loss the Company has experienced as a result of earthquakes was minor
damage to three of its buildings due to the Northridge earthquake, which
resulted in $601,000 of damage in the year ended December 31, 1994. No assurance
can be given that material losses in excess of insurance proceeds will not occur
in the future.

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ENVIRONMENTAL REGULATIONS

Under various federal, state and local environmental laws, ordinances and
regulations, 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 such property and may be held liable to a governmental
entity or to third parties for property damage and for investigation and
clean-up costs incurred by such parties in connection with the contamination.
Such 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 such laws has been interpreted to be joint and several unless
the harm is divisible and there is a reasonable basis for allocation of
responsibility. The costs of investigation, remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to properly remediate the contamination on such property, may adversely
affect the owner's ability to sell or rent such property or to borrow using such
property as collateral. 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 such disposal or treatment facility, whether or not such
facility is owned or operated by such person. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for
damages and costs incurred in connection with the contamination. Finally, the
owner of a site may be subject to common law claims by third parties based on
damages and costs resulting from environmental contamination emanating from such
site.

Certain federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of ACM when such materials are in poor
condition or in the event of construction, remodeling, renovation or demolition
of a building. Such laws may impose liability for release of ACM and may provide
for third parties to seek recovery from owners or operators of real properties
for personal injury associated with ACM. In connection with its ownership and
operation of the Properties and Pending Acquisitions, the Company may be
potentially liable for such costs. Except for one Pending Acquisition, 1100
Glendon, which is currently undergoing abatement activities, the Company is not
aware of any friable ACM at any of the Properties or Pending Acquisitions.

In the past few years, independent environmental consultants have conducted
or updated Phase I Assessments and other environmental investigations as
appropriate (the "Environmental Site Assessments") at the Properties and Pending
Acquisitions. These Environmental Site Assessments have included, among other
things, a visual inspection of the Properties and Pending Acquisitions and the
surrounding area and a review of relevant state, federal and historical
documents. Soil and groundwater sampling were performed where warranted and
remediation, if necessary, has or is being conducted.

The Company's Environmental Site Assessments of the Properties and Pending
Acquisitions have identified 10351 Santa Monica, Burbank Executive Plaza,
California Federal Building, South Bay Centre, 8383 Wilshire, Carlsberg
Corporate Center, Imperial Bank, Skyview Center and Pacific Gateway II as
properties that may be impacted by known or suspected regional contamination.
The Environmental Site Assessments have not revealed any environmental liability
that the Company believes would have a material adverse effect on the Company's
business, assets or results of operations taken as a whole, nor is the Company
aware of any such material environmental liability. Nevertheless, it is possible
that the Company's Environmental Site Assessments do not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware. Moreover, there can be no assurance that (i)
future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Properties and Pending Acquisitions will not be affected by tenants, by the
condition of land or operations in the vicinity of the Properties and Pending
Acquisitions (such as the presence of underground storage tanks), or by third
parties unrelated to the Company.

The Company believes that the Properties and Pending Acquisitions are in
compliance in all material respects with all federal, state and local laws,
ordinances and regulations regarding hazardous or toxic substances or petroleum
products, except as noted above. The Company has not been notified by any

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governmental authority, and is not otherwise aware, of any material
noncompliance, liability or claim relating to hazardous or toxic substances or
petroleum products in connection with any of its present Properties and Pending
Acquisitions, other than as noted above.

POTENTIAL EMINENT DOMAIN PROCEEDINGS

On January 15, 1997, the City of Calabasas passed a resolution of necessity
stating its intention to exercise the power of eminent domain to acquire the
Company's property at 26135 Mureau Road, Calabasas, California. The property is
a two-story office building containing approximately 18,371 rentable square feet
and is part of the Company's four-building project (containing approximately
123,121 rentable square feet). The City of Calabasas currently occupies
approximately 9,243 rentable square feet in the subject building.

Through eminent domain proceedings, the City of Calabasas has the power to
acquire private property for public use but is required to pay the owner just
compensation which is commonly defined as the fair market value of the property.
The City of Calabasas has six months after passing the resolution of necessity
(which will expire on July 15, 1997) to serve the Company with a formal eminent
domain lawsuit. Should the City of Calabasas serve the action on the Company,
the Company will defend the action and seek to obtain the highest value for the
property based on its fair market value.

LEGAL PROCEEDINGS

The Company is not presently subject to any material litigation nor, to the
Company's knowledge, is any litigation threatened against the Company, other
than routine litigation arising in the ordinary course of business, some of
which is expected to be covered by liability insurance and all of which
collectively is not expected to have a material adverse effect on the
consolidated financial statements of the Company.

EMPLOYEES

As of May 1, 1997, the Company had 100 full-time employees.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain current information with respect to
the directors and executive officers of the Company immediately following the
consummation of this Offering:

<TABLE>
<CAPTION>
NAME AGE POSITION TERM
- ----------------------- --- --------------------------------------------------------------------------- ---------
<S> <C> <C> <C>
Richard S. Ziman 54 Chairman of the Board and Chief Executive Officer 1999

Victor J. Coleman 36 President, Chief Operating Officer and Director 1999

Diana M. Laing 42 Chief Financial Officer and Secretary

Andrew J. Sobel 38 Executive Vice President and Director of Leasing

Brigitta B. Troy 56 Senior Vice President and Director of Acquisitions

Herbert L. Porter 58 Senior Vice President and Director of Construction and Capital Improvements

Daniel S. Bothe 31 Vice President-Finance

Robert C. Peddicord 36 Vice President-Leasing

Carl D. Covitz 58 Director 1997

Larry S. Flax 55 Director 1997

Kenneth B. Roath 61 Director 1997

Steven C. Good 55 Director 1998
</TABLE>

The following is a biographical summary of the experience of the directors,
director nominees and executive officers of the Company:

RICHARD S. ZIMAN. Mr. Ziman is a founder of the Company and has served as
the Chairman of the Board and Chief Executive Officer since its inception. He
has been involved in the real estate industry for over 25 years. In 1990, Mr.
Ziman formed Namiz and served as its Chairman of the Board and Chief Executive
Officer from its inception until the formation of the Company. In 1979 he
co-founded Pacific Financial Group, a diversified real estate investment and
development firm headquartered in Beverly Hills, of which he was the Managing
General Partner. Mr. Ziman received his Bachelor's Degree and his Juris Doctor
Degree from the University of Southern California and practiced law as a partner
of the law firm of Loeb & Loeb from 1971 to 1980, specializing in transactional
and financing aspects of real estate.

VICTOR J. COLEMAN. Mr. Coleman is a founder of the Company and has served
as its President and Chief Operating Officer and as a Director of the Company
since its inception. He was the President, Chief Operating Officer and
co-founder of Namiz from 1990 to 1996. From 1987 to 1989, Mr. Coleman was Vice
President of Los Angeles Realty Services, Inc. and earlier in his career from
1985 to 1987 was Director of Marketing/Investment Advisor of Development Systems
International and an associate at Drexel Burnham Lambert specializing in private
placements with institutional and individual investors. Mr. Coleman received his
Bachelor's Degree from the University of California at Berkeley and received his
Master of Business Administration from Golden Gate University.

DIANA M. LAING. Ms. Laing has served as Chief Financial Officer of the
Company since August 1996 and as Secretary of the Company since February 1997.
Prior to joining the Company, Ms. Laing served, from 1985 to 1996, as Executive
Vice President and Chief Financial Officer of South West Property Trust, Inc., a
publicly traded apartment properties real estate investment trust, and its
predecessor Southwest Realty, Ltd. Ms. Laing also served from 1982 to 1985 as
Controller, Treasurer and Vice

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President-Finance of Southwest Realty, Ltd. From 1981 to 1982, Ms. Laing was
Controller of Crawford Energy, Inc. and she served as a member of the audit
staff of Arthur Andersen & Company from 1978 to 1981. Ms. Laing is a Certified
Public Accountant and a member of the American Institute of CPAs and the Texas
Society of Public Accountants. She is also a Director of Sterling House
Corporation, a publicly traded operator of assisted living centers. Ms. Laing
received her Bachelor of Science in Accounting from Oklahoma State University.

ANDREW J. SOBEL. Mr. Sobel has served as Executive Vice President and
Director of Leasing of the Company since its formation. He served as Director of
Leasing for Namiz from 1992 to 1996. Mr. Sobel is an attorney admitted to the
State Bar of California in 1985 with 11 years of experience in the practice of
real estate law. From 1990 to 1992, Mr. Sobel was a sole practitioner. From 1987
to 1990 he was an attorney with the law firm of Pircher, Nichols & Meeks
specializing in all aspects of its real estate transactional practice including
acquisitions, leasings and financings. Mr. Sobel received his Bachelor's Degree
from State University of New York at Oswego and his Juris Doctor Degree from the
University of California at Berkeley (Boalt Hall).

BRIGITTA B. TROY. Ms. Troy has served as Senior Vice President and Director
of Acquisitions of the Company since its formation. She served as Director of
Acquisitions for Namiz from 1993 to 1996 and was Director of Acquisitions for
Pacific Financial Group from 1982 to 1989. During the period from 1989 to 1993,
she was a principal of Esquire Investment Partners, a real estate advisory
company. A graduate of Radcliffe College, Ms. Troy received her Juris Doctor
Degree from the University of Southern California Law School and a Master of
Business Administration from UCLA Graduate School of Management. Ms. Troy has
over 15 years experience in the commercial real estate business.

HERBERT L. PORTER. Mr. Porter has served as Senior Vice President and
Director of Construction and Capital Improvements of the Company since its
formation. He served as Director of Construction and Capital Improvements for
Namiz from 1993 to 1996. From 1973 to 1992, Mr. Porter was a partner/owner in
his own real estate development and property management company specializing in
medium to high-rise commercial office buildings. Mr. Porter's 23 years in
commercial office development include planning, financing, acquisition,
entitlements and approvals, design, construction, marketing, leasing, tenant
improvements and outright sale. Mr. Porter received his Bachelor's Degree from
the University of Southern California.

DANIEL S. BOTHE. Mr. Bothe has served as Vice President-Finance of the
Company since December 1996. From 1993 to 1996, Mr. Bothe was a management
consultant with the E&Y Kenneth Leventhal Real Estate Group of Ernst & Young
LLP. From 1988 to 1991, Mr. Bothe served as a member of the audit staff of KPMG
Peat Marwick specializing in real estate. Mr. Bothe is a Certified Public
Accountant in the State of California and a member of the American Institute of
CPAs. Mr. Bothe received his Bachelor of Science in Accounting from San Diego
State University and his Master of Business Administration from the University
of Southern California.

ROBERT C. PEDDICORD. Mr. Peddicord has served as Vice President-Leasing of
the Company since December 1996. From 1987 to 1996, Mr. Peddicord was a Managing
Director in the West Los Angeles office of Julien J. Studley, representing
landlords and tenants in the leasing of office space. From 1984 to 1986, Mr.
Peddicord served as a branch Vice President for Great Western Financial
Corporation. Mr. Peddicord received his Bachelor's Degree in Economics from the
University of California at Los Angeles.

CARL D. COVITZ. Mr. Covitz has served as a member of the Board of Directors
of the Company since its inception as a public company in October 1996. For 18
of the past 23 years, Mr. Covitz has served as the owner and President of
Landmark Capital, Inc., a national real estate development and investment
company involved in the construction, financing, ownership and management of
commercial, residential, and warehouse properties. Mr. Covitz has also
previously served, from 1990 to 1993, as Secretary of the

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<PAGE>
Business, Transportation & Housing Agency of the State of California as well as
Under Secretary and Chief Operating Officer of the U.S. Department of Housing
and Urban Development from 1987 to 1989. Mr. Covitz is currently the Chairman of
the Board of Directors of Century Housing Corporation and is the past Chairman
of the Board of several organizations including the Federal Home Loan Bank of
San Francisco and the Los Angeles City Housing Authority. Mr. Covitz received
his Bachelor's Degree from the Wharton School at the University of Pennsylvania
and his Master of Business Administration from the Columbia University Graduate
School of Business.

LARRY S. FLAX. Mr. Flax has served as a member of the Board of Directors of
the Company since December 1996. Mr. Flax is Co-Founder and Co-Chairman of the
Board of California Pizza Kitchen. Prior to becoming a restaurateur in 1985, Mr.
Flax served in Los Angeles as Assistant U.S. Attorney from 1968 to 1972, Chief
of Civil Rights from 1970 to 1971 and Assistant Chief of the Criminal Division
for the United States Department of Justice from 1971 to 1972. Mr. Flax attended
the University of Washington as an undergraduate and received his Juris Doctor
Degree from the University of Southern California Law School in 1967.

KENNETH B. ROATH. Mr. Roath has served as a member of the Board of
Directors of the Company since its inception as a public company in October
1996. Mr. Roath is currently Chairman, President and Chief Executive Officer of
Health Care Property Investors, Inc., a leader in the health care REIT industry.
Mr. Roath is past Chairman of the National Association of Real Estate Investment
Trusts ("NAREIT") and also serves as a member of the Board of Governors and
Executive Committee of NAREIT. He is a director of Franchise Finance Corporation
of America. Mr. Roath received his Bachelor's Degree in accounting from San
Diego State University.

STEVEN C. GOOD. Mr. Good has served as a member of the Board of Directors
of the Company since its inception as a public company in October 1996. Mr. Good
is the senior partner in the firm of Good Swartz & Berns, an accountancy
corporation founded in 1993 which evolved from the firm of Block, Good and
Gagerman, which he founded in 1976. Prior to 1976, Mr. Good was a partner first
at Laventhol & Horwath, a national accounting firm, and later at Horowitz &
Good. Mr. Good is a founder and past Chairman of CU Bancorp, where he directed
the bank's operations from 1982 through 1989. For the past seven years he has
been a member of the Board of Directors of Opto Sensors, Incorporated. Mr. Good
received his Bachelor of Science in Business Administration from the University
of California at Los Angeles and attended UCLA's Graduate School.

BOARD OF DIRECTORS

The business and affairs of the Company are managed under the direction of
the Board of Directors, which currently has six members, four of whom are not
employees or affiliates of the Company.

Pursuant to the Charter, the Board of Directors is divided into three
classes of directors. The initial terms of the first, second and third classes
will expire in 1997, 1998 and 1999, respectively. Beginning in July 1997,
directors of each class will be 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 Company believes that classification of the Board of
Directors will help to assure the continuity and stability of the Company's
business strategies and policies as determined by the Board of Directors.
Holders of shares of Common Stock will have no right to cumulative voting in the
election of directors. Consequently, at each annual meeting of stockholders, the
holders of a majority of the shares of Common Stock will be able to elect all of
the successors of the class of directors whose terms expire at that meeting.

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<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors of the Company has established an Audit Committee, an
Executive Committee, a Compensation Committee, and an Acquisitions Committee.

AUDIT COMMITTEE. The Audit Committee consists of three non-employee
directors including Mr. Good, its Chairman, and Messrs. Covitz and Flax. The
Audit Committee makes recommendations concerning the engagement of independent
public accountants, reviews with the independent public accountants the scope
and results of the audit engagement, approves professional services provided by
the independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls.

EXECUTIVE COMMITTEE. The Executive Committee consists of Mr. Ziman, its
Chairman, and Mr. Coleman. Subject to the Company's conflict of interest
policies, the Executive Committee has authority to dispose of real property and
the power to authorize on behalf of the full Board of Directors, the execution
of certain contracts and agreements, including those related to the borrowing of
money by the Company (and, consistent with the Partnership Agreement of the
Operating Partnership, to cause the Operating Partnership to take such actions).

COMPENSATION COMMITTEE. The Compensation Committee consists of three
non-employee directors including Mr. Roath, its Chairman, and Messrs. Covitz and
Good. The function of the Compensation Committee is to (i) establish, review,
modify, and adopt compensation plans and arrangements for the Company, (ii)
review, determine and establish the compensation (including bonuses) of the
officers of the Company, and (iii) grant bonuses and other compensation to such
officers of the Company.

ACQUISITIONS COMMITTEE. The Acquisitions Committee consists of Mr. Ziman,
its Chairman, and Messrs. Coleman and Covitz. The Acquisitions Committee has the
authority to approve the acquisition of real property with purchase prices up to
$20,000,000. Any acquisitions greater in amount require approval of the full
Board of Directors.

The Board of Directors may from time to time establish certain other
committees to facilitate the management of the Company.

COMPENSATION OF DIRECTORS

Each of the Company's non-employee directors receives annual compensation of
$18,000 for his services. In addition, each non-employee director receives
$1,000 for each Board of Directors meeting attended. Each non-employee director
attending any committee meeting receives an additional $1,000 for each committee
meeting attended, unless the committee meeting is held on the day of a meeting
of the Board of Directors. Each non-employee director is also reimbursed for
reasonable expenses incurred to attend director and committee meetings. Officers
of the Company who are directors are not paid any directors' fees. In addition,
under the Company's Stock Incentive Plan, each non-employee director was
automatically granted, upon his initial election to the Board of Directors,
options to purchase 10,000 shares of Common Stock at the then current market
price which vest during such director's continued service, in equal installments
over four years.

EXECUTIVE COMPENSATION

Prior to the inception of the Company as a public company on October 9,
1996, the Company did not pay any compensation to its officers. Accordingly, the
following table for informational purposes only, sets forth the estimated annual
base salary rates and the actual other compensation paid to the Company's

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Chief Executive Officer and each of the Company's four other most highly
compensated executive officers (the "Named Executive Officers").

SUMMARY COMPENSATION

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------- LONG-TERM COMPENSATION
1997 BASE -----------------------------
SALARY 1996 OTHER ANNUAL OPTIONS GRANTED STOCK
NAME TITLE RATE($) BONUS($) COMPENSATION($) IN 1996(#) BONUS(#)
- -------------------- --------------------------- ------------- ----------- ----------------- --------------- ------------

<S> <C> <C> <C> <C> <C> <C>
Richard S. Ziman Chairman of the Board and
Chief Executive Officer 300,000 -- -- 400,000 --

Victor J. Coleman President, Chief Operating
Officer and Director 250,000 -- -- 250,000 --

Diana M. Laing Chief Financial Officer and
Secretary 195,000 -- -- 50,000 --

Andrew J. Sobel Executive Vice President
and Director of Leasing 150,000 7,700 -- 40,000 3,750(1)

Herbert L. Porter Senior Vice President and
Director of Construction
and Capital Improvements 130,000 5,100 -- 30,000 1,250(1)
</TABLE>

- --------------------------

(1) Represents the number of shares for a one-time Common Stock bonus granted in
1996.

The following table shows certain information relating to stock options
granted to the Named Executive Officers during the fiscal year ended December
31, 1996.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS SHARE PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------------
NAME GRANTED(#) FISCAL YEAR SHARE DATE 5% 10%
- --------------------------------- ----------- ------------- ----------- ----------- ------------ -------------

<S> <C> <C> <C> <C> <C> <C>
Richard S. Ziman................. 400,000 43.0% $ 20.00 10/04/06 $ 5,023,000 $ 12,748,000

Victor J. Coleman................ 250,000 26.9% 20.00 10/04/06 3,145,000 7,967,500

Diana M. Laing................... 50,000 5.4% 20.00 10/04/06 629,000 1,593,500

Andrew J. Sobel.................. 40,000 4.3% 20.00 10/04/06 503,200 1,274,800

Herbert L. Porter................ 30,000 3.2% 20.00 10/04/06 377,400 956,100
</TABLE>

- ------------------------

(1) All options granted in 1996 become exercisable in three equal installments
beginning on the first anniversary of the date of grant and have a term of
ten years subject to earlier termination in certain events related to
termination of employment. The option exercise price is equal to fair market
value of the Common Stock on the date of grant (I.E., the IPO price).

(2) Assumed annual rates of stock price appreciation for illustrative purposes
only. Actual stock prices will vary from time to time based upon market
factors and the Company's financial performance. No assurances can be given
that these appreciation rates will be achieved.

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<PAGE>
The following table sets forth certain information concerning exercised and
unexercised stock options held by the Named Executive Officers at December 31,
1996.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
SHARES AT DECEMBER 31, 1996 DECEMBER 31, 1996
ACQUIRED ON VALUE -------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
- ---------------------------- ----------- ------------ ----------- ------------- ----------- ---------------

<S> <C> <C> <C> <C> <C> <C>
Richard S. Ziman............ -- -- -- 400,000 -- $ 3,050,000

Victor J. Coleman........... -- -- -- 250,000 -- 1,906,250

Diana M. Laing.............. -- -- -- 50,000 -- 381,250

Andrew J. Sobel............. -- -- -- 40,000 -- 305,000

Herbert L. Porter........... -- -- -- 30,000 -- 228,750
</TABLE>

- ------------------------

(1) Based on closing price of $27 5/8 per share of Common Stock on December 31,
1996, as reported by the New York Stock Exchange.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1996, there were no Compensation Committee interlocks and no officers
or employees of the Company participated on the Compensation Committee.

EMPLOYMENT AGREEMENTS

Each of Messrs. Ziman and Coleman have entered into an employment agreement
with the Company. The employment agreements of Messrs. Ziman and Coleman have an
initial term of three years and are subject to automatic one-year extensions
following the expiration of the initial term. For the first year of the term,
the employment agreements of Messrs. Ziman and Coleman provide for an initial
annual base compensation in the amounts set forth in the Executive Compensation
table with the amount of any initial bonus to be determined by the Compensation
Committee. For subsequent years, both the amount of the base compensation and
any bonus will be determined by the Compensation Committee.

In addition, Ms. Laing has entered into an employment agreement with the
Company effective August 1, 1996 which has an initial term of one year and is
subject to automatic one-year extensions following the expiration of the initial
term. Ms. Laing's employment agreement provides for an initial annual base
compensation in the amount set forth in the Executive Compensation table and
entitles her to an initial cash bonus in an amount to be determined by the
Compensation Committee but not to exceed 20% of her initial annual base
compensation. For any subsequent years in which the employment agreement is
extended beyond the initial term, the amount of Ms. Laing's base compensation
and any bonus will be determined by the Compensation Committee.

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<PAGE>
The employment agreements of Messrs. Ziman and Coleman and Ms. Laing entitle
the executives to participate in the Company's Stock Incentive Plan (each
executive will initially be allocated the number of stock options set forth in
the Executive Compensation table) and to receive certain other insurance and
pension benefits. In addition, in the event of a termination by the Company
without "cause," a termination by the executive for "good reason," or a
termination pursuant to a "change in control" of the Company (as such terms are
defined in the respective employment agreements), the terminated executive will
be entitled to (i) a single severance payment (the "Severance Amount") and (ii)
continued receipt of certain benefits including medical insurance, life and
disability insurance and participation in all pension, 401(k) and other employee
plans and benefits established by the Company for its executive employees for a
specified period of time following the date of termination (collectively, the
"Severance Benefits"). The Severance Amount of Messrs. Ziman and Coleman is
equal to the sum of two times the executive's average annual base compensation
and two times the highest annual bonus received during the preceding 36-month
period. The Severance Amount for Ms. Laing is equal to the executive's annual
base compensation for the preceding 12 month period. Receipt of the Severance
Benefits shall continue for two years commencing on the date of termination in
the case of Messrs. Ziman and Coleman and for one year commencing on the date of
termination in the case of Ms. Laing.

As part of their employment agreements, each of Messrs. Ziman and Coleman is
bound by a non-competition covenant with the Company which prohibits them from
engaging in (i) the acquisition, renovation, management or leasing of any office
properties in the Los Angeles, Orange and San Diego counties of Southern
California and (ii) any active or passive investment in or reasonably relating
to the acquisition, renovation, management or leasing of office properties in
the Los Angeles, Orange and San Diego counties of Southern California for a
period of one year following the date of such executive's termination, unless
such termination was without cause.

STOCK INCENTIVE PLAN

The Company has adopted the Stock Incentive Plan for the purpose of
attracting and retaining executive officers, directors and employees.

The Stock Incentive Plan is qualified under Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Stock Incentive Plan
is administered by the Compensation Committee and provides for the granting of
stock options, stock appreciation rights or restricted stock with respect to up
to 1,500,000 shares of Common Stock to executive or other key employees of the
Company. Stock options may be granted in the form of "incentive stock options,"
as defined in Section 422 of the Code, or non-statutory stock options and are
exercisable for up to 10 years following the date of grant. The exercise price
of each option will be set by the Compensation Committee; provided, however,
that the price per share must be equal to or greater than the fair market value
of the Common Stock on the grant date.

The Stock Incentive Plan also provides for the issuance of stock
appreciation rights which will generally entitle a holder to receive cash or
stock, as determined by the Compensation Committee, at the time of exercise
equal to the difference between the exercise price and the fair market value of
the Common Stock. In addition, the Stock Incentive Plan permits the Company to
issue shares of restricted stock to executive or other key employees upon such
terms and conditions as shall be determined by the Compensation Committee.

401(K) PLAN

The Company established the Arden Realty Section 401(k) Savings/Retirement
Plan (the "401(k) Plan") to cover eligible employees of the Company and any
designated affiliate.

The 401(k) Plan permits eligible employees of the Company to defer up to 20%
of their annual compensation, subject to certain limitations imposed by the
Code. The employees' elective deferrals are immediately vested and
non-forfeitable upon contribution to the 401(k) Plan. Employees are generally

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<PAGE>
eligible to participate in the 401(k) Plan after six months of service. The
Company currently makes matching contributions to the 401(k) Plan equal to 50%
of each participating employee's contribution up to 10% of the employee's
salary. Employees vest 25% in the Company's contributions for each full year of
service and vest 100% after four full years of service.

The 401(k) Plan qualifies under Section 401 of the Code so that
contributions by employees or by the Company to the 401(k) Plan, and income
earned on plan contributions, are not taxable to employees until withdrawn from
the 401(k) Plan, and so that contributions by the Company, if any, will be
deductible by the Company when made.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL.

The Charter authorizes the Company, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a director, officer, partner or trustee of such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
from and against any claim or liability to which such persons may incur by
reason of his status as a present or former stockholder, director or officer of
the Company. The Bylaws obligate the Company, to the maximum extent permitted by
Maryland law, to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a director, officer, partner or trustee of such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise and
who is made a party to the proceeding by reason of his service in that capacity
against any claim or liability to which he may become subject by reason of such
service. The Charter and the Bylaws also permit the Company to indemnify and
advance expenses to any person who served a predecessor of the Company in any of
the capacities described above and to any employee or agent of the Company or a
predecessor of the Company.

The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation. In
addition, the MGCL requires the Company, as a condition to advancing expenses,
to obtain (a) a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for

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indemnification by the Company as authorized by the Bylaws and (b) a written
statement by or on his behalf to repay the amount paid or reimbursed by the
Company if it shall ultimately be determined that the standard of conduct was
not met.

The Partnership Agreement also provides for indemnification and advance of
expenses of the Company and its officers and directors to the same extent
indemnification and advance of expenses is provided to officers and directors of
the Company in the Charter and Bylaws, and limits the liability of the Company
and its officers and directors to the Operating Partnership and its partners to
the same extent liability of officers and directors of the Company to the
Company and its stockholders is limited under the Charter. See "Partnership
Agreement--Indemnification."

FORMATION TRANSACTIONS

The Company was formed to continue and expand the real estate business of
Namiz and the Arden Predecessors. Concurrently with the consummation of the IPO
on October 9, 1996, the Company and the Operating Partnership engaged in the
transactions described below (the "Formation Transactions"), which were designed
to (i) enable the Company to raise the necessary capital to acquire the 24
Initial Properties and repay certain mortgage debt relating thereto, (ii)
provide a vehicle for future acquisition, (iii) enable the Company to qualify as
a REIT commencing with the short taxable year ended December 31, 1996, (iv)
facilitate potential securitized mortgage financings and (v) preserve certain
tax advantages for certain Arden Predecessors.

The Formation Transactions included the following:

- The Company sold to the public 18,847,500 shares of Common Stock and
issued an additional 2,827,000 shares of Common Stock pursuant to the
Underwriters' exercise of their over-allotment option.

- Pursuant to separate option agreements (the "Option Agreements"), the
Company acquired for cash from certain participants in the Formation
Transactions (the "Cash Participants") the interests owned by such Cash
Participants in certain of the Arden Predecessors and in certain of the
Initial Properties. The Company paid approximately $26.8 million from the
net proceeds of the IPO for such interests, which represented 31.7% of the
ownership interests in the Initial Properties acquired by the Company
simultaneously with the IPO.

- The Company contributed (i) the interests in the Arden Predecessors and in
the Initial Properties acquired pursuant to the Option Agreements and (ii)
the net proceeds from the IPO (after payment of the cash consideration to
the Cash Participants as described above) to the Operating Partnership in
exchange for an 88.2% general partner interest in the Operating
Partnership, representing the sole general partnership interest.

- Pursuant to separate contribution agreements (the "Contribution
Agreements"), the following additional contributions were made by certain
other participants in the Formation Transactions (the "Unit Participants")
to the Operating Partnership in exchange for OP Units: (i) the remaining
interests in the Arden Predecessors and in certain of the Initial
Properties (I.E., all interests not acquired by the Company pursuant to
the Option Agreements) and (ii) certain assets, including management
contracts relating to certain of the Properties and the contract rights to
purchase two properties (303 Glenoaks and 12501 East Imperial Highway).
The Unit Participants making such contributions (a total of seven entities
and individuals including Namiz, Richard Ziman and Victor Coleman),
received an aggregate of 2,889,071 OP Units, with a value of approximately
$57.8 million based on the IPO price of the Common Stock.

- The Company, through the Operating Partnership, borrowed $57 million
aggregate principal amount under a one year loan which was non-recourse to
the Company and the Operating

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Partnership and at the closing of the IPO was secured by
cross-collateralized and cross-defaulted first mortgage liens on nine of
the Initial Properties.

- Approximately $33 million of the net proceeds of the IPO were used by the
Operating Partnership to purchase two properties, 303 Glenoaks and 12501
East Imperial Highway.

- The Company used a portion of the proceeds of the IPO and the mortgage
financing in place at that time to repay approximately $370 million of
mortgage debt secured by the Initial Properties and indebtedness
outstanding under lines of credit assumed by the Operating Partnership in
the Formation Transactions.

BENEFITS OF THE FORMATION TRANSACTIONS AND THE IPO TO AFFILIATES OF THE COMPANY

Certain affiliates of the Company realized certain material benefits in
connection with the Formation Transactions, including the following:

RECEIPT OF OP UNITS. In exchange for their respective ownership interests
in the Arden Predecessors and the assets of Namiz, Messrs. Ziman and Coleman
became beneficial owners of a total of 2,210,876 OP Units, with a total value of
$44.2 million based on the IPO price of the Common Stock, compared to a book
value of such interests and assets contributed to the Operating Partnership of
approximately $2,000. The Company believes that the book values of these
interests and assets contributed to the Operating Partnership (which reflect the
depreciated historical cost of such interests and assets) was less than the fair
market values of such interests and assets. Any time after October 9, 1997 (the
first anniversary of the closing of the IPO), holders of OP Units issued in the
Formation Transactions, including the above-mentioned affiliates of the Company,
may, in accordance with the Partnership Agreement, exchange all or a portion of
such OP Units for cash or, at the election of the Company, shares of Common
Stock on a one-for-one basis. The Company currently expects that it will not
elect to pay cash for OP Units in connection with any such exchange request, but
instead will exchange shares of Common Stock for such OP Units. The OP Units may
provide the Unit Participants with increased liquidity and, until disposition of
certain assets contributed to the Company, with the continued deferral of the
taxable gain associated with those assets.

INCREASE IN NET TANGIBLE INVESTMENT. The Unit Participants realized an
immediate accretion in the net tangible book value of their investment in the
Company of $12.48 per share of Common Stock representing an aggregate accretion
amount of $36.1 million.

REPAYMENT OF DEBT. Approximately $398 million of indebtedness secured by
the Initial Properties and indebtedness outstanding under lines of credit
assumed by the Operating Partnership was repaid in the Formation Transactions.

SPECIAL ALLOCATIONS OF INTEREST DEDUCTION. Pursuant to the Partnership
Agreement, certain Unit Participants, including Messrs. Ziman and Coleman
received special allocations of interest deduction of approximately $13.3
million in the aggregate relating to the repayment of mortgage debt on certain
of the Initial Properties.

EMPLOYMENT AGREEMENTS. Messrs. Ziman and Coleman serve as directors and
officers of the Company and the Operating Partnership and have entered into
agreements providing for annual salaries, bonuses, participation in the
Company's Stock Incentive Plan and other benefits for their services.

ZIMAN'S PROPORTIONAL PURCHASE RIGHTS. So long as he is Chief Executive
Officer, Mr. Ziman has certain proportional purchase rights which enable him to
maintain his overall percentage ownership, assuming the exchange of all OP Units
for Common Stock, of the combined equity of the Company and the Operating
Partnership in the event there are future issuances of Common Stock or any
convertible securities by the Company or future issuances of OP Units by the
Operating Partnership. In each event, Mr. Ziman's proportional purchase rights
may be exercised at a price per share or other trading unit of

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such Common Stock, convertible securities, or OP Units, as the case may be, to
be received by the Company or the Operating Partnership in such issuance, less
any underwriting discounts and commissions, and otherwise on the same terms as
may be applicable to such issuance. These proportional purchase rights will not
apply to transactions under any Company stock plan (such as the Stock Incentive
Plan), pursuant to an exchange of an OP Unit for a share of Common Stock or in
connection with any issuance of Common Stock or OP Units incident to an
acquisition of properties, assets or a business.

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a discussion of certain investment, financing and other
policies of the Company. These policies have been determined by the Company's
Board of Directors and may be amended or revised from time to time by the Board
of Directors without a vote of the stockholders, except that (i) the Company
cannot change its policy of holding its assets and conducting its business only
through the Operating Partnership and its affiliates without the consent of the
holders of OP Units as provided in the Partnership Agreement, (ii) changes in
certain policies with respect to conflicts of interest must be consistent with
legal requirements, and (iii) the Company cannot take any action intended to
terminate its qualification as a REIT without the approval of the holders of
two-thirds of the outstanding Common Stock.

INVESTMENT POLICIES

INVESTMENT IN REAL ESTATE OR INTERESTS IN REAL ESTATE. The Company will
conduct all of its investment activities through the Operating Partnership and
its affiliates. The Company's investment objectives are to provide quarterly
cash distributions and achieve long-term capital appreciation through increases
in the value of the Company. For a discussion of the Properties and the
Company's acquisition and other strategic objectives, see "Properties" and
"Business and Growth Strategies."

The Company expects to pursue its investment objectives primarily through
the direct ownership by the Operating Partnership and its affiliates of the
Properties and other acquired office properties. The Company currently intends
to invest primarily in existing improved properties but may, if market
conditions warrant, invest in development projects as well. Furthermore, the
Company currently intends to invest in or develop commercial properties in
Southern California, and primarily in suburban Los Angeles County. However,
future investment or development activities will not be limited to any
geographic area or product type or to a specified percentage of the Company's
assets. While the Company intends to diversify in terms of property locations,
size and market, the Company does not have any limit on the amount or percentage
of its assets that may be invested in any one property or any one geographic
area. The Company intends to engage in such future investment or development
activities in a manner which is consistent with the maintenance of its status as
a REIT for federal income tax purposes. In addition, the Company may purchase or
lease income-producing commercial and other types of properties for long-term
investment, expand and improve the real estate presently owned or other
properties purchased, or sell such real estate properties, in whole or in part,
when circumstances warrant.

The Company may also participate with third parties in property ownership,
through joint ventures or other types of co-ownership. Such investments may
permit the Company to own interests in larger assets without unduly restricting
diversification and, therefore, add flexibility in structuring its portfolio.
The Company will not enter into a joint venture or partnership to make an
investment that would not otherwise meet its investment policies.

Equity investments may be subject to existing mortgage financing and other
indebtedness or such financing or indebtedness as may be incurred in connection
with acquiring or refinancing these investments. Debt service on such financing
or indebtedness will have a priority over any distributions with respect to the
Common Stock. Investments are also subject to the Company's policy not to be
treated as an investment company under the Investment Company Act of 1940, as
amended (the "1940 Act").

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INVESTMENTS IN REAL ESTATE MORTGAGES. While the Company's current portfolio
consists of, and the Company's business objectives emphasize, equity investments
in commercial real estate, the Company may, in the discretion of the Board of
Directors, invest in mortgages and other types of equity real estate interests
consistent with the Company's qualification as a REIT. The Company does not
presently intend to invest in mortgages or deeds of trust, but may invest in
participating or convertible mortgages if the Company concludes that it may
benefit from the cash flow or any appreciation in value of the property.
Investments in real estate mortgages run the risk that one or more borrowers may
default under such mortgages and that the collateral securing such mortgages may
not be sufficient to enable the Company to recoup its full investment.

SECURITIES OR INTERESTS IN PERSONS PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES AND OTHER ISSUERS. Subject to the percentage of ownership
limitations and gross income tests necessary for REIT qualification, the Company
also may invest in securities of other REITs, other entities engaged in real
estate activities or securities of other issuers, including for the purpose of
exercising control over such entities.

DISPOSITIONS

The Company does not currently intend to dispose of any of the Properties,
although it reserves the right to do so if, based upon management's periodic
review of the Company's portfolio, the Board of Directors determines that such
action would be in the best interests of the Company. The tax consequences of
the disposition of the Properties may, however, influence the decision of
certain directors and executive officers of the Company who hold OP Units as to
the desirability of a proposed disposition. See "Risk Factors--Conflicts of
Interests in the Formation Transactions and the Business of the Company."

Any decision to dispose of a Property will be made by the Company and
approved by a majority of the Board of Directors. In addition, under the
Partnership Agreement, the consent of a majority of the Limited Partners of the
Operating Partnership must approve any sale of Century Park Center (other than
in connection with the sale of all or substantially all of the assets of the
Company or a merger of the Company) for a period of seven years from the closing
of the IPO.

FINANCING POLICIES

As a general policy, the Company intends to limit its total consolidated
indebtedness incurred so that at the time any debt is incurred, the Company'
debt to total market capitalization ratio does not exceed 50%. Upon completion
of the Offering and the Pending Acquisitions, the debt to total market
capitalization ratio of the Company will be approximately 24.0% (20.8% if the
Underwriters' overallotment option is exercised in full). The Charter and Bylaws
do not, however, limit the amount or percentage of indebtedness that the Company
may incur. In addition, the Company may from time to time modify its debt policy
in light of current economic conditions, relative costs of debt and equity
capital, market values of its Properties, general conditions in the market for
debt and equity securities, fluctuations in the market price of its Common
Stock, growth and acquisition opportunities and other factors. Accordingly, the
Company may increase or decrease its debt to total market capitalization ratio
beyond the limits described above. If these policies were changed, the Company
could become more highly leveraged, resulting in an increased risk of default on
its obligations and a related increase in debt service requirements that could
adversely affect the financial condition and results of operations of the
Company and the Company's ability to make distributions to stockholders.

The Company has established its debt policy relative to the total market
capitalization of the Company computed at the time the debt is incurred, rather
than relative to the book value of such assets, a ratio that is frequently
employed, because it believes that the book value of its assets (which to a
large extent is the depreciated value of real property, the Company's primary
tangible asset) does not accurately reflect its ability to borrow and to meet
debt service requirements. Total market capitalization, however, is subject to
greater fluctuation than book value, and does not necessarily reflect the fair
market value of the

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underlying assets of the Company at all times. Moreover, due to fluctuations in
the value of the Company's portfolio of Properties over time, and since any
measurement of the Company's total consolidated indebtedness to total market
capitalization is made only at the time debt is incurred, the debt to total
market capitalization ratio could exceed the 50% level.

The Company has not established any limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole.

Although the Company will consider factors other than total market
capitalization in making decisions regarding the incurrence of debt (such as the
purchase price of properties to be acquired with debt financing, the estimated
market value of properties upon refinancing, and the ability of particular
properties and the Company as a whole to generate sufficient cash flow to cover
expected debt service), there can be no assurance that the debt to total market
capitalization ratio, or any other measure of asset value, at the time the debt
is incurred or at any other time will be consistent with any particular level of
distributions to stockholders. See "Risk Factors--No Limitations on Debt,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

CONFLICT OF INTEREST POLICIES

The Company has adopted certain policies and entered into agreements with
Messrs. Ziman and Coleman designed to eliminate or minimize potential conflicts
of interest. These agreements include non-competition provisions that generally
prohibit Messrs. Ziman and Coleman from engaging in the acquisition, management,
leasing or renovation of any office properties in the Los Angeles, Orange and
San Diego counties of Southern California and from engaging in any active or
passive investment in or reasonably relating to the acquisition, renovation,
management or leasing of any office properties in the Los Angeles, Orange and
San Diego counties of Southern California for a period of one year following the
date of termination of such executive's employment. See "Management--Employment
Agreements." The Company's Board of Directors is subject to certain provisions
of Maryland law, which are designed to eliminate or minimize certain potential
conflicts of interest. However, there can be no assurance that these policies
always will be successful in eliminating the influence of such conflicts, and if
they are not successful, decisions could be made that might fail to reflect
fully the interests of all stockholders.

POLICIES APPLICABLE TO ALL DIRECTORS. The Company has adopted a policy
that, without the approval of a majority of the non-employee directors, it will
not (i) acquire from or sell to any director, officer or employee of the
Company, or any entity in which a director, officer or employee of the Company
beneficially owns more than a 1% interest, or acquire from or sell to any
affiliate of any of the foregoing, any of the assets or other property of the
Company, (ii) make any loan to or borrow from any of the foregoing persons or
(iii) engage in any other transaction with any of the foregoing persons.

Pursuant to Maryland law, each director will be subject to restrictions on
misappropriation of corporate opportunities. In addition, under Maryland law, a
contract or other transaction between the Company and a director or between the
Company and any other corporation or other entity in which a director is a
director or has a material financial interest is not void or voidable solely on
the grounds of such common directorship or interest, the presence of the
director at the meeting at which the contract or transaction is authorized,
approved or ratified or the counting of the director's vote in favor thereof if
(a) the transaction or contract is authorized, approved or ratified by the board
of directors or a committee of the board, after disclosure of the common
directorship or interest, by the affirmative vote of a majority of disinterested
directors, even if the disinterested directors constitute less than a quorum, or
by a majority of the votes cast by disinterested stockholders, or (b) the
transaction or contract is fair and reasonable to the Company.

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POLICIES WITH RESPECT TO OTHER ACTIVITIES

The Company has authority to offer Common Stock, Preferred Stock or options
to purchase stock in exchange for property and to repurchase or otherwise
acquire its Common Stock or other securities in the open market or otherwise and
may engage in such activities in the future. As described under "The Partnership
Agreement--Redemption/Exchange Rights," the Company expects (but is not
obligated) to issue Common Stock to holders of OP Units in the Operating
Partnership upon exercise of their redemption/exchange rights. Except in
connection with the IPO and its related Formation Transactions and the issuance
of OP Units in connection with the acquisition of two of the Acquired Properties
subsequent to the IPO (see "The Company--The Operating Partnership"), the
Company has not issued Common Stock, OP Units or any other securities in
exchange for property or for any other purpose, and the Board of Directors has
no present intention of causing the Company to repurchase any Common Stock. The
Company may issue Preferred Stock from time to time, in one or more series, as
authorized by the Board of Directors without the need for stockholder approval.
See "Capital Stock--Preferred Stock." The Company has not engaged in trading,
underwriting or agency distribution or sale of securities of other issuers other
than the Operating Partnership, nor has the Company invested in the securities
of other issuers other than the Operating Partnership for the purposes of
exercising control, and does not intend to do so. At all times, the Company
intends to make investments in such a manner as to qualify as a REIT, unless
because of circumstances or changes in the Code (or the Treasury Regulations),
the Board of Directors determines that it is no longer in the best interest of
the Company to qualify as a REIT and such determination is approved by a two
thirds vote of the Company's stockholders as required by the Charter. The
Company has not made any loans to third parties, although it may in the future
make loans to third parties, including, without limitation, to joint ventures in
which it participates. The Company intends to make investments in such a way
that it will not be treated as an investment company under the 1940 Act. The
Company's policies with respect to such activities may be reviewed and modified
or amended from time to time by the Company's Board of Directors without a vote
of the stockholders.

CERTAIN TRANSACTIONS

FORMATION TRANSACTIONS

The terms of the acquisitions of interests in the Initial Properties and in
Namiz by the Operating Partnership are described in "Formation Transactions."

PARTNERSHIP AGREEMENT; REDEMPTION/EXCHANGE RIGHTS

The Company has entered into the Partnership Agreement with the Unit
Participants. Among other things, the Partnership Agreement provides such
holders of OP Units with the right to cause the Operating Partnership to redeem
OP Units for cash or, at the election of the Company, exchange such OP Units for
shares of Common Stock of the Company (on a one-for-one basis). See "Risk
Factors--Conflicts of Interests in the Formation Transactions and the Business
of the Company; Benefits from Formation Transactions," "Policies With Respect to
Certain Activities--Conflict of Interest Policies" and "Partnership
Agreement--Redemption/Exchange Rights."

REGISTRATION RIGHTS

For a description of certain registration rights held by the Unit
Participants, see "Shares Available for Future Sale--Registration Rights."

ACQUISITION OF PROPERTY FROM FORMER DIRECTOR

In March 1997 when Mr. Arthur Gilbert was still a director of the Company, a
majority of disinterested directors of the Board of Directors approved and the
Company acquired Mr. Gilbert's interest in 535 Brand (one of the Acquired
Properties) for a purchase price of $10.2 million.

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ACCELERATION OF OPTIONS GRANTED TO FORMER OFFICER

On February 14, 1997, Ms. Michele Byer resigned as Chief Accounting Officer
of the Company. In connection with Ms. Byer's resignation, the Compensation
Committee of the Company's Board of Directors approved the accelerated vesting
of one third of the 40,000 stock options Ms. Byer was granted in 1996.
Accordingly, Ms. Byer exercised options to purchase 13,333 shares of Common
Stock and the remaining, unaccelerated options to purchase 26,667 shares of
Common Stock were automatically terminated.

PARTNERSHIP AGREEMENT

THE FOLLOWING SUMMARY OF THE PARTNERSHIP AGREEMENT, INCLUDING THE
DESCRIPTIONS OF CERTAIN PROVISIONS SET FORTH ELSEWHERE IN THIS PROSPECTUS, IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PARTNERSHIP AGREEMENT, WHICH IS
FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A
PART.

MANAGEMENT

The Operating Partnership has been organized as a Maryland limited
partnership pursuant to the terms of the Partnership Agreement. Generally,
pursuant to the Partnership Agreement, the Company, as the sole general partner
of the Operating Partnership, has full, exclusive and complete responsibility
and discretion in the management and control of the Operating Partnership,
subject to certain limited exceptions. The limited partners of the Operating
Partnership (the "Limited Partners") have no authority in such capacity to
transact business for, or participate in the management activities or decisions
of, the Operating Partnership. See "--Certain Voting Rights of Limited
Partners."

TRANSFERABILITY OF INTERESTS

Except for a transaction described in the following two paragraphs, the
Partnership Agreement provides that the Company may not voluntarily withdraw
from the Operating Partnership, or transfer or assign its interest in the
Operating Partnership, without the consent of the holders of 60% of the OP Units
representing limited partner interests. Pursuant to the Partnership Agreement,
the Limited Partners have agreed not to transfer, assign, sell, encumber or
otherwise dispose of, without the consent of the Company, their interest in the
Operating Partnership, other than to Affiliates (as defined in the Partnership
Agreement) who agree to assume the obligations of the transferor under the
Partnership Agreement. Messrs. Ziman and Coleman and certain other Unit
Participants are subject to additional restrictions on their ability to transfer
shares of Common Stock. See "Underwriting."

The Company may not engage in any merger, consolidation or other combination
with or into another person, sale of all or substantially all of its assets or
any reclassification, recapitalization or change of its outstanding equity
interests ("Termination Transaction"), unless the Termination Transaction has
been approved by holders of at least 66 2/3% of the OP Units (including OP Units
held by the Company which will represent 91.4% of all OP Units outstanding upon
consummation of the Offering) and in connection with which all Limited Partners
either will receive, or will have the right to elect to receive, for each OP
Unit an amount of cash, securities, or other property equal to the product of
the number of shares of Common Stock into which each OP Unit is then
exchangeable and the greatest amount of cash, securities or other property paid
to the holder of one share of Common Stock in consideration of one share of
Common Stock at any time during the period from and after the date on which the
Termination Transaction is consummated. If, in connection with the Termination
Transaction, a purchase, tender or exchange offer shall have been made to and
accepted by the holders of more than 50% of the outstanding shares of Common
Stock, each holder of OP Units will receive, or will have the right to elect to
receive, the greatest amount of cash, securities, or other property which such
holder would have received had it exercised its right to redemption and received
shares of Common Stock in exchange for its OP Units

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immediately prior to the expiration of such purchase, tender or exchange offer
and had thereupon accepted such purchase, tender or exchange offer.

Notwithstanding the foregoing paragraph, the Company may merge, or otherwise
combine its assets, with another entity if, immediately after such merger or
other combination, substantially all of the assets of the surviving entity,
other than OP Units held by the Company, are contributed to the Operating
Partnership as a capital contribution in exchange for OP Units with a fair
market value, as reasonably determined by the Company, equal to the agreed value
of the assets so contributed.

In respect of any transaction described in the preceding two paragraphs, the
Company is required to use its commercially reasonable efforts to structure such
transaction to avoid causing the Limited Partners to recognize gain for federal
income tax purposes by virtue of the occurrence of or their participation in
such transaction.

CAPITAL CONTRIBUTIONS

If the Operating Partnership requires additional funds at any time or from
time to time in excess of funds available to the Operating Partnership from
borrowings or capital contributions, and the Company borrows such funds from a
financial institution or other lender, then the Company will lend such funds to
the Operating Partnership on comparable terms and conditions as are applicable
to the Company's borrowing of such funds. The Company may contribute the amount
of any required funds not loaned to the Operating Partnership as an additional
capital contribution to the Operating Partnership. If the Company so contributes
additional capital to the Operating Partnership, the Company's partnership
interest in the Operating Partnership will be increased on a proportionate basis
based upon the amount of such additional capital contributions and the value of
the Operating Partnership at the time of such contributions. Conversely, the
partnership interests of the Limited Partners will be decreased on a
proportionate basis in the event of additional capital contributions by the
Company. The Company's rights to make loans or additional capital contributions
to the Operating Partnership are generally subject to Mr. Ziman's right to
receive notice thereof and to fund the loan or capital contribution on a pro
rata basis so long as Mr. Ziman is the Company's Chief Executive Officer.

REDEMPTION/EXCHANGE RIGHTS

Limited Partners will receive rights which will enable them to require the
Operating Partnership to redeem part or all of their OP Units for cash (based
upon the fair market value of an equivalent number of shares of Common Stock at
the time of such redemption) or, at the election of the Company, exchange such
OP Units for shares of Common Stock (on a one-for-one basis, subject to
adjustment in the event of stock splits, stock dividends, issuance of certain
rights, certain extraordinary distributions and similar events) from the
Company, subject to the Ownership Limit and certain limitations on resale of
shares. The Company presently anticipates that it will elect to issue Common
Stock in exchange for OP Units in connection with each such redemption request,
rather than having the Operating Partnership pay cash. With each such redemption
or exchange, the Company's percentage ownership interest in the Operating
Partnership will increase. This redemption/exchange right may be exercised by
Limited Partners from time to time, in whole or in part, subject to the
limitations that such right may not be exercised (i) prior to the expiration of
one year following the consummation of the IPO with respect to OP Units issued
in the Formation Transactions or (ii) at any time to the extent such exercise
would result in such Limited Partner actually or constructively owning Common
Stock in excess of the Common Stock Ownership Limit, assuming Common Stock was
issued in such exchange.

For a description of certain special redemption and exchange rights for
persons who were issued OP Units in acquisitions of Properties after the IPO,
see "The Company--The Operating Partnership."

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ISSUANCE OF ADDITIONAL OP UNITS, COMMON STOCK OR CONVERTIBLE SECURITIES

As general partner of the Operating Partnership, the Company has the ability
to cause the Operating Partnership to issue additional OP Units. In addition,
the Company may, from time to time, issue additional shares of Common Stock or
convertible securities. In each event, Mr. Ziman will have proportional purchase
rights which will enable him to maintain his overall percentage ownership of the
combined equity of the Company and the Operating Partnership, assuming the
exchange of all OP Units for Common Stock. Mr. Ziman's proportional purchase
rights may be exercised, in his sole discretion, at a price per share or other
trading unit of such OP Units, Common Stock or convertible securities, as the
case may be, to be received by the Company or the Operating Partnership in such
issuance, less any underwriting discounts and commissions, and otherwise on the
same terms as may be applicable to such issuances. These proportional purchase
rights will not apply to transactions under any Company stock plan (such as the
Stock Incentive Plan), pursuant to an exchange of an OP Unit for a share of
Common Stock or in connection with any issuance of Common Stock or OP Units
incident to an acquisition of properties, assets or a business.

TAX MATTERS

Pursuant to the Partnership Agreement, the Company is the tax matters
partner of the Operating Partnership and, as such, has authority to make tax
elections under the Code on behalf of the Operating Partnership.

The net income or net loss of the Operating Partnership is generally
allocated to the Company and the Limited Partners in accordance with their
respective percentage interests in the Operating Partnership, subject to special
allocations to certain Limited Partners of interest deductions and income from
the discharge of indebtedness attributable to loans transferred by Arden
Predecessors to the Operating Partnership and to compliance with the provisions
of Sections 704(b) and 704(c) of the Code and the Treasury Regulations
promulgated thereunder. See "Federal Income Tax Considerations--Tax Aspects of
the Operating Partnership."

OPERATIONS

The Partnership Agreement requires that the Operating Partnership be
operated in a manner that will enable the Company to satisfy the requirements
for being classified as a REIT and to avoid any federal income tax liability.
The Partnership Agreement provides that the net operating cash revenues of the
Operating Partnership, as well as the net sales and refinancing proceeds, will
be distributed from time to time (but at least quarterly) as determined by the
Company pro rata in accordance with the partners' percentage interests. Pursuant
to the Partnership Agreement, subject to certain exceptions, the Operating
Partnership will also assume and pay when due, or reimburse the Company for
payment of all costs and expenses relating to the operations of the Company.

DUTIES AND CONFLICTS

The Partnership Agreement provides that all business activities of the
Company, including all activities pertaining to the acquisition and operation of
office properties, must be conducted through the Operating Partnership.

CERTAIN VOTING RIGHTS OF LIMITED PARTNERS

So long as the Limited Partners own at least 5% of the outstanding OP Units,
the Company shall not, on behalf of the Operating Partnership, take any of the
following actions without the prior consent of holders of at least 50% of the OP
Units representing limited partner interests: (1) dissolve the Operating
Partnership, other than incident to a merger or sale of substantially all of the
Company's assets; or (2) prior

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to the expiration of seven years from the completion of the IPO, sell Century
Park Center, other than incident to a merger or sale of substantially all of the
Company's assets.

TERM

The Operating Partnership will continue in full force and effect until
December 31, 2096, or until sooner dissolved upon the bankruptcy, dissolution,
withdrawal or termination of the Company as general partner (unless the Limited
Partners other than the Company elect to continue the Operating Partnership),
the election of the Company and the Limited Partners, on entry of decree of
judicial dissolution, or the sale or other disposition of all or substantially
all the assets of the Operating Partnership or redemption of all OP Units.

INDEMNIFICATION

To the extent permitted by law, the Partnership Agreement provides for
indemnification and advance of expenses of the Company and its officers and
directors to the same extent indemnification and advance of expenses is provided
to officers and directors of the Company in its Charter and Bylaws, and limits
the liability of the Company and its officers and directors to the Operating
Partnership and its partners to the same extent liability of officers and
directors of the Company is limited under the Charter. See
"Management--Limitation of Liability and Indemnification."

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PRINCIPAL AND MANAGEMENT STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock (or Common Stock for which OP Units are exchangeable)
for (1) each person known by the Company to be the beneficial owner of five
percent or more of the Company's outstanding Common Stock (or Common Stock for
which OP Units are exchangeable), (2) each director and each Named Executive
Officer and (3) the directors and officers of the Company as a group. Except as
indicated below, all such Common Stock is owned directly, and the indicated
person has sole voting and investment power.

<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF COMMON
NAME AND ADDRESS(1) COMMON STOCK STOCK OUTSTANDING(2)
- -------------------------------------------------- ------------------- ---------------------
<S> <C> <C>
FMR Corp. ........................................ 2,609,300(3) 12.03%
82 Devonshire Street
Boston, MA 02109
Richard S. Ziman.................................. 1,758,306(4) 7.50%
Victor J. Coleman................................. 1,217,766(5) 5.32%
Diana M. Laing.................................... 5,000 *
Andrew J. Sobel................................... 3,750 *
Herbert L. Porter................................. 1,250 *
Carl D. Covitz.................................... -- --
Larry S. Flax..................................... 5,000 *
Steven C. Good.................................... -- --
Kenneth B. Roath.................................. -- --
All directors and officers as a group (9
persons)........................................ 2,215,876 9.27%
</TABLE>

- ------------------------------

* Less than one percent.

(1) Unless otherwise indicated, the address for each of the persons listed is
9100 Wilshire Boulevard, East Tower, Suite 700, Beverly Hills, CA 90212

(2) For Messrs. Ziman and Coleman, beneficial ownership of Common Stock is
currently held 100% in the form of OP Units. In addition, amounts for
individuals assume that all OP Units held by the person are exchanged for
shares of Common Stock and that none of the OP Units held by other persons
are exchanged for shares of Common Stock. Amounts for all directors and
officers as a group assume all OP Units are exchanged for shares of Common
Stock.

(3) According to a Schedule 13G filed with the SEC, the person has sole voting
power with respect to 145,800 of such shares and sole dispositive power of
all 2,609,300 of such shares as of February 10, 1997.

(4) Includes (a) 775,196 shares held by an entity in which Messrs. Ziman and
Coleman have shared voting and investment power, of which shares Mr. Ziman
disclaims beneficial ownership in the 40% of such shares in which he has no
pecuniary interest, (b) 353,212 shares owned by entities directly and
indirectly owned 100% by Mr. Ziman, and (c) 136,674 shares owned by a family
partnership of Mr. Ziman, in which Mr. Ziman has shared voting and
investment power and of which Mr. Ziman is a 20% general partner and
disclaims beneficial ownership of the remaining 80% in which he has no
pecuniary interests.

(5) Includes (a) 775,196 shares held by entities in which Messrs. Ziman and
Coleman have shared voting and investment power, of which shares Mr. Coleman
disclaims beneficial ownership of the 60% of such shares in which he has no
pecuniary interest, (b) 99,458 shares owned by an entity owned 100% by Mr.
Coleman, and (c) 343,112 shares owned of record by Victor J. Coleman and
Wendy Coleman, Trustees, The Victor and Wendy Coleman Family Trust dated
March 26, 1997 of which Mr. Coleman and his wife, as trustees, have sole
voting and dispositive power.

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CAPITAL STOCK

THE FOLLOWING SUMMARY OF THE TERMS OF THE STOCK OF THE COMPANY DOES NOT
PURPORT TO BE COMPLETE AND IS SUBJECT TO AND QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE CHARTER AND BYLAWS, COPIES OF WHICH ARE EXHIBITS TO THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. SEE "ADDITIONAL
INFORMATION."

GENERAL

The Charter provides that the Company may issue up to 100,000,000 shares of
Common Stock and 20,000,000 shares of preferred stock, $.01 par value per share
("Preferred Stock"). Upon completion of the Offering, 31,692,833 shares of
Common Stock will be issued and outstanding and no shares of Preferred Stock
will be issued and outstanding. Under Maryland law, stockholders generally are
not liable for the corporation's obligations solely as a result of their status
as stockholders.

COMMON STOCK

All shares of Common Stock offered hereby will be duly authorized, validly
issued, fully paid and nonassessable. Subject to the preferential rights of any
other shares or series of stock and to the provisions of the Charter regarding
the restrictions on transfer of stock, holders of shares of Common Stock are
entitled to receive dividends on such stock if, as and when authorized and
declared by the Board of Directors of the Company out of assets legally
available therefor and to share ratably in the assets of the Company legally
available for distribution to its stockholders in the event of its liquidation,
dissolution or winding up after payment of or adequate provision for all known
debts and liabilities of the Company.

Subject to the provisions of the Charter regarding the restrictions on
transfer of stock, each outstanding share of Common Stock entitles the holder to
one vote on all matters submitted to a vote of stockholders, including the
election of directors and, except as provided with respect to any other class or
series of stock, the holders of such shares will possess the exclusive voting
power. There is no cumulative voting in the election of directors, which means
that the holders of a majority of the outstanding shares of Common Stock can
elect all of the directors then standing for election and the holders of the
remaining shares will not be able to elect any directors.

Holders of shares of Common Stock have no preference, conversion, exchange,
sinking fund, redemption or appraisal rights and, with the exception of Mr.
Ziman's proportional purchase rights, have no preemptive rights to subscribe for
any securities of the Company. Subject to the provisions of the Charter
regarding the restrictions on transfer of stock, shares of Common Stock will
have equal dividend, liquidation and other rights.

Under the MGCL, a corporation generally cannot dissolve, amend its charter,
merge, sell all or substantially all of its assets, engage in a share exchange
or engage in similar transactions outside the ordinary course of business unless
approved by the affirmative vote of stockholders holding at least two-thirds of
the votes entitled to be cast on the matter unless a greater or lesser
percentage (but not less than a majority of all of the votes to be cast on the
matter) is set forth in the corporation's charter. The Company's Charter does
not provide for a lesser percentage in such situations except that the
provisions of the Charter relating to authorized shares of stock and the
classification and reclassification of shares of Common Stock and Preferred
Stock may be amended by the affirmative vote of the holders of not less than a
majority of the votes entitled to be cast on the matter.

PREFERRED STOCK

The Charter authorizes the Board of Directors to classify any unissued
shares of Preferred Stock and to reclassify any previously classified but
unissued shares of any series, as authorized by the Board of Directors. Prior to
issuance of shares of each series, the Board is required by the MGCL and the
Charter of the Company to set, subject to the provisions of the Charter
regarding the restrictions on transfer of

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stock, the terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption for each such series. Thus, the Board
could authorize the issuance of shares of Preferred Stock with terms and
conditions which could have the effect of delaying, deferring or preventing a
transaction or a change in control of the Company that might involve a premium
price for holders of Common Stock or otherwise be in their best interest. As of
the date hereof, no shares of Preferred Stock are outstanding and the Company
has no present plans to issue any Preferred Stock.

POWER TO ISSUE ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK

The Company believes that the power of the Board of Directors to issue
additional authorized but unissued shares of Common Stock or Preferred Stock and
to classify or reclassify unissued shares of Common Stock and Preferred Stock
and thereafter to cause the Company to issue such classified or reclassified
shares of stock will provide the Company with increased flexibility in
structuring possible future financings and acquisitions and in meeting other
needs which might arise. The additional classes or series, as well as the Common
Stock, will be available for issuance without further action by the Company's
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the Company's
securities may be listed or traded. Although the Board of Directors has no
intention at the present time of doing so, it could authorize the Company to
issue a class or series that could, depending upon the terms of such class or
series, delay, defer or prevent a transaction or a change in control of the
Company that might involve a premium price for holders of Common Stock or
otherwise be in their best interest.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is The Bank of New
York.

RESTRICTIONS ON TRANSFER

For the Company to qualify as a REIT under the Code, no more than 50% in
value of its outstanding shares of stock may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year for which an election to be treated as a REIT has been made). In addition,
if the Company, or an owner of 10% or more of the Company, actually or
constructively owns 10% or more of a tenant of the Company (or a tenant of any
partnership in which the Company is a partner), the rent received by the Company
(either directly or through any such partnership) from such tenant will not be
qualifying income for purposes of the REIT gross income tests of the Code. A
REIT's stock must also be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of twelve months or during a proportionate part
of a shorter taxable year (other than the first year for which an election to be
treated as a REIT has been made).

Because the Company expects to continue to qualify as a REIT, the Charter
contains restrictions on the ownership and transfer of Common Stock which are
intended to assist the Company in complying with these requirements. The Charter
provides that, subject to certain specified exceptions, no person or entity may
own, or be deemed to own by virtue of the applicable constructive ownership
provisions of the Code, more than 9.0% (by number or value, whichever is more
restrictive) of the outstanding shares of Common Stock (the "Ownership Limit").
The constructive ownership rules of the Code are complex, and may cause shares
of Common Stock owned actually or constructively by a group of related
individuals and/or entities to be owned constructively by one individual or
entity. As a result, the acquisition of less than 9.0% of the shares of Common
Stock (or the acquisition of an interest in an entity that owns, actually or
constructively, Common Stock) by an individual or entity, could, nevertheless
cause that individual or entity, or another individual or entity, to own
constructively in excess of 9.0% of the outstanding Common Stock and thus
subject such shares to the Ownership Limit. The Board of Directors may, but in
no event is required to,

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waive the Ownership Limit with respect to a particular stockholder if it
determines that such ownership will not jeopardize the Company's status as a
REIT. As a condition of such waiver, the Board of Directors may require opinions
of counsel satisfactory to it and/or undertakings or representations from the
applicant with respect to preserving the REIT status of the Company. The Board
of Directors has obtained such undertakings and representations from Mr. Ziman
and, as a result, has waived the Ownership Limit with respect to the Ziman
family and certain affiliated entities, including the Operating Partnership. The
Ziman family and such entities are permitted to own in the aggregate, actually
or constructively, up to 13% (by number of shares or by value, whichever is more
restrictive) of the Common Stock.

The Charter further prohibits (a) any person from actually or constructively
owning shares of stock of the Company that would result in the Company being
"closely held" under Section 856(h) of the Code or otherwise cause the Company
to fail to qualify as a REIT and (b) any person from transferring shares of
stock of the Company if such transfer would result in shares of stock of the
Company being owned by fewer than 100 persons. Any person who acquires or
attempts or intends to acquire actual or constructive ownership of shares of
stock of the Company that will or may violate any of the foregoing restrictions
on transferability and ownership is required to give notice immediately to the
Company and provide the Company with such other information as the Company may
request in order to determine the effect of such transfer on the Company's
status as a REIT. The foregoing restrictions on transferability and ownership
will not apply if the Board of Directors determines that it is no longer in the
best interest of the Company to continue to qualify as a REIT and such
determination is approved by a two thirds vote of the Company's stockholders as
required by the Charter. Except as otherwise described above, any change in the
Ownership Limit would require an amendment to the Charter. Amendments to the
Charter require the affirmative vote of holders owning at least two-thirds of
the shares of the Company's capital stock outstanding and entitled to vote
thereon.

Pursuant to the Charter, if any purported transfer of Common Stock of the
Company or any other event would otherwise result in any person violating the
Ownership Limit, or such other limit as provided in the Charter, then any such
purported transfer will be void and of no force or effect with respect to the
purported transferee (the "Prohibited Transferee") as to that number of shares
in excess of the Ownership Limit, or such other limit, and the Prohibited
Transferee shall acquire no right or interest (or, in the case of any event
other than a purported transfer, the person or entity holding record title to
any such excess shares (the "Prohibited Owner") shall cease to own any right or
interest) in such excess shares. Any such excess shares described above will be
transferred automatically, by operation of law, to a trust, the beneficiary of
which will be a qualified charitable organization selected by the Company (the
"Beneficiary"). Such automatic transfer shall be deemed to be effective as of
the close of business on the Business Day (as defined in the Charter) prior to
the date of such violative transfer. Within 20 days of receiving notice from the
Company of the transfer of shares to the trust, the trustee of the trust (who
shall be designated by the Company and be unaffiliated with the Company and any
Prohibited Transferee or Prohibited Owner) will be required to sell such excess
shares to a person or entity who could own such shares without violating the
Ownership Limit or such other limit as provided by the Charter or as otherwise
permitted by the Board of Directors, and distribute to the Prohibited Transferee
or Prohibited Owner an amount equal to the lesser of the price paid by the
Prohibited Transferee or Prohibited Owner for such excess shares or the sales
proceeds received by the trust for such excess shares. In the case of any excess
shares resulting from any event other than a transfer, or from a transfer for no
consideration (such as a gift), the trustee will be required to sell such excess
shares to a qualified person or entity and distribute to the Prohibited Owner an
amount equal to the lesser of the fair market value of such excess shares as of
the date of such event or the sales proceeds received by the trust for such
excess shares. In either case, any proceeds in excess of the amount
distributable to the Prohibited Transferee or Prohibited Owner, as applicable,
will be distributed to the Beneficiary. Prior to a sale of any such excess
shares by the trust, the trustee will be entitled to receive in trust for the
Beneficiary, all dividends and other distributions paid by the Company with
respect to such excess shares, and also will be entitled to exercise all voting
rights with respect to such excess shares. Subject to Maryland law, effective as
of the date that such shares have been

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transferred to the trust, the trustee shall have the authority (at the trustee's
sole discretion) (i) to rescind as void any vote cast by a Prohibited Transferee
or Prohibited Owner, as applicable, prior to the discovery by the Company that
such shares had been transferred to the trust and (ii) to recast such vote in
accordance with the desires of the trustee acting for the benefit of the
Beneficiary. However, if the Company has already taken irreversible corporate
action, then the trustee shall not have the authority to rescind and recast such
vote. Any dividend or other distribution paid to the Prohibited Transferee or
Prohibited Owner (prior to the discovery by the Company that such shares had
been automatically transferred to a trust as described above) will be required
to be repaid to the trustee upon demand for distribution to the Beneficiary. In
the event that the transfer to the trust as described above is not automatically
effective (for any reason) to prevent violation of the Ownership Limit, then the
Charter provides that the transfer of the excess shares will be void.

In addition, shares of stock of the Company held in the Trust shall be
deemed to have been offered for sale to the Company, or its designee, at a price
per share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the Trust (or, in the case of a devise or gift, the
Market Price at the time of such devise or gift) and (ii) the Market Price on
the date the Company, or its designee, accepts such offer. The Company shall
have the right to accept such offer until the Trustee has sold the shares of
stock held in the trust. Upon such a sale to the Company, the interest of the
Beneficiary in the shares sold shall terminate and the Trustee shall distribute
the net proceeds of the sale to the Prohibited Transferee or Prohibited Owner.

If any purported transfer of shares of Common Stock would cause the Company
to be beneficially owned by fewer than 100 persons, such transfer will be null
and void in its entirety, and the intended transferee shall acquire no rights to
the stock.

All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above. The foregoing ownership
limitations could delay, defer or prevent a transaction or a change in control
of the Company that might involve a premium price for holders of Common Stock or
otherwise be in their best interest.

Under the Charter, every owner of a specified percentage (or more) of the
outstanding shares of Common Stock must file a completed questionnaire with the
Company containing information regarding their ownership of such shares, as set
forth in the Treasury Regulations. Under current Treasury Regulations, the
percentage will be set between 0.5% and 5.0%, depending upon the number of
record holders of the Company's shares. In addition, each stockholder shall upon
demand be required to disclose to the Company in writing such information as the
Company may request in order to determine the effect, if any, of such
stockholder's actual and constructive ownership of Common Stock on the Company's
status as a REIT and to ensure compliance with the Ownership Limit or such other
limit as provided by the Charter or as otherwise permitted by the Board of
Directors.

CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S CHARTER AND BYLAWS

THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
CHARTER AND BYLAWS OF THE COMPANY DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT
TO AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MARYLAND LAW AND THE CHARTER
AND BYLAWS OF THE COMPANY, COPIES OF WHICH ARE EXHIBITS TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART.

The Charter and the Bylaws of the Company contain certain provisions that
could make more difficult the acquisition of the Company by means of a tender
offer, a proxy contest or otherwise. These provisions are expected to discourage
certain types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of the Company to negotiate first
with the Board of Directors. The Company believes that the benefits of these
provisions outweigh the potential disadvantages of discouraging such proposals
because, among other things, negotiation of such proposals might result in an
improvement of their terms. The description set forth below is intended as a
summary only and

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is qualified in its entirety by reference to the Charter and the Bylaws, which
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. See also "Capital Stock--Restrictions on Transfer."

BOARD OF DIRECTORS--NUMBER, CLASSIFICATION, VACANCIES

The Bylaws provide that the number of directors of the Company may be
established by the Board of Directors but may not be fewer than five nor more
than 11. Any vacancy will be filled, at any regular meeting or at any special
meeting called for that purpose, by a majority of the remaining directors,
except that a vacancy resulting from an increase in the number of directors must
be filled by a majority of the entire Board of Directors. The Company currently
has one vacancy on its seven director Board of Directors.

The Company's Board of Directors is divided into three classes of directors.
The initial terms of the first, second and third classes will expire in 1997,
1998 and 1999, respectively. Beginning in July 1997, directors of each class
will be 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 of the Company even though a tender offer or change in
control might be in the best interest of the stockholders.

The classified board provision could have the effect of making the
replacement of incumbent directors more time consuming and difficult. At least
two annual meetings of stockholders, instead of one, will generally be required
to effect a change in a majority of the Board of Directors. Thus, the classified
board provision could increase the likelihood that incumbent directors will
retain their positions. The staggered terms of directors may reduce the
possibility of a tender offer or an attempt to change control of the Company,
even though a tender offer or change in control might be in the best interest of
the stockholders.

REMOVAL OF DIRECTORS

The Charter provides that subject to the rights of one or more classes or
series of Preferred Stock to elect one or more directors, any director may be
removed only for cause (as defined in the Charter) and only by the affirmative
vote of at least two-thirds of the votes entitled to be cast in the election of
directors. This provision, when coupled with the provision in the Bylaws
authorizing the Board of Directors to fill vacant directorships, precludes
stockholders from removing incumbent directors, except upon the existence of
cause for removal and a substantial affirmative vote, and filling the vacancies
created by such removal with their own nominees.

BUSINESS COMBINATIONS

Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation who,
at any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the
then-outstanding voting stock of the corporation (an "Interested Stockholder")
or an affiliate of such an Interested Stockholder are prohibited for five years
after the most recent date on which the Interested Stockholder becomes an
Interested Stockholder. Thereafter, any such business combination must be
recommended by the board of directors of such corporation and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by holders
of outstanding shares of voting stock of the corporation and (b) two-thirds of
the votes entitled to be cast by holders of voting stock of the corporation
other than shares held by the Interested Stockholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
conditions, the corporation's common stockholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in

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cash or in the same form as previously paid by the Interested Stockholder for
its shares. These provisions of Maryland law do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. The Company's Board of Directors has resolved to opt out
of the business combination provisions of the MGCL, and such resolutions also
require that any decision to opt back in be subject to the approval of holders
of a majority of the shares of Common Stock.

CONTROL SHARE ACQUISITIONS

The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror, by officers or by directors who
are employees of the corporation. "Control shares" are voting shares of stock
which, if aggregated with all other such shares of stock previously acquired by
the acquiror or in respect of which the acquiror is able to exercise or direct
the exercise of voting power (except solely by virtue of a revocable proxy),
would entitle the acquiror to exercise voting power in electing directors within
one of the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
or more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as the result of having previously obtained
stockholder approval. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.

A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.

If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.

The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (b) to acquisitions approved or exempted by the charter or
bylaws of the corporation.

The Bylaws of the Company contain a provision exempting from the control
share acquisition statute any and all acquisitions by any person of the
Company's shares of stock. Although there can be no assurance that such
provision will not be amended or eliminated at any time in the future, the
Company's Board of Directors has resolved that the provision may not be amended
or eliminated without the approval of holders of at least a majority of the
shares of Common Stock.

AMENDMENT TO THE CHARTER

The Charter, including its provisions on classification of the Board of
Directors, restrictions on transferability of shares of Common Stock and removal
of directors, may be amended only by the affirmative vote of the holders of not
less than two thirds of all of the votes entitled to be cast on the matter.
However, the provisions of the Charter relating to authorized shares of stock
and the classification

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and reclassification of shares of Common Stock and Preferred Stock may be
amended by the affirmative vote of the holders of not less than a majority of
the votes entitled to be cast on the matter.

DISSOLUTION OF THE COMPANY

The dissolution of the Company must be approved by the affirmative vote of
the holders of not less than two thirds of all of the votes entitled to be cast
on the matter.

ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS

The Bylaws of the Company provide that (a) with respect to an annual meeting
of stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(i) pursuant to the Company's notice of the meeting, (ii) by the Board of
Directors or (iii) by a stockholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws and (b)
with respect to special meetings of the stockholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of stockholders and nominations of persons for election to the Board of
Directors may be made only (i) pursuant to the Company's notice of the meeting,
(ii) by the Board of Directors or (iii) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by a stockholder who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.

ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE CHARTER
AND BYLAWS

The business combination provisions and the control share acquisition
provisions of the MGCL, in each case if they ever became applicable to the
Company, the provisions of the Charter on classification of the Board of
Directors and removal of directors and the advance notice provisions of the
Bylaws could delay, defer or prevent a transaction or a change in control of the
Company that might involve a premium price for holders of Common Stock or
otherwise be in their best interest.

RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY

The Charter authorizes the Board of Directors to create and issue rights
entitling the holders thereof to purchase from the Company shares of stock or
other securities or property. The times at which and terms upon which such
rights are to be issued would be determined by the Board of Directors and set
forth in the contracts or instruments that evidence such rights. This provision
is intended to confirm the Board of Directors' authority to issue share purchase
rights, which may have terms that could impede a merger, tender offer or other
takeover attempt, or other rights to purchase shares or securities of the
Company or any other corporation.

SHARES AVAILABLE FOR FUTURE SALE

GENERAL

Upon the completion of the Offering, the Company will have outstanding
31,692,833 shares of Common Stock (33,192,833 shares if the Underwriters'
overallotment option is exercised in full). In addition, 2,971,756 shares of
Common Stock are reserved for issuance upon exchange of OP Units. The shares of
Common Stock issued in the Offering will be freely tradeable by persons other
than "affiliates" of the Company without restriction under the Securities Act,
subject to the limitations on ownership set forth in the Charter. See "Capital
Stock--Restrictions on Transfer." The shares of Common Stock owned by the Unit
Participants or acquired by any Unit Participant in redemption of OP Units (the
"Restricted Shares") will be "restricted" securities under the meaning of Rule
144 promulgated under the Securities Act ("Rule 144") and may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available, including exemptions contained in Rule 144. As
described below

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under "--Registration Rights," the Company has granted certain holders
registration rights with respect to their shares of Common Stock.

In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of Restricted Shares from the Company
or any "affiliate" of the Company, as that term is defined under the Securities
Act, the acquiror or subsequent holder thereof is entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock or the average weekly trading volume
of the Common Stock during the four calendar weeks preceding the date on which
notice of the sale is filed with the SEC. Sales under Rule 144 are also subject
to certain manner of sale provisions, notice requirements and the availability
of current public information about the Company. If two years have elapsed since
the date of acquisition of Restricted Shares from the Company or from any
"affiliate" of the Company, and the acquiror or subsequent holder thereof is
deemed not to have been an affiliate of the Company at any time during the 90
days preceding a sale, such person is entitled to sell such shares in the public
market under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.

In connection with the IPO, Messrs. Ziman and Coleman agreed not to sell any
shares of Common Stock acquired by them upon exchange of OP Units for a period
of two years after the completion of the IPO without the consent of Lehman
Brothers Inc. Such restriction will not apply to any OP Units or other shares of
Common Stock purchased or otherwise acquired by Messrs. Ziman or Coleman
following consummation of the IPO. See "Underwriting."

The Company has established the Stock Incentive Plan for the purpose of
attracting and retaining directors, executive officers and other key employees.
See "Management--Stock Incentive Plan" and
"--Compensation of Directors." The Company issued options to purchase
approximately 890,000 shares of Common Stock to directors, executive officers
and certain key employees prior to the completion of the IPO and has reserved
596,667 additional shares for future issuance under the Stock Incentive Plan.
Prior to the expiration of the initial 12-month period following the
consummation of the IPO, the Company expects to file a registration statement on
Form S-8 with the SEC with respect to the shares of Common Stock issuable under
the Stock Incentive Plan, which shares may be resold without restriction, unless
held by affiliates.

No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price prevailing from time to time. Sales of substantial amounts of Common Stock
(including shares issued upon the exercise of options), or the perception that
such sales occur, could adversely affect prevailing market prices of the Common
Stock. See "Risk Factors--Possible Adverse Effect on Common Stock Price of
Shares Available for Future Sale" and "Partnership Agreement--Transferability of
Interests."

REGISTRATION RIGHTS

The Company has granted the Unit Participants in the Formation Transactions
certain registration rights with respect to the shares of Common Stock owned by
them or acquired by them in connection with the exercise of the
Redemption/Exchange Rights under the Partnership Agreement. These registration
rights require the Company to register all such shares of Common Stock effective
on the first anniversary of the consummation of the IPO. The Company will bear
expenses incident to its registration requirements under the registration
rights, except that such expenses shall not include any underwriting discounts
or commissions or transfer taxes, if any, relating to such shares.

FEDERAL INCOME TAX CONSIDERATIONS

The following summary of material federal income tax considerations
regarding the Company and the Offering is based on current law, is for general
information only and is not tax advice. The information set

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forth below, to the extent that it constitutes matters of law, summaries of
legal matters or legal conclusions, is the opinion of Latham & Watkins, tax
counsel to the Company. This discussion does not purport to deal with all
aspects of taxation that may be relevant to particular stockholders in light of
their personal investment or tax circumstances, or to certain types of
stockholders subject to special treatment under the tax laws, including without
limitation, certain financial institutions, life insurance companies, dealers in
securities or currencies, stockholders holding Common Stock as part of a
conversion transaction, as part of a hedge or hedging transaction, or as a
position in a straddle for tax purposes, tax-exempt organizations (except to the
extent discussed under the heading "Taxation of Tax-Exempt Stockholders") or
foreign corporations or partnerships and persons who are not citizens or
residents of the United States (except to the extent discussed under the heading
"Taxation of Non-U.S. Stockholders"). In addition, the summary below does not
consider the effect of any foreign, state, local or other tax laws that may be
applicable to stockholders.

The information in this section is based on the Code, current, temporary and
proposed Treasury Regulations promulgated thereunder, the legislative history of
the Code, current administrative interpretations and practices of the IRS
(including its practices and policies as expressed in certain private letter
rulings which are not binding on the IRS except with respect to the particular
taxpayer who requests and receives such ruling), and court decisions, all as of
the date hereof. No assurance can be given that future legislation, Treasury
Regulations, administrative interpretations and practices and/or court decisions
will not adversely affect existing interpretations thereof. Any such change
could apply retroactively to transactions preceeding the date of the change. The
Company has not requested, and does not plan to request, any ruling from the IRS
concerning the tax treatment of the Company or the Operating Partnership. Thus,
no assurance can be provided that the statements set forth herein (which are, in
any event, not binding on the IRS or courts) will not be challenged by the IRS
or will be sustained by a court if so challenged.

EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP
AND SALE OF THE COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.

TAXATION OF THE COMPANY

GENERAL. The Company plans to make an election to be taxed as a REIT under
Sections 856 through 860 of the Code, commencing with its taxable year ending
December 31, 1996. The Company believes that, commencing with its taxable year
ending December 31, 1996, it has been organized and operated in such a manner as
to qualify for taxation as a REIT under the Code commencing with such taxable
year, and the Company intends to continue to operate in such a manner, but no
assurance can be given that it will continue to operate in such a manner so as
to qualify or remain qualified.

These sections of the Code and the corresponding Treasury Regulations, are
highly technical and complex. The following sets forth the material aspects of
the sections that govern the federal income tax treatment of a REIT and its
stockholders.

Latham & Watkins has acted as tax counsel to the Company in connection with
the Offering and the Company's election to be taxed as a REIT. In the opinion of
Latham & Watkins, commencing with the Company's taxable year ending December 31,
1996, the Company was organized in conformity with the requirements for
qualification as a REIT, and its proposed method of operation will enable it to
continue to meet the requirements for qualification and taxation as a REIT under
the Code. It must be emphasized that this opinion is based upon certain
representations made by the Company as to factual matters relating to the
organization and operation of the Company and the Operating Partnership. In
addition, this opinion is based upon the factual representations of the Company
concerning its business and properties as set forth in this Prospectus and
assumes that the actions described in this Prospectus are completed in a timely

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fashion. Moreover, such qualification and taxation as a REIT depends upon the
Company's ongoing ability to meet (through actual annual operating results,
distribution levels and diversity of stock ownership) the various qualification
tests imposed under the Code discussed below, the results of which will not be
reviewed by Latham & Watkins. Accordingly, no assurance can be given that the
actual results of the Company's operation for any particular taxable year will
satisfy such requirements. Further, the anticipated income tax treatment
described in this Prospectus may be changed, perhaps retroactively, by
legislative, administrative or judicial action at any time. See "--Failure to
Qualify."

If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a regular corporation. However, the Company will be subject to
federal income tax as follows. First, the Company will be taxed at regular
corporate rates on any undistributed "REIT taxable income," including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax" on its items of tax
preference. Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" (defined generally as property acquired by
the Company through foreclosure or otherwise after a default on a loan secured
by the property or a lease of the property) which is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if the Company has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business
other than foreclosure property), such income will be subject to a 100% tax.
Fifth, if the Company should fail to satisfy the 75% gross income test or the
95% gross income test (as discussed below), but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which the Company fails the 75% or
95% test multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, with respect to any asset (a "Built-In Gain
Asset") acquired by the Company from a corporation which is or has been a C
corporation (I.E., generally a corporation subject to full corporate-level tax)
in a transaction in which the basis of the Built-In Gain Asset in the hands of
the Company is determined by reference to the basis of the asset in the hands of
the C corporation, if the Company recognizes gain on the disposition of such
asset during the ten-year period (the "Recognition Period") beginning on the
date on which such asset was acquired by the Company, then, to the extent of the
Built-In Gain (I.E., the excess of (a) the fair market value of such asset over
(b) the Company's adjusted basis in such asset, determined as of the beginning
of the Recognition Period), such gain will be subject to tax at the highest
regular corporate rate pursuant to Treasury Regulations that have not yet been
promulgated. The results described above with respect to the recognition of
Built-In Gain assume that the Company will make an election pursuant to IRS
Notice 88-19.

REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) which would be
taxable as a domestic corporation, but for Sections 856 through 859 of the Code;
(iv) which is neither a financial institution nor an insurance company subject
to certain provisions of the Code; (v) the beneficial ownership of which is held
by 100 or more persons; (vi) during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities); and (vii) which meets certain other tests,

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described below, regarding the nature of its income and assets. The Code
provides that conditions (i) to (iv), inclusive, must be met during the entire
taxable year and that condition (v) must be met during at least 335 days of a
taxable year of twelve months, or during a proportionate part of a taxable year
of less than twelve months. Conditions (v) and (vi) will not apply until after
the first taxable year for which an election is made to be taxed as a REIT. For
purposes of conditions (v) and (vi), pension funds and certain other tax-exempt
entities are treated as individuals, subject to a "look-through" exception in
the case of condition (vi).

The Company believes that it has issued sufficient shares of Common Stock
with sufficient diversity of ownership to allow it to satisfy conditions (v) and
(vi). In addition, the Company's Charter provides for restrictions regarding the
transfer and ownership of shares, which restrictions are intended to assist the
Company in continuing to satisfy the share ownership requirements described in
(v) and (vi) above. Such ownership and transfer restrictions are described in
"Capital Stock--Restrictions on Transfer." These restrictions, however, may not
ensure that the Company will, in all cases, be able to satisfy the share
ownership requirements described above. If the Company fails to satisfy such
share ownership requirements, the Company's status as a REIT will terminate. See
"--Failure to Qualify." In addition, a corporation may not elect to become a
REIT unless its taxable year is the calendar year. The Company has a calendar
taxable year.

OWNERSHIP OF A PARTNERSHIP INTEREST. In the case of a REIT which is a
partner in a partnership, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the partnership and will
be deemed to be entitled to the income of the partnership attributable to such
share. In addition, the character of the assets and gross income of the
partnership shall retain the same character in the hands of the REIT for
purposes of Section 856 of the Code, including satisfying the gross income tests
and the asset tests. Thus, the Company's proportionate share of the assets and
items of income of the Operating Partnership (including the Operating
Partnership's share of such items of any subsidiary partnerships) will be
treated as assets and items of income of the Company for purposes of applying
the requirements described herein. A summary of the rules governing the federal
income taxation of partnerships and their partners is provided below in "--Tax
Aspects of the Operating Partnership." The Company has direct control of the
Operating Partnership and has and intends to continue to operate it consistent
with the requirements for qualification as a REIT.

INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing). Third, subject to certain exceptions in the year in which the
Company is liquidated, short-term gain from the sale or other disposition of
stock or securities, gain from prohibited transactions and gain on the sale or
other disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Company's gross income (including gross income from prohibited
transactions) for each taxable year. For purposes of applying the 30% gross
income test, the holding period of Properties acquired by the Operating
Partnership in the Formation Transactions is deemed to have commenced on the
date of acquisition.

Rents received by the Company qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents

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received from a tenant will not qualify as "rents from real property" in
satisfying the gross income tests if the REIT, or an actual or constructive
owner of 10% or more of the REIT, actually or constructively owns 10% or more of
such tenant (a "Related Party Tenant"). Third, if rent attributable to personal
property, leased in connection with a lease of real property, is greater than
15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
the REIT generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from whom the REIT derives no revenue. The REIT may, however,
directly perform certain services that are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant" of the property. The Company does not and
will not (i) charge rent for any property that is based in whole or in part on
the income or profits of any person (except by reason of being based on a
percentage of receipts or sales, as described above), (ii) rent any property to
a Related Party Tenant (unless the Board of Directors determines in its
discretion that the rent received from such Related Party Tenant is not material
and will not jeopardize the Company's status as a REIT), (iii) derive rental
income attributable to personal property (other than personal property leased in
connection with the lease of real property, the amount of which is less than 15%
of the total rent received under the lease), or (iv) perform services considered
to be rendered to the occupant of the property, other than through an
independent contractor from whom the Company derives no revenue.

The Company has received since the IPO certain fees in exchange for the
performance of certain management activities for third parties with respect to
properties in which the Company does not own an interest. Such fees will result
in nonqualifying income to the Company under the 95% and 75% gross income tests.
The Company, however, has recently discontinued all management activities with
respect to third party owned properties and believes that the aggregate amount
of its nonqualifying income in any taxable year, including the aforementioned
management fees, will not exceed the limit on nonqualifying income under the
gross income tests.

The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.

If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its federal income tax
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. For example, if the Company fails to satisfy the gross income tests
because nonqualifying income that the Company intentionally incurs exceeds the
limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. If these relief provisions
are inapplicable to a particular set of circumstances involving the Company, the
Company will not qualify as a REIT. As discussed above in "--Taxation of the
Company--General," even if these relief provisions apply, a 100% tax would be
imposed on an amount equal to (a) the gross income attributable to the greater
of the amount by which the Company failed the 75% or 95% test multiplied by (b)
a fraction intended to reflect the Company's profitability, a tax would be
imposed with respect to the excess net income. No similar mitigation provision
provides relief if the Company fails the 30% income test. In such case, the
Company would cease to qualify as a REIT.

Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of business (including the Company's share of any such gain realized by
the Operating Partnership) will be treated as income from a prohibited
transaction

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that is subject to a 100% penalty tax. Such prohibited transaction income may
also have an adverse effect upon the Company's ability to satisfy the income
tests for qualification as a REIT. Under existing law, whether property is held
as inventory or primarily for sale to customers in the ordinary course of a
trade or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Operating
Partnership intends to hold the Properties for investment with a view to long-
term appreciation, to engage in the business of acquiring, developing, owning,
and operating the Properties (and other properties) and to make such occasional
sales of the Properties as are consistent with the Operating Partnership's
investment objectives. There can be no assurance, however, that the IRS might
not contend that one or more of such sales is subject to the 100% penalty tax.

ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets (including its allocable
share of the assets held by the Operating Partnership) must be represented by
real estate assets including (i) its allocable share of real estate assets held
by partnerships in which the Company owns an interest and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company,
cash, cash items and government securities. Second, not more than 25% of the
Company's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Company may not exceed 5% of
the value of the Company's total assets and the Company may not own more than
10% of any one issuer's outstanding voting securities.

After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter (including as a result of the
Company increasing its interest in the Operating Partnership), the failure can
be cured by disposition of sufficient nonqualifying assets within 30 days after
the close of that quarter. The Company has and intends to continue to maintain
adequate records of the value of its assets in order to ensure compliance with
the asset tests and to take such other actions within 30 days after the close of
any quarter as may be required to cure any noncompliance. If the Company fails
to cure noncompliance with the asset tests within such time period, the Company
would cease to qualify as a REIT.

ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (i) the sum of (a) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (b) 95% of the excess of the
net income, if any, from foreclosure property over the tax imposed on such
income, minus (ii) the excess of the sum of certain items of noncash income
(I.E., income attributable to leveled stepped rents, original issue discount or
purchase money debt, or a like-kind exchange that is later determined to be
taxable) over 5% of the "REIT taxable income" as described in clause (i)(a)
above. In addition, if the Company disposes of any Built-In Gain Asset during
its Recognition Period, the Company will be required, pursuant to Treasury
Regulations which have not yet been promulgated, to distribute at least 95% of
the Built-in Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year if declared before the Company timely files its
tax return for such year and if paid on or before the first regular dividend
payment after such declaration. To the extent that the Company does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its "REIT taxable income," as adjusted, it will be subject to tax
thereon at regular ordinary and capital gain corporate tax rates. The Company
believes that it has and intends to continue to make timely distributions
sufficient to satisfy these annual distribution requirements. In this regard,
the Partnership Agreement authorizes the Company, as general partner, to take
such steps as may be necessary to cause the Operating Partnership to distribute
to its partners an amount sufficient to permit the Company to meet these
distribution requirements.

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The Company's REIT taxable income has been and is expected to continue to be
less than its cash flow due to the allowance of depreciation and other non-cash
charges in computing REIT taxable income. Accordingly, the Company anticipates
that it will generally have sufficient cash or liquid assets to enable it to
satisfy the distribution requirements described above. It is possible, however,
that the Company, from time to time, may not have sufficient cash or other
liquid assets to meet these distribution requirements due to timing differences
between (i) the actual receipt of income and actual payment of deductible
expenses and (ii) the inclusion of such income and deduction of such expenses in
arriving at taxable income of the Company. In the event that such timing
differences occur, in order to meet the distribution requirements, the Company
may find it necessary to arrange for short-term, or possibly long-term,
borrowings or to pay dividends in the form of taxable stock dividends.

Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in the Company's deduction
for dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Company
will be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.

Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, the Company would be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed.

FAILURE TO QUALIFY

If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. As a result, the Company's failure to qualify as a REIT
would significantly reduce the cash available for distribution by the Company to
its stockholders. In addition, if the Company fails to qualify as a REIT, all
distributions to stockholders will be taxable as ordinary income, to the extent
of the Company's current and accumulated earnings and profits, and, subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Company will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief. In addition, a recent federal budget proposal
contains language which, if enacted in its present form, would result in the
immediate taxation of all gain inherent in a C corporation's assets upon an
election by such corporation to become a REIT for taxable years beginning after
January 1, 1998, which could effectively preclude the Company from re-electing
REIT status following a termination of its REIT qualification.

TAXATION OF TAXABLE U.S. STOCKHOLDERS GENERALLY

As used herein, the term "U.S. Stockholder" means a holder of shares of
Common Stock who (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership, or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, or (iii) is an estate or trust the income
of which is subject to United States federal income taxation regardless of its
source.

As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
taxable U.S. Stockholders as ordinary income. Such distributions will not be
eligible for the dividends received deduction otherwise available with respect
to dividends received by U.S. Stockholders

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that are corporations. Distributions made by the Company that are properly
designated by the Company as capital gain dividends will be taxable to taxable
U.S. Stockholders as long-term capital gains (to the extent that they do not
exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which a U.S. Stockholder has held his or her shares of
Common Stock. U.S. Stockholders that are corporations may, however, be required
to treat up to 20% of certain capital gain dividends as ordinary income. To the
extent that the Company makes distributions (not designated as capital gain
dividends) in excess of its current and accumulated earnings and profits, such
distributions will be treated first as a tax-free return of capital to each U.S.
Stockholder, reducing the adjusted basis which such U.S. Stockholder has in his
or her shares of Common Stock for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of a U.S.
Stockholder's adjusted basis in his or her shares taxable as capital gains
(provided that the shares have been held as a capital asset). Dividends declared
by the Company in October, November, or December of any year and payable to a
stockholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by the Company on or before
January 31 of the following calendar year. Stockholders may not include in their
own income tax returns any net operating losses or capital losses of the
Company.

Distributions made by the Company and gain arising from the sale or exchange
by a U.S. Stockholder of shares of Common Stock will not be treated as passive
activity income, and, as a result, U.S. Stockholders generally will not be able
to apply any "passive losses" against such income or gain. Distributions made by
the Company (to the extent they do not constitute a return of capital) generally
will be treated as investment income for purposes of computing the investment
income limitation. Gain arising from the sale or other disposition of Common
Stock, however, will not be treated as investment income unless the U.S.
Stockholder elects to reduce the amount of such U.S. Stockholder's total net
capital gain eligible for the 28% maximum capital gains rate by the amount of
such gain with respect to such Common Stock.

Upon any sale or other disposition of Common Stock, a U.S. Stockholder will
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition and (ii) the holder's
adjusted basis in such shares of Common Stock for tax purposes. Such gain or
loss will be capital gain or loss if the shares have been held by the U.S.
Stockholder as a capital asset, and will be long-term gain or loss if such
shares have been held for more than one year. In general, any loss recognized by
a U.S. Stockholder upon the sale or other disposition of shares of Common Stock
that have been held for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss, to the extent of
distributions received by such U.S. Stockholder from the Company which were
required to be treated as long-term capital gains.

BACKUP WITHHOLDING

The Company will report to its U.S. Stockholders and the IRS the amount of
dividends paid during each calendar year and the amount of tax withheld, if any.
Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such holder
(a) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding rules.
A U.S. Stockholder that does not provide the Company with his correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions to any stockholders who fail to certify
their non-foreign status to the Company. See "--Taxation of Non-U.S.
Stockholders."

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TAXATION OF TAX-EXEMPT STOCKHOLDERS

The IRS has ruled that amounts distributed as dividends by a qualified REIT
do not constitute unrelated business taxable income ("UBTI") when received by a
tax-exempt entity. Based on that ruling, provided that a tax-exempt stockholder
(except certain tax-exempt stockholders described below) has not held its shares
of Common Stock as "debt financed property" within the meaning of the Code
(generally, shares of Common Stock, the acquisition of which was financed
through a borrowing by the tax exempt stockholder) and such shares are not
otherwise used in a trade or business, the dividend income from the Company will
not be UBTI to a tax-exempt stockholder. Similarly, income from the sale of
Common Stock will not constitute UBTI unless such tax-exempt stockholder has
held such shares as "debt financed property" within the meaning of the Code or
has used the shares in a trade or business.

For tax-exempt stockholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Code
Sections 501 (c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their own tax advisors concerning these
"set aside" and reserve requirements.

Notwithstanding the above, however, the Omnibus Budget Reconciliation Act of
1993 (the "1993 Act") provides that, effective for taxable years beginning in
1994, a portion of the dividends paid by a "pension held REIT" shall be treated
as UBTI as to any trust which (i) is described in Section 401(a) of the Code,
(ii) is tax-exempt under Section 501(a) of the Code, and (iii) holds more than
10% (by value) of the interests in the REIT. Tax-exempt pension funds that are
described in Section 401(a) of the Code are referred to below as "qualified
trusts."

A REIT is a "pension held REIT" if (i) it would not have qualified as a REIT
but for the fact that Section 856(h)(3) of the Code (added by the 1993 Act)
provides that stock owned by qualified trusts shall be treated, for purposes of
the "not closely held" requirement, as owned by the beneficiaries of the trust
(rather than by the trust itself), AND (ii) EITHER (a) at least one such
qualified trust holds more than 25% (by value) of the interests in the REIT, or
(b) one or more such qualified trusts, each of which owns more than 10% (by
value) of the interests in the REIT, hold in the aggregate more than 50% (by
value) of the interests in the REIT. The percentage of any REIT dividend treated
as UBTI is equal to the ratio of (i) the UBTI earned by the REIT (treating the
REIT as if it were a qualified trust and therefore subject to tax on UBTI) to
(ii) the total gross income of the REIT. A DE MINIMIS exception applies if the
percentage is less than 5% for any year. The provisions requiring qualified
trusts to treat a portion of REIT distributions as UBTI will not apply if the
REIT is able to satisfy the "not closely held" requirement without relying upon
the "look-through" exception with respect to qualified trusts. As a result of
certain limitations on transfer and ownership of Common Stock contained in the
Charter, the Company is not now, and does not in the future expect to be
classified as a "pension held REIT."

TAXATION OF NON-U.S. STOCKHOLDERS

The rules governing United States federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Stockholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United States
federal income tax and does not address state, local or foreign tax consequences
that may be relevant to a Non-U.S. Stockholder in light of its particular
circumstances including, for example, if the investment in the Company is
connected to the conduct by a Non-U.S. Stockholder of a U.S. trade or business.
In addition, this discussion is based on current law, which is subject to
change, and assumes that the Company qualifies for taxation as a REIT.
Prospective Non-U.S.

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Stockholders should consult with their own tax advisers to determine the impact
of federal, state, local and foreign income tax laws with regard to an
investment in Common Stock, including any reporting requirements.

DISTRIBUTIONS. Distributions by the Company to a Non-U.S. Stockholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor designated by the Company as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of current or accumulated earnings and profits of the
Company. Such distributions ordinarily will be subject to withholding of United
States federal income tax on a gross basis (that is, without allowance for
deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are treated as effectively
connected with the conduct by the Non-U.S. Stockholder of a United States trade
or business. Dividends that are effectively connected with such a trade or
business will be subject to tax on a net basis (that is, after allowance for
deductions) at graduated rates, in the same manner as domestic stockholders are
taxed with respect to such dividends and are generally not subject to
withholding. Any such dividends received by a Non-U.S. Stockholder that is a
corporation may also be subject to an additional branch profits tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.

Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury Regulations, not currently in effect, however, a Non-U.S.
Stockholder who wished to claim the benefit of an applicable treaty rate would
be required to satisfy certain certification and other requirements. Under
certain treaties, lower withholding rates generally applicable to dividends do
not apply to dividends from a REIT, such as the Company. Certain certification
and disclosure requirements must be satisfied to be exempt from withholding
under the effectively connected income exemption discussed above. The Company
has and expects to continue to withhold United States federal income tax at the
rate of 30% on the gross amount of any dividend paid to a Non-U.S. Stockholder
unless (i) a lower treaty rate applies and the required form evidencing
eligibility for that reduced rate is filed with the Company, or (ii) the
Non-U.S. Stockholder files an IRS Form 4224 with the Company claiming that the
dividend is "effectively connected" income.

Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Stockholder to the extent that
they do not exceed the adjusted basis of the stockholders's Common Stock, but
rather will reduce the adjusted basis of such stock. For FIRPTA withholding
purposes (discussed below), such distributions (I.E., distributions that are not
made out of earnings and profits) will be treated as consideration for the sale
or exchange of shares of Common Stock or Preferred Stock. To the extent that
such distributions exceed the adjusted basis of a Non-U.S. Stockholder's Common
Stock, they will give rise to gain from the sale or exchange of his or her
stock, the tax treatment of which is described below. As a result of a
legislative change made by the Small Business Job Protection Act of 1996, it
appears that the Company will be required to withhold 10% of any distribution in
excess of the Company's current and accumulated earnings and profits.
Consequently, although the Company intends to withhold at a rate of 30% on the
entire amount of any distribution (or a lower applicable treaty rate), to the
extent that the Company does not do so, any portion of a distribution not
otherwise subject to withholding at a rate of 30% (or a lower applicable treaty
rate) will be subject to withholding at a rate of 10%. However, amounts thus
withheld are generally refundable by the IRS if it is subsequently determined
that such distribution was, in fact, in excess of current or accumulated
earnings and profits of the Company.

Distributions to a Non-U.S. Stockholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those arising
from the disposition of a United States real property interest) generally will
not be subject to United States federal income taxation, unless (i) investment
in the Common Stock is effectively connected with the Non-U.S. Stockholder's
United

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States trade or business, in which case the Non-U.S. Stockholder will be subject
to the same treatment as domestic stockholders with respect to such gain (except
that a stockholder that is a foreign corporation may also be subject to the 30%
branch profits tax, as discussed above), or (ii) the Non-U.S. Stockholder is a
nonresident alien individual who is present in the United States for 183 days or
more during the taxable year and has a "tax home" in the United States, in which
case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains.

Distributions to a Non-U.S. Stockholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
cause the Non-U.S. Stockholder to be treated as recognizing such gain as income
effectively connected with a United States trade or business. A Non-U.S.
Stockholder would thus generally be entitled to offset its gross income by
allowable deductions and would pay tax on the resulting taxable income at the
same rates applicable to domestic stockholders (subject to a special alternative
minimum tax in the case of nonresident alien individuals). Also, such gain may
be subject to a 30% branch profits tax in the hands of a Non-U.S. Stockholder
that is a corporation and is not entitled to treaty relief or exemption, as
discussed above. The Company is required to withhold 35% of any such
distribution. That amount is creditable against the Non-U.S. Stockholder's
United States federal income tax liability. To the extent that such withholding
exceeds the actual tax owed by the Non-U.S. Stockholder, the Non-U.S.
Stockholder may claim a refund from the IRS.

The Company or any nominee (E.G., a broker holding shares in street name)
may rely on a certificate of non-foreign status on Form W-8 or Form W-9 to
determine whether withholding is required on gains realized from the disposition
of United States real property interests. A domestic person who holds shares of
Common Stock or Preferred Stock on behalf of a Non-U.S. Stockholder will
generally bear the burden of withholding, unless the Company has properly
designated the appropriate portion of a distribution as a capital gain dividend.

SALE OF COMMON STOCK. Gain recognized by a Non-U.S. Stockholder upon the
sale or exchange of shares of Common Stock generally will not be subject to
United States taxation unless such shares constitute a "United States real
property interest" within the meaning of the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA"). The Common Stock will not constitute a "United
States real property interest" so long as the Company is a "domestically
controlled REIT." A "domestically controlled REIT" is a REIT in which at all
times during a specified testing period less than 50% in value of its stock is
held directly or indirectly by Non-U.S. Stockholders. The Company believes that
it is a "domestically controlled REIT," and therefore that the sale of shares of
Common Stock will not be subject to taxation under FIRPTA. However, because the
shares of Common Stock will be publicly traded, no assurance can be given that
the Company will continue to be a "domestically-controlled REIT."
Notwithstanding the foregoing, gain from the sale or exchange of shares of
Common Stock not otherwise subject to FIRPTA will be taxable to a Non-U.S.
Stockholder if (i) the Non-U.S. Stockholder is a nonresident alien individual
who is present in the United States for 183 days or more during the taxable year
and has a "tax home" in the United States, which nonresident alien individual
will be subject to a 30% United States withholding tax on the amount of such
individual's gain, or (ii) the investment in Common Stock is effectively
connected with the Non-U.S. Stockholder's United States trade or business, in
which case the Non-U.S. Stockholder will be subject to the same treatment as
domestic holders (except that a 30% branch profits tax may also apply as
described above).

If the Company does not qualify as or ceases to be a
"domestically-controlled REIT," gain arising from the sale or exchange by a
Non-U.S. Stockholder of shares of Common Stock would be subject to United States
taxation under FIRPTA as a sale of a "United States real property interest"
unless the shares are "regularly traded" (as defined by applicable Treasury
Regulations) on an established securities market (E.G., the New York Stock
Exchange) and the selling Non-U.S. Stockholder held no more than 5% (after
applying certain constructive ownership rules) of the shares of Common Stock
during the shorter of (i) the period during which the taxpayer held such shares,
or (ii) the 5-year period ending on the date of the disposition of such shares.
If gain on the sale or exchange of shares of Common Stock were subject to

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taxation under FIRPTA, the Non-U.S. Stockholder would be subject to regular
United States income tax with respect to such gain in the same manner as a U.S.
Stockholder (subject to any applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals and the
possible application of the 30% branch profits tax in the case of foreign
corporations), and the purchaser of the stock would be required to withhold and
remit to the IRS 10% of the purchase price.

BACKUP WITHHOLDING TAX AND INFORMATION REPORTING. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Stockholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Common Stock by or through a foreign office of a foreign
broker. Information reporting (but not backup withholding) will apply, however,
to a payment of the proceeds of a sale of Common Stock by a foreign office of a
broker that (a) is a United States person, (b) derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the United
States or (c) is a "controlled foreign corporation" (generally, a foreign
corporation controlled by United States stockholders) for United States tax
purposes, unless the broker has documentary evidence in its records that the
holder is a Non-U.S. Stockholder and certain other conditions are met, or the
stockholder otherwise establishes an exemption. Payment to or through a United
States office of a broker of the proceeds of a sale of Common Stock is subject
to both backup withholding and information reporting unless the stockholder
certifies under penalty of perjury that the stockholder is a Non-U.S.
Stockholder, or otherwise establishes an exemption. A Non-U.S. Stockholder may
obtain a refund of any amounts withheld under the backup withholding rules by
filing the appropriate claim for refund with the IRS.

The United States Treasury has recently issued proposed regulations
regarding the withholding and information reporting rules discussed above. In
general, the proposed regulations do not alter the substantive withholding and
information reporting requirements but unify current certification procedures
and forms and clarify and modify reliance standards. If finalized in their
current form, the proposed regulations would generally be effective for payments
made after December 31, 1997, subject to certain transition rules.

TAX ASPECTS OF THE OPERATING PARTNERSHIP

GENERAL. Substantially all of the Company's investments are held indirectly
through the Operating Partnership. In general, partnerships are "pass-through"
entities which are not subject to federal income tax. Rather, partners are
allocated their proportionate shares of the items of income, gain, loss,
deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Company will include in its income its proportionate share of
the foregoing partnership items for purposes of the various REIT income tests
and in the computation of its REIT taxable income. Moreover, for purposes of the
REIT asset tests, the Company will include its proportionate share of assets
held by the Operating Partnership. See "--Taxation of the Company."

ENTITY CLASSIFICATION. The Company's interest in the Operating Partnership
involves special tax considerations, including the possibility of a challenge by
the IRS of the status of the Operating Partnership as a partnership (as opposed
to an association taxable as a corporation) for federal income tax purposes. If
the Operating Partnership were treated as an association, it would be taxable as
a corporation and therefore be subject to an entity-level tax on its income. In
such a situation, the character of the Company's assets and items of gross
income would change and preclude the Company from satisfying the asset tests and
possibly the income tests (see "--Taxation of the Company--Asset Tests" and
"--Income

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Tests"), and in turn would prevent the Company from qualifying as a REIT. See
"--Taxation of the Company--Failure to Qualify" above for a discussion of the
effect of the Company's failure to meet such tests for a taxable year. In
addition, a change in the Operating Partnership's status for tax purposes might
be treated as a taxable event in which case the Company might incur a tax
liability without any related cash distributions.

Prior to January 1, 1997, an organization formed as a partnership or a
limited liability company was treated as a partnership for Federal income tax
purposes rather than as a corporation only if it had no more than two of the
four corporate characteristics that the Treasury Regulations in effect at that
time used to distinguish a partnership from a corporation for tax purposes.
These four characteristics were (i) continuity of life, (ii) centralization of
management, (iii) limited liability and (iv) free transferability of interests.
Under final Treasury Regulations which became effective January 1, 1997, the
four factor test has been eliminated and an entity formed as a partnership or as
a limited liability company will be taxed as a partnership for Federal income
tax purposes unless it specifically elects otherwise. These newly promulgated
Treasury Regulations provide that the IRS will not challenge the classification
of an existing partnership or limited liability company for tax periods prior to
January 1, 1997, so long as (a) the entity had a reasonable basis for its
claimed classification, (b) the entity and all its members recognized the
federal income tax consequences of any changes in the entity's classification
within the 60 months prior to January 1, 1997, and (c) neither the entity nor
any member of the entity had been notified in writing on or before May 8, 1996,
that the classification of the entity was under examination by the IRS. Unless
it elects otherwise, a domestic business entity not otherwise classified as a
corporation, which has at least two members and was in existence prior to
January 1, 1997, will have the same classification for federal income tax
purposes that it claimed under the Treasury Regulations in effect prior to that
date. The Operating Partnership intends to claim classification as a partnership
for its taxable year ending December 31, 1996.

PARTNERSHIP ALLOCATIONS. Although a partnership agreement will generally
determine the allocation of income and loss among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder. Generally, Section 704(b) and the Treasury Regulations promulgated
thereunder require that partnership allocations respect the economic arrangement
of the partners.

If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The Operating Partnership's allocations of
taxable income and loss are intended to comply with the requirements of Section
704(b) of the Code and the Treasury Regulations promulgated thereunder.

The Partnership Agreement provides that net income or net loss of the
Operating Partnership will generally be allocated to the Company and the Limited
Partners in accordance with their respective percentage interests in the
Operating Partnership. Notwithstanding the foregoing, such agreement provides
that certain interest deductions and income from the discharge of certain
indebtedness of the Operating Partnership, attributable to loans transferred to
the Operating Partnership by certain Arden Predecessors, will be allocated
disproportionately to the Limited Partners. In addition, allocations of net
income or net loss will be subject to compliance with the provisions of Sections
704(b) and 704(c) of the Code and the Treasury Regulations promulgated
thereunder.

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TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property (such as the Properties) that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of contributed property at the time of contribution and the adjusted tax
basis of such property at such time (a "Book-Tax Difference"). Such allocations
are solely for federal income tax purposes and do not affect the book capital
accounts or other economic or legal arrangements among the partners. The
Operating Partnership was formed by way of contributions of appreciated property
(including the Properties). Consequently, the Partnership Agreement requires
that such allocations be made in a manner consistent with Section 704(c) of the
Code.

In general, the Limited Partners of the Operating Partnership are allocated
depreciation deductions for tax purposes which are lower than such deductions
would be if determined on a pro rata basis. In addition, in the event of the
disposition of any of the contributed assets which have a Book-Tax Difference,
all income attributable to such Book-Tax Difference will generally be allocated
to such limited partners, and the Company will generally be allocated only its
share of capital gains attributable to appreciation, if any, occurring after the
closing of the Formation Transactions. This will tend to eliminate the Book-Tax
Difference over the life of the Operating Partnership. However, the special
allocation rules of Section 704(c) do not always entirely eliminate the Book-Tax
Difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Thus, the carryover basis of the contributed assets in the hands
the Operating Partnership may cause the Company to be allocated lower
depreciation and other deductions, and possibly an amount of taxable income in
the event of a sale of such contributed assets in excess of the economic or book
income allocated to it as a result of such sale. This may cause the Company to
recognize taxable income in excess of cash proceeds, which might adversely
affect the Company's ability to comply with the REIT distribution requirements.
See "--Taxation of the Company--Annual Distribution Requirements."

Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for Book-Tax Differences,
including retention of the "traditional method" or the election of certain
methods which would permit any distortions caused by a Book-Tax Difference to be
entirely rectified on an annual basis or with respect to a specific taxable
transaction such as a sale. The Operating Partnership and the Company have
elected to account for Book-Tax Differences with respect to the Properties
initially contributed to the Operating Partnership using the "traditional
method."

With respect to any property purchased by the Operating Partnership
subsequent to the admission of the Company to the Operating Partnership, such
property will initially have a tax basis equal to its fair market value, and
Section 704(c) of the Code will not apply.

BASIS IN OPERATING PARTNERSHIP INTEREST. The Company's adjusted tax basis
in its interest in the Operating Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the Operating
Partnership by the Company, (ii) will be increased by (a) its allocable share of
the Operating Partnership's income and (b) its allocable share of indebtedness
of the Operating Partnership and (iii) will be reduced, but not below zero, by
the Company's allocable share of (a) losses suffered by the Operating
Partnership, (b) the amount of cash distributed to the Company and (c) by
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Operating Partnership.

If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has adjusted tax
basis in its interest in the Operating Partnership. To the extent that the
Operating Partnership's distributions, or

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any decrease in the Company's share of the indebtedness of the Operating
Partnership (such decreases being considered a constructive cash distribution to
the partners), exceeds the Company's adjusted tax basis, such excess
distributions (including such constructive distributions) constitute taxable
income to the Company. Such taxable income will normally be characterized as a
capital gain, and if the Company's interest in the Operating Partnership has
been held for longer than the long-term capital gain holding period (currently
one year), such distributions and constructive distributions will constitute
long-term capital gain.

OTHER TAX CONSIDERATIONS

The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.

ERISA CONSIDERATIONS

THE FOLLOWING IS A SUMMARY OF MATERIAL CONSIDERATIONS ARISING UNDER THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT, AS AMENDED ("ERISA") AND THE PROHIBITED
TRANSACTIONS PROVISIONS OF SECTION 4975 OF THE CODE THAT MAY BE RELEVANT TO A
PROSPECTIVE PURCHASER (INCLUDING A PROSPECTIVE PURCHASER THAT IS AN EMPLOYEE
BENEFIT PLAN SUBJECT TO ERISA, ANOTHER TAX-QUALIFIED PENSION, PROFIT SHARING OR
STOCK BONUS PLAN, AN INDIVIDUAL RETIREMENT ACCOUNT OR ANNUITY ("IRA") OR A
MEDICAL SAVINGS ACCOUNT (A "MSA"). THE DISCUSSION DOES NOT PURPORT TO DEAL WITH
ALL ASPECTS OF ERISA OR SECTION 4975 OF THE CODE THAT MAY BE RELEVANT TO
PARTICULAR PROSPECTIVE PURCHASERS (INCLUDING EMPLOYEE BENEFIT PLANS SUBJECT TO
ERISA, OTHER TAX-QUALIFIED PLANS AND IRAS) OR MATERIAL CONSIDERATIONS RELATING
TO PROSPECTIVE PURCHASERS THAT ARE GOVERNMENTAL PLANS, CHURCH PLANS OR OTHER
EMPLOYEE BENEFIT PLANS THAT ARE EXEMPT FROM ERISA OR SECTION 4975 OF THE CODE
BUT THAT MAY BE SUBJECT TO STATE LAW REQUIREMENTS IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES.

A FIDUCIARY MAKING THE DECISION TO INVEST IN SHARES OF THE COMMON STOCK ON
BEHALF OF A PROSPECTIVE PURCHASER WHICH IS AN EMPLOYEE BENEFIT PLAN SUBJECT TO
ERISA, A TAX-QUALIFIED PENSION, PROFIT SHARING OR STOCK BONUS PLAN, AN IRA, A
MSA, A CHURCH PLAN OR A GOVERNMENTAL PLAN IS ADVISED TO CONSULT ITS OWN LEGAL
ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975
OF THE CODE, AND STATE AND OTHER LAWS WITH RESPECT TO THE PURCHASE, OWNERSHIP,
OR SALE OF SHARES OF THE COMMON STOCK BY SUCH PLAN, IRA OR MSA.

EMPLOYMENT BENEFIT PLANS, TAX-QUALIFIED PENSION, PROFIT SHARING OR STOCK BONUS
PLANS AND IRAS

Each fiduciary of an employee benefit plan subject to ERISA (an "ERISA
Plan") should carefully consider whether an investment in the Common Stock is
consistent with its fiduciary responsibilities under ERISA. In particular, the
fiduciary requirements of Part 4 of Title I of ERISA require an ERISA Plan's
investments to be (i) prudent and in the interests of the participants and
beneficiaries of the ERISA Plan, (ii) diversified in order to minimize the risk
of large losses, unless it is clearly prudent not to do so and (iii) authorized
under the terms of the governing documents of the ERISA Plan. In addition, a
fiduciary of an ERISA Plan should not cause, or permit, the ERISA Plan to enter
into transactions prohibited under Section 406 of ERISA or Section 4975 of the
Code. In determining whether an investment in the Common Stock is prudent for
purposes of ERISA, the appropriate fiduciary of an ERISA Plan should consider
all of the facts and circumstances, including whether the investment is
reasonably designed, as a part of the ERISA Plan's investment portfolio for
which the fiduciary has responsibility, to meet the objectives of the ERISA
Plan, taking into consideration the risk of loss and opportunity for gain (or
other return) from the investment, the diversification, cash flow and funding
requirements of the ERISA Plan, and the liquidity and current return of the
ERISA Plan's investment portfolio. A fiduciary should also take into account the

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nature of the Company's business, the length of the Company's operating history,
the terms of the Management Agreements, the fact that certain investment
properties may not have been identified yet, other matters described under "Risk
Factors" and the possibility of UBTI. See "Federal Income Tax
Considerations--Taxation of Tax-Exempt Stockholders."

The fiduciary of an ERISA Plan, or an IRA, a MSA or a qualified pension,
profit sharing or stock bonus plan not subject to ERISA, that is subject to
Section 4975 of the Code ("Other Plans") should ensure that the purchase of
Common Stock will not constitute a prohibited transaction under Section 4975 of
the Code.

STATUS OF THE COMPANY AND THE OPERATING PARTNERSHIP UNDER ERISA

THE FOLLOWING SECTION DISCUSSES CERTAIN PRINCIPLES THAT APPLY IN DETERMINING
WHETHER THE FIDUCIARY REQUIREMENTS OF ERISA AND THE PROHIBITED TRANSACTION
PROVISIONS OF ERISA AND THE CODE APPLY TO AN ENTITY BECAUSE ONE OR MORE
INVESTORS IN THE ENTITY'S EQUITY INTERESTS IS AN ERISA PLAN, AN OTHER PLAN OR
ANOTHER EMPLOYEE BENEFIT PLAN. AN ERISA PLAN FIDUCIARY SHOULD ALSO CONSIDER THE
RELEVANCE OF THESE PRINCIPLES TO ERISA'S PROHIBITION ON IMPROPER DELEGATION OF
CONTROL OVER OR RESPONSIBILITY FOR "PLAN ASSETS" AND ERISA'S IMPOSITION OF
CO-FIDUCIARY LIABILITY ON A FIDUCIARY WHO PARTICIPATES IN, PERMITS (BY ACTION OR
INACTION) THE OCCURRENCE OF, OR FAILS TO REMEDY A KNOWN BREACH BY ANOTHER
FIDUCIARY.

If the assets of the Company are deemed to be assets of an ERISA Plan or
Other Plan ("plan assets"), (i) the prudence standards and other provisions of
Part 4 of Title I of ERISA and the prohibited transaction provisions of ERISA
and the Code would be applicable to any transactions involving the Company's
assets and (ii) persons who exercise any authority or control over the Company's
assets, or who provide investment advice to the Company, would be (for purposes
of ERISA and the Code) fiduciaries of ERISA Plans and Other Plans that acquire
Common Stock. The Department of Labor (the "DOL"), which has certain
administrative responsibility over ERISA Plans and Other Plans, has issued a
regulation defining plan assets for certain purposes (the "DOL Regulation"). The
DOL Regulation generally provides that when an ERISA Plan or Other Plan acquires
a security that is an equity interest in an entity and that security is neither
a "publicly-offered security" nor a security issued by an investment company
registered under the 1940 Act, the assets of the ERISA Plan or Other Plan
include both the equity interest and an undivided interest in each of the
underlying assets of the entity, unless it is established either that the entity
is an "operating company" (as defined in the DOL Regulation) or that equity
participation in the entity by "benefit plan investors" is not "significant."

The DOL Regulation defines a "publicly-offered security" as a security that
is "widely held," "freely transferable" and either part of a class of securities
registered under the Exchange Act, or sold pursuant to an effective registration
statement under the Securities Act (provided the securities are registered under
the Exchange Act within 120 days, or such later time as may be allowed by the
SEC (the "registration period"), after the end of the fiscal year of the issuer
during which the offering occurred). The Common Stock is being sold in an
offering registered under the Securities Act and the Company intends to register
the Common Stock under the Exchange Act within the registration period.

The DOL Regulation provides that a security is "widely-held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. A security will not fail to be "widely held"
because the number of independent investors falls below 100 subsequent to the
Offering as a result of events beyond the issuer's control. The Company expects
the Common Stock to be "widely held" upon completion of the Offering.

The DOL Regulation provides that whether a security is "freely transferable"
is a factual question to be determined on the basis of all relevant facts and
circumstances. The DOL Regulation further provides that where a security is part
of an offering in which the minimum investment is $10,000 or less, certain
restrictions ordinarily will not, alone or in combination, affect a finding that
such securities are "freely transferable." The Offering will not impose a
minimum investment requirement. The restrictions on

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transfer enumerated in the DOL Regulation as ordinarily not affecting a finding
that the securities are "freely transferable" include: (i) any restriction on or
prohibition against any transfer or assignment that would result in a
termination or reclassification of the Company for federal or state tax
purposes, or that would otherwise violate any state or federal law or court
order, (ii) any requirement that advance notice of a transfer or assignment be
given to the Company, (iii) any requirement that either the transferor or
transferee, or both, execute documentation setting forth representations as to
compliance with any restrictions on transfer that are among those enumerated in
the DOL Regulation as not affecting free transferability, (iv) any
administrative procedure that establishes an effective date, or an event prior
to which a transfer or assignment will not be effective, (v) any prohibition
against transfer or assignment to an ineligible or unsuitable investor, and (vi)
any limitation or restriction on transfer or assignment that is not imposed by
the issuer or a person acting on behalf of the issuer. The Company believes that
the restrictions imposed under the Charter on the transfer of Common Stock are
of the type of restrictions on transfer generally permitted under the DOL
Regulation or are not otherwise material and should not result in the failure of
the Common Stock to be "freely transferable" within the meaning of the DOL
Regulation. See "Capital Stock--Restrictions on Transfer." The Company also
believes that certain restrictions on transfer that derive from the securities
laws, from contractual arrangements with the Underwriters in connection with the
Offering and from certain provisions of Maryland law should not result in the
failure of the Common Stock to be "freely transferable." See "Underwriting" and
"Certain Provisions of Maryland Law and the Company's Charter and Bylaws."
Furthermore, the Company is not aware of any other facts or circumstances
limiting the transferability of the Common Stock that are not included among
those enumerated as not affecting their free transferability under the DOL
Regulation, and the Company does not expect to impose in the future (or to
permit any person to impose on its behalf) any other limitations or restrictions
on transfer that would not be among the enumerated permissible limitations or
restrictions.

Assuming that the Company registers the Common Stock under the Exchange Act
within the registration period, the Common Stock will be "widely held" and that
no facts and circumstances other than those referred to in the preceding
paragraph exist that restrict transferability of the Common Stock, the Company
believes that, under the DOL Regulation, the Common Stock should be
"publicly-offered securities" and, therefore, that the assets of the Company
should not be deemed to be plan assets of any ERISA Plan or Other Plan that
invests in the Common Stock.

The DOL Regulation will also apply in determining whether the assets of the
Operating Partnership will be deemed to be plan assets. The partnership
interests in the Operating Partnership will not be publicly offered securities.
Nevertheless, if the Common Stock constitutes publicly offered securities, the
Company believes that the indirect investment in the Operating Partnership by
ERISA Plans or Other Plans through their ownership of the Common Stock will not
cause the assets of the Operating Partnership to be treated as plan assets.

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UNDERWRITING

The underwriters of the Offering (the "Underwriters"), for whom Lehman
Brothers Inc. ("Lehman"), Alex. Brown & Sons Incorporated, A.G. Edwards & Sons,
Inc., Morgan Stanley & Co. Incorporated, Smith Barney Inc., EVEREN Securities,
Inc. and Raymond James & Associates, Inc. are acting as representatives (the
"Representatives"), have severally agreed, subject to the conditions contained
in the Underwriting Agreement (the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part), to purchase from
the Company and the Company has agreed to sell to each Underwriter, the
aggregate number of shares of Common Stock set forth opposite the name of each
such Underwriter.

<TABLE>
<CAPTION>
UNDERWRITER SHARES
- ------------------------------------------------------------------------------- -------------
<S> <C>
Lehman Brothers Inc............................................................
Alex. Brown & Sons Incorporated................................................
A.G. Edwards & Sons, Inc.......................................................
Morgan Stanley & Co. Incorporated..............................................
Smith Barney Inc...............................................................
EVEREN Securities, Inc.........................................................
Raymond James & Associates, Inc................................................
-------------
Total...................................................................... 10,000,000
-------------
-------------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to certain
conditions, and that if any of the shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, all of the shares agreed to
be purchased by the Underwriters under the Underwriting Agreement must be so
purchased.

The Company has been advised that the Underwriters propose to offer shares
of Common Stock directly to the public initially at the public offering price
set forth on the cover page of this Prospectus, and to certain selected dealers
who may include the Underwriters at such public offering price less a selling
concession not in excess of $ per share. The selected dealers may reallow a
concession not in excess of $ per share to certain brokers or dealers.
After the Offering, the public offering price, the concession to selected
dealers, and the reallowance may be changed by the Representatives.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
the payments they may be required to make in respect thereto.

The Company has granted to the Underwriters an option to purchase up to an
additional 1,500,000 shares of Common Stock, at the public offering price, less
the aggregate underwriting discounts and commissions, shown on the cover page of
this Prospectus, solely to cover overallotments, if any. Such option may be
exercised at any time within 30 days after the date of the Underwriting
Agreement. To the extent that such option is exercised, each Underwriter will be
committed, subject to certain conditions, to purchase a number of the additional
shares of Common Stock proportionate to such Underwriter's initial commitment as
indicated in the preceding table.

In connection with the IPO, Messrs. Ziman and Coleman agreed not to sell any
shares of Common Stock acquired by them upon exchange of OP Units for a period
of two years after the completion of the IPO without the consent of Lehman. Such
restrictions do not apply to any OP Units or other shares of Common Stock
purchased or otherwise acquired by Messrs. Ziman or Coleman following the IPO.

The Company has agreed for a period of 180 days from the date of this
Prospectus, not to, directly or indirectly, offer for sale, sell or otherwise
dispose of (or enter into any transaction or device which is designed to, or
could be expected to, result in the disposition by any person at any time in the
future of) shares of Common Stock (other than the shares offered hereby and
shares issued pursuant to the Stock Incentive Plan existing on the date hereof
and any OP Units or shares of Common Stock that may be issued in connection with
any acquisition of a property) or sell or grant options, rights or warrants with

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respect to any shares of Common Stock (other than the grant of options pursuant
to the Stock Incentive Plan existing on the date hereof), without the prior
written consent of Lehman.

Certain of the Underwriters and their affiliates have from time to time
performed, and may continue to perform in the future, various investment banking
and commercial services for the Company, for which they received customary
compensation. In connection with the IPO, Lehman received an advisory fee equal
to 0.5% of the gross proceeds of the IPO for advisory services in connection
with the evaluation, analysis and structuring of the Company's formation as a
REIT, and Lehman Brothers Holdings, Inc., an affiliate of Lehman ("Lehman
Holdings"), was repaid mortgage loans (including principal and accrued and
additional interest) in the principal amount of approximately $202 million made
by it to certain affiliates of the Company prior to the IPO. On June 11, 1997,
the Company entered into the $175 million Mortgage Financing with Lehman
Holdings. The Mortgage Financing refinanced the Company's then existing $175
million mortgage loan from Lehman Holdings.

Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase shares of Common Stock. As
an exception to these rules, the Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions may consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.

If the Underwriters create a short position in the Common Stock in
connection with the Offering (I.E., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives also may elect to reduce any short position by exercising
all or part of the over-allowment option described herein.

The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the Offering.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.

EXPERTS

The consolidated balance sheet of Arden Realty, Inc. and the combined
balance sheet of the Arden Predecessors as of December 31, 1996 and 1995,
respectively, and the related consolidated statements of operations,
stockholders' equity and cash flows of Arden Realty, Inc. for the period from
October 9, 1996 (commencement of operations) to December 31, 1996 and the
related combined statements of operations, owners' equity and cash flows of the
Arden Predecessors for the period from January 1, 1996 to October 8, 1996 and
for the years ended December 31, 1995 and 1994; the combined statement of
revenue and certain expenses of the 1996 Pre IPO Properties for the year ended
December 31, 1995; the combined statement of revenue and certain expenses of 303
Glenoaks and 12501 East Imperial Highway for the year ended December 31, 1995;
the statements of revenue and certain expenses of 10351 Santa Monica and 2730
Wilshire for the twelve months ended October 31, 1996; the combined statement of
revenue and certain expenses of Burbank Plaza and California Federal Building
for the twelve months ended October 31, 1996;

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the statement of revenue and certain expenses of Center Promenade for the period
from January 1, 1996 to December 17, 1996; the statement of revenue and certain
expenses of Los Angeles Corporate Center for the period from January 1, 1996 to
December 18, 1996; the statement of revenue and certain expenses of 5200 West
Century for the period from January 1, 1996 to December 19, 1996; the statement
of revenue and certain expenses of Sumitomo Bank Building for the period from
January 1, 1996 to December 20, 1996; the statement of revenue and certain
expenses of 10350 Santa Monica for the period from January 1, 1996 to December
27, 1996; the statements of revenue and certain expenses of 535 Brand for each
of the three years in the period ended December 31, 1996; the statements of
revenue and certain expenses of 10780 Santa Monica, Noble Professional Center,
South Bay Centre, 8383 Wilshire, Parkway Center, Centerpointe La Palma, Pacific
Gateway II, Crown Cabot, and 1100 Glendon for the year ended December 31, 1996;
the combined statement of revenue and certain expenses of Whittier Financial
Center, Clarendon Crest and California Twin Centre for the year ended December
31, 1996; and the combined statement of revenue and certain expenses of 1000
Town Center and Mariner Court for the year ended December 31, 1996, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.

LEGAL MATTERS

Certain legal matters will be passed upon for the Company by Latham &
Watkins and certain legal matters, including the validity of the shares of
Common Stock offered hereby, will be passed upon for the Company by Ballard
Spahr Andrews & Ingersoll. In addition, the description of federal income tax
consequences contained in this Prospectus under the heading "Federal Income Tax
Considerations" is based upon the opinion of Latham & Watkins. Latham & Watkins
will rely upon the opinion of Ballard Spahr Andrews & Ingersoll as to all
matters of Maryland law. Certain legal matters will be passed upon for the
Underwriters by Hogan & Hartson L.L.P.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-11 (of which this Prospectus is a
part) under the Securities Act with respect to the securities offered hereby.
This Prospectus does not contain all information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the SEC. Statements contained in this Prospectus as to the
content of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference and the exhibits and schedules
hereto. For further information regarding the Company and the Common Stock
offered hereby, reference is hereby made to the Registration Statement and such
exhibits and schedules, which may be obtained from the SEC as its principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the
fees prescribed by the SEC. The SEC maintains a website at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding registrants, including the Company, that file electronically with the
SEC. In addition, the Common Stock is listed on the New York Stock Exchange
("NYSE") and similar information concerning the Company can be inspected and
copied at the offices of the NYSE, 20 Broad Street, New York, New York 10005.

The Company is required to file reports and other information with the
Commission pursuant to the Securities Exchange Act of 1934. In addition to
applicable legal or NYSE requirements, if any, holders of shares of Common Stock
will receive annual reports containing audited financial statements with a
report thereon by the Company's independent certified public accounts, and
quarterly reports containing unaudited financial information for each of the
first three quarters of each fiscal year.

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<PAGE>
GLOSSARY

Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus:

"1940 ACT" means the Investment Company Act of 1940, as amended.

"1993 ACT" means the Omnibus Budget Reconciliation Act of 1993.

"1996 ECONOMIC REPORT" means THE 1996 ECONOMIC REPORT OF THE GOVERNOR OF
CALIFORNIA.

"401(K) PLAN" means the Arden Realty Section 401(k) Savings/Retirement Plan.

"ACM" means asbestos-containing materials.

"ACQUIRED PROPERTIES" means the 21 Properties acquired by the Company since
its IPO.

"ADA" means the Americans with Disabilities Act.

"ANNUALIZED BASE RENT" means the monthly contractual base rent under the
applicable lease(s) (E.G., relating to a tenant, a Property or all of the
Properties, as applicable) as of May 1, 1997 multiplied by 12.

"AFFILIATES" means with respect to any individual or entity, any other
individual or entity directly or indirectly controlling, controlled by or under
common control with such individual or entity.

"ARDEN PREDECESSORS" means Namiz and certain Namiz affiliated entities which
were engaged in owning, acquiring, managing, leasing and renovating office
properties in Southern California prior to the Company's formation and the
consummation of its IPO.

"BENEFICIARY" means a qualified charitable organization selected by the
Company to receive in trust any excess shares resulting from a transfer of
Common Stock in violation of the Ownership Limit or the Charter.

"BOOK-TAX DIFFERENCE" means the difference between the fair market value of
contributed property at the time of contribution and the adjusted tax basis of
such property at such time.

"BUILT-IN GAIN ASSET" means any asset acquired by the Company from a
corporation which is or has been a C corporation.

"BYLAWS" means the bylaws of the Company.

"C&W PEER GROUP" means for each of the Properties and Pending Acquisitions
the group of properties identified by Cushman & Wakefield that are most similar
in terms of quality, market position and tenant appeal to such property.

"C&W PEER GROUP RENT" means, for each of the Properties and Pending
Acquisitions, the mid-point of the range of the weighted average annual asking
rents (for full service gross leases only) for such property's C&W Peer Group
properties as of approximately May 1, 1997. Any net leases for properties in the
applicable C&W Peer Group have been adjusted to full-service gross leases by
adding estimated recoverable expenses for similar properties.

"CASH AVAILABLE FOR DISTRIBUTION" means Funds from Operations less estimated
reserves for non-revenue enhancing leasing commissions, tenant improvements and
capital expenditures.

"CASH PARTICIPANTS" means the participants in the Formation Transactions
who, pursuant to the Option Agreements, received cash from the Company in
exchange for their interests in the Arden Predecessors and in certain of the
Initial Properties.

"CHARTER" means the charter of the Company.

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"CNB CREDIT FACILITY" means the Company's unsecured line of credit with a
total commitment of $10,000,000 from City National Bank.

"CODE" means the Internal Revenue Code of 1986, as amended.

"COMMON STOCK" means shares of the Company's common stock, $.01 par value
per share.

"COMPANY" means Arden Realty, Inc., a Maryland corporation. While the
Company and the Operating Partnership are separate entities, for ease of
reference and unless the context otherwise requires, all references in this
Prospectus to the "Company" refer to the Company, the Operating Partnership and
their subsidiaries.

"CONTRIBUTION AGREEMENTS" means separate contribution agreements between (i)
the Operating Partnership and the Unit Participants whereby certain interests in
the Arden Predecessors and in certain of the Initial Properties held by such
Unit Participants were contributed to the Operating Partnership in exchange for
OP Units and (ii) the Operating Partnership and Namiz whereby Namiz contributed
certain of its assets to the Operating Partnership in exchange for OP Units.

"CONTROLLED FOREIGN CORPORATION" means generally a foreign corporation
controlled by United States stockholders.

"CPI" means the Consumer Price Index.

"CREDIT FACILITY" means the Company's $300 million credit facility with a
group of banks led by Wells Fargo.

"CUSHMAN & WAKEFIELD" means Cushman & Wakefield of California, Inc.

"DOL" means the Department of Labor.

"DOL REGULATION" means the regulation issued by the DOL defining Plan Assets
for certain purposes.

"DOMESTICALLY CONTROLLED REIT" means a REIT in which at all times during a
specified testing period less than 50% in value of its stock is held directly or
indirectly by Non-U.S. Stockholders.

"DOUBLE TAXATION" means taxation at the corporate and stockholder levels
that generally results from investment in a C corporation.

"ENVIRONMENTAL LAWS" means the various Federal, state and local laws,
ordinances and regulations relating to the protection of the environment.

"ENVIRONMENTAL SITE ASSESSMENTS" means the Phase I Environmental Assessments
and other environmental investigations performed by independent environmental
consultants at the Properties and Pending Acquisitions.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"ERISA PLAN" means an employee benefit plan subject to ERISA.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

"FORMATION TRANSACTIONS" means the transactions described herein under the
heading "Formation Transactions" which were consummated in connection with the
Company's formation and IPO in October 1996.

"GAAP" means generally accepted accounting principles.

"INITIAL PROPERTIES" means the initial 24 office properties which comprised
the Company's portfolio upon consummation of the IPO.

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"INTERESTED STOCKHOLDER" means any person who beneficially owns ten percent
or more of the voting power of a corporation's shares.

"IPO" means the Company's initial public offering of Common Stock which
closed in October of 1996.

"IRA" means an individual retirement account or annuity.

"IRS" means the Internal Revenue Service.

"LC" means leasing commissions.

"LEASED" refers to space for which leases have been executed and have
commenced as of the specified date (irrespective of whether such space is
currently occupied).

"LEHMAN" means Lehman Brothers Inc.

"LEHMAN HOLDINGS" means Lehman Brothers Holdings, Inc., an affiliate of
Lehman.

"LENDERS" means the group of banks led by Wells Fargo which extended the
$300 million Credit Facility to the Company.

"LIMITED PARTNERS" means the limited partners of the Operating Partnership.

"LAEDC" means the Los Angeles Economic Development Corporation.

"MGCL" means the Maryland General Corporation Law, as amended.

"MORTGAGE FINANCING" means the new $175 million mortgage financing from
Lehman Holdings which the Company executed on June 11, 1997 to refinance its
previously existing $175 million mortgage financing.

"MORTGAGE FINANCING PROPERTIES" means the 18 Properties, held by a special
purpose subsidiary of the Company, which are subject to cross-collateralized and
cross-defaulted first mortgage liens as security for the Mortgage Financing.

"MSA" means a medical savings account.

"NAMED EXECUTIVE OFFICERS" means the Chief Executive Officer and the
Company's other four most highly compensated executive officers.

"NAMIZ" means NAMIZ, Inc., a California corporation formerly known as Arden
Realty Group, Inc., a California corporation, and the Company's immediate
predecessor.

"NAREIT" means the National Association of Real Estate Investment Trusts.

"NON-U.S. STOCKHOLDERS" means the persons that are, for purposes of United
States federal income taxation, nonresident alien individuals, foreign
corporations, foreign partnerships or foreign estates or trusts.

"NYSE" means the New York Stock Exchange, Inc.

"OFFERING" means the offering of shares of Common Stock of the Company
pursuant to and as described in this Prospectus.

"OPERATING PARTNERSHIP" means Arden Realty Limited Partnership, a Maryland
limited partnership.

"OPTION AGREEMENTS" means separate option agreements between the Company and
the Cash Participants whereby certain interests in the Arden Predecessors and in
certain of the Initial Properties were transferred to the Company in exchange
for cash concurrently with the IPO.

"OP UNITS" means the limited and general partner interests in the Operating
Partnership.

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"OWNERSHIP LIMIT" means the Company's Charter provision prohibiting any
stockholder or group of affiliated stockholders from owning more than 9.0% of
the outstanding Common Stock.

"PARTNERSHIP AGREEMENT" means the agreement of limited partnership of the
Operating Partnership.

"PENDING ACQUISITIONS" means the nine additional office properties which the
Company expects to acquire. The Company has executed eight contracts and entered
one letter of intent to acquire the nine Pending Acquisitions within 60 days
after the Offering.

"PHASE I ASSESSMENTS" means Phase I Environmental Assessments conducted by
environmental consultants.

"PLAN ASSETS" means the assets of the Company which are deemed to be assets
of an ERISA Plan or other plan.

"PMSA" means primary metropolitan statistical area.

"PREFERRED STOCK" means the $.01 par value preferred stock of the Company.

"PROHIBITED OWNER" means the person or entity holding record title to shares
of the Company in excess of the Ownership Limit or such other limit as provided
by the Charter or as otherwise permitted by the Board of Directors.

"PROHIBITED TRANSFEREE" means any transfer of Common Stock of the Company
whereby the purported transfer would result in any person violating the
Ownership Limit.

"PROPERTIES" means the 45 office properties referred to herein which
comprise the Company's portfolio of Southern California office properties.

"PUBLICLY-OFFERED SECURITY" means a security that is widely held, freely
transferable and either part of a class of securities registered under the
Exchange Act, or sold pursuant to an effective registration statement under the
Securities Act (provided the securities are registered under the Exchange Act
within 120 days, or such later time as may be allowed by the SEC (the
registration period), after the end of the fiscal year of the issuer during
which the offering occurred).

"RECOGNITION PERIOD" means the ten-year period beginning on the date a
Built-In Gain Asset is acquired by the Company.

"REIT" means real estate investment trust as defined by Sections 856 through
860 of the Code and applicable Treasury Regulations.

"RELATED PARTY TENANT" means a tenant actually or constructively owned 10%
or more by the REIT or an owner of 10% or more of the REIT.

"REPRESENTATIVES" means Lehman Brothers Inc., Alex. Brown & Sons
Incorporated, A.G. Edwards & Sons, Inc., Morgan Stanley & Co. Incorporated,
Smith Barney Inc., EVEREN Securities, Inc. and Raymond James & Associates, Inc.

"RESTRICTED SHARES" means the shares of Common Stock acquired by any Unit
Participant in exchange for OP Units which will be restricted securities under
the meaning of Rule 144 promulgated under the Securities Act.

"RULE 144" means Rule 144 promulgated under the Securities Act.

"SECURITIES ACT" means the Securities Act of 1933, as amended.

"SFAS" means Statements of Financial Accounting Standards.

"STOCK INCENTIVE PLAN" means the 1996 Stock Incentive Plan of Arden Realty,
Inc. and Arden Realty Limited Partnership.

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"SWAP AGREEMENT" means the interest rate floor and cap transactions with a
notional amount of $155 million which the Company entered, effective January 2,
1997, to convert floating rate liabilities to fixed rate liabilities.

"TOTAL ACQUISITION COST" means all purchase costs, closing costs and
anticipated capital expenditures for, and carrying costs during, renovations.

"TI" means tenant improvements.

"UBTI" means unrelated business taxable income.

"UNDERWRITERS" means the underwriters of the Offering for whom Lehman
Brothers Inc., Alex. Brown & Sons Incorporated, A.G. Edwards & Sons, Inc.,
Morgan Stanley & Co. Incorporated, Smith Barney Inc., EVEREN Securities, Inc.,
and Raymond James & Associates, Inc. are acting as representatives.

"UNIT PARTICIPANTS" means the participants in the Formation Transactions
who, pursuant to the Contribution Agreements, received OP Units from the
Operating Partnership in exchange for their interests in the Arden Predecessors,
certain of the Initial Properties and certain other assets.

"U.S. STOCKHOLDER" means a holder of shares of Common Stock who (for United
States federal income tax purposes) (i) is a citizen or resident of the United
States, (ii) is a corporation, partnership, or other entity created or organized
in or under the laws of the United States or of any political subdivision
thereof, or (iii) is an estate or trust the income of which is subject to United
States federal income taxation regardless of its source.

"UST" means underground storage tank.

"WHITE PAPER" means the White Paper on Funds from Operations approved by the
Board of Governors of the NAREIT in March of 1995.

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INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

Pro Forma Condensed Consolidated Financial Statements (Unaudited):....... F-6

Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1997
(Unaudited).......................................................... F-7

Pro Forma Condensed Consolidated Statement of Operations for the Three
Months Ended March 31, 1997 (Unaudited).............................. F-8

Pro Forma Condensed Consolidated Statement of Operations for the Year
Ended December 31, 1996 (Unaudited).................................. F-9

Notes to Pro Forma Condensed Consolidated Financial Statements
(Unaudited).......................................................... F-10

ARDEN REALTY, INC. AND THE ARDEN PREDECESSORS

Report of Independent Auditors......................................... F-17

Consolidated Balance Sheets as of March 31, 1997 (Unaudited) and
December 31, 1996 and Combined Balance Sheet as of December 31,
1995................................................................. F-18

Consolidated Statements of Operations for the three months ended March
31, 1997 (Unaudited) and the period from October 9, 1996 to December
31, 1996 and Combined Statements of Operations for the three months
ended March 31, 1996 (Unaudited) and for the period January 1, 1996
to October 8, 1996 and for the years ended December 31, 1995 and
1994................................................................. F-19

Consolidated Statements of Stockholders' Equity for the three months
ended March 31, 1997 (Unaudited) and for the period from October 9,
1996 to December 31, 1996 and Combined Statements of Owners' Equity
for the period from January 1, 1996 to October 8, 1996 and for the
years ended December 31, 1995 and 1994............................... F-20

Consolidated Statements of Cash Flows for the three months ended March
31, 1997 (Unaudited) and the period from October 9, 1996 to December
31, 1996 and Combined Statements of Cash Flows for the three months
ended March 31, 1996 (Unaudited) and for the period January 1, 1996
to October 8, 1996 and for the years ended December 31, 1995 and
1994................................................................. F-21

Notes to Financial Statements.......................................... F-22

Schedule III--Commercial Office Properties and Accumulated
Depreciation......................................................... F-39

INITIAL PROPERTIES ACQUIRED IN 1996
1996 PRE IPO PROPERTIES

Combined Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-41

Combined Statement of Revenue and Certain Expenses for the Year Ended
December 31, 1995.................................................... F-42

Notes to Combined Statement of Revenue and Certain Expenses............ F-43
</TABLE>

F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
303 GLENOAKS AND 12501 EAST IMPERIAL HIGHWAY

Combined Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-45

Combined Statement of Revenue and Certain Expenses for the Year Ended
December 31, 1995.................................................... F-46

Notes to Combined Statement of Revenue and Certain Expenses............ F-47

PROPERTIES ACQUIRED IN 1996 SUBSEQUENT TO THE IPO
10351 SANTA MONICA

Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-49

Statement of Revenue and Certain Expenses for the Twelve Months Ended
October 31, 1996..................................................... F-50

Notes to Statement of Revenue and Certain Expenses..................... F-51

2730 WILSHIRE

Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-52

Statement of Revenue and Certain Expenses for the Twelve Months Ended
October 31, 1996..................................................... F-53

Notes to Statement of Revenue and Certain Expenses..................... F-54

BURBANK EXECUTIVE PLAZA AND CALIFORNIA FEDERAL BUILDING

Combined Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-55

Combined Statement of Revenue and Certain Expenses for the Twelve
Months Ended October 31, 1996........................................ F-56

Notes to Combined Statement of Revenue and Certain Expenses............ F-57

CENTER PROMENADE

Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-58

Statement of Revenue and Certain Expenses for the Period January 1,
1996 to December 17, 1996............................................ F-59

Notes to Statement of Revenue and Certain Expenses..................... F-60

LOS ANGELES CORPORATE CENTER

Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-61

Statement of Revenue and Certain Expenses for the Period January 1,
1996 to December 18, 1996............................................ F-62

Notes to Statement of Revenue and Certain Expenses..................... F-63
</TABLE>

F-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
5200 WEST CENTURY

Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-64

Statement of Revenue and Certain Expenses for the Period January 1,
1996 to December 19, 1996............................................ F-65

Notes to Statement of Revenue and Certain Expenses..................... F-66

SUMITOMO BANK BUILDING

Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-67

Statement of Revenue and Certain Expenses for the Period January 1,
1996 to December 20, 1996............................................ F-68

Notes to Statement of Revenue and Certain Expenses..................... F-69

10350 SANTA MONICA

Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-70

Statement of Revenue and Certain Expenses for the Period January 1,
1996 to December 27, 1996............................................ F-71

Notes to Statement of Revenue and Certain Expenses..................... F-72

THE 1997 ACQUISITIONS
535 BRAND

Statements of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-73

Statements of Revenue and Certain Expenses for the Years Ended December
31, 1996, 1995 and 1994.............................................. F-74

Notes to Statements of Revenue and Certain Expenses.................... F-75

WHITTIER FINANCIAL CENTER, CLARENDON CREST AND CALIFORNIA TWIN CENTRE

Combined Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-76

Combined Statement of Revenue and Certain Expenses for the Year Ended
December 31, 1996.................................................... F-77

Notes to Combined Statement of Revenue and Certain Expenses............ F-78

10780 SANTA MONICA

Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-80

Statement of Revenue and Certain Expenses for the Year Ended December
31, 1996............................................................. F-81

Notes to Statement of Revenue and Certain Expenses..................... F-82
</TABLE>

F-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
NOBLE PROFESSIONAL CENTER

Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-83

Statement of Revenue and Certain Expenses for the Year Ended December
31, 1996............................................................. F-84

Notes to Statement of Revenue and Certain Expenses..................... F-85

SOUTH BAY CENTRE

Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-86

Statement of Revenue and Certain Expenses for the Year Ended December
31, 1996............................................................. F-87

Notes to Statement of Revenue and Certain Expenses..................... F-88

8383 WILSHIRE

Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-89

Statement of Revenue and Certain Expenses for the Year Ended December
31, 1996............................................................. F-90

Notes to Statement of Revenue and Certain Expenses..................... F-91

PARKWAY CENTER

Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-92

Statement of Revenue and Certain Expenses for the Year Ended December
31, 1996............................................................. F-93

Notes to Statement of Revenue and Certain Expenses..................... F-94

CENTERPOINTE LA PALMA

Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-95

Statement of Revenue and Certain Expenses for the Year Ended December
31, 1996............................................................. F-96

Notes to Statement of Revenue and Certain Expenses..................... F-97

PENDING ACQUISITIONS
1100 GLENDON

Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-98

Statement of Revenue and Certain Expenses for the Year Ended December
31, 1996............................................................. F-99

Notes to Statement of Revenue and Certain Expenses..................... F-100
</TABLE>

F-4
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PACIFIC GATEWAY II

Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-101

Statement of Revenue and Certain Expenses for the Year Ended December
31, 1996............................................................. F-102

Notes to Statement of Revenue and Certain Expenses..................... F-103

1000 TOWN CENTER AND MARINER COURT

Combined Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-104

Combined Statement of Revenue and Certain Expenses for the Year Ended
December 31, 1996.................................................... F-105

Notes to Combined Statement of Revenue and Certain Expenses............ F-106

CROWN CABOT

Statement of Revenue and Certain Expenses:

Report of Independent Auditors......................................... F-107

Statement of Revenue and Certain Expenses for the Year Ended December
31, 1996............................................................. F-108

Notes to Statement of Revenue and Certain Expenses..................... F-109
</TABLE>

F-5
<PAGE>
ARDEN REALTY, INC.

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following unaudited pro forma condensed consolidated balance sheet as of
March 31, 1997 is presented as if the following transactions had been
consummated on March 31, 1997: (i) the acquisition of properties acquired
subsequent to March 31, 1997 (the "Second Quarter 1997 Acquisitions"); (ii) the
acquisition of the Pending Acquisitions (as described in this prospectus); (iii)
the closings of the Mortgage Financing and the Credit Facility; and (iv) the
completion of the Offering. The following unaudited pro forma condensed
consolidated statements of operations for the three months ended March 31, 1997
and for the year ended December 31, 1996 are presented as if: (i) the
consummation of the IPO, the Offering and related Formation Transactions; (ii)
the acquisition of properties acquired during 1996 (the "1996 Acquisitions");
(iii) the acquisition of properties acquired during 1997 (the "1997
Acquisitions"); (iv) the acquisition of the Pending Acquisitions; and (v) the
closing of the Mortgage Financing and the amendment to the Credit Facility had
occurred at January 1, 1996. These pro forma condensed consolidated financial
statements should be read in conjunction with the historical consolidated and
combined financial statements and notes thereto of the Company and the Arden
Predecessors included elsewhere in this Prospectus.

The pro forma condensed consolidated financial statements are not
necessarily indicative of what the actual financial position or results of
operations would have been had the Company completed the transactions described
above, nor do they purport to represent the future financial position of the
Company.

F-6
<PAGE>
ARDEN REALTY, INC.

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------------------------------------------
SECOND
QUARTER ARDEN
ARDEN 1997 PENDING OTHER REALTY, INC.
REALTY, INC. ACQUISITIONS(A) OFFERING(B) ACQUISITIONS(C) ADJUSTMENTS(D) PRO FORMA
------------- ------------- ------------- ------------- ----------------- -------------

<S> <C> <C> <C> <C> <C> <C>
ASSETS

Commercial office
properties--net............... $ 580,636 $ 188,450 $ -- $ 139,630 $ -- $ 908,716
Cash and cash equivalents....... 822 (800) 246,644 (137,480) (101,314) --
(3,872)
(4,000)
Restricted cash................. -- -- -- -- 4,000 4,000
Rents and other receivables..... 2,093 -- -- -- -- 2,093
Deferred rent................... 6,609 -- -- -- -- 6,609
Prepaid financing and leasing
costs--net.................... 4,485 -- -- -- 3,872 8,357
Prepaid expenses and other
assets........................ 4,693 (850) -- (150) -- 3,693
------------- ------------- ------------- ------------- ----------------- -------------
Total assets................ $ 599,338 $ 186,800 $ 246,644 $ 2,000 $ (101,314) $ 933,468
------------- ------------- ------------- ------------- ----------------- -------------
------------- ------------- ------------- ------------- ----------------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Mortgage loans payable.......... $ 137,800 $ 37,200 $ -- $ -- $ -- $ 175,000
Unsecured lines of credit....... 60,000 149,600 -- 2,000 (101,314) 110,286
Accounts payable and accrued
expenses...................... 9,243 -- -- -- -- 9,243
Security deposits............... 3,958 -- -- -- -- 3,958
Dividends and distributions
payable....................... 8,677 -- -- -- -- 8,677
------------- ------------- ------------- ------------- ----------------- -------------
Total liabilities........... 219,678 186,800 -- 2,000 (101,314) 307,164
------------- ------------- ------------- ------------- ----------------- -------------
Minority interests in Operating
Partnership................... 47,563 -- -- -- -- 47,563
------------- ------------- ------------- ------------- ----------------- -------------
Stockholders' equity:
Common Stock.................. 217 -- 100 -- -- 317
Additional paid-in capital.... 331,880 -- 246,544 -- -- 578,424
Accumulated deficit........... -- -- -- -- -- --
Retained earnings............. -- -- -- -- -- --
------------- ------------- ------------- ------------- ----------------- -------------
Total stockholders'
equity.................... 332,097 -- 246,644 -- -- 578,741
------------- ------------- ------------- ------------- ----------------- -------------
Total liabilities and
stockholders' equity...... $ 599,338 $ 186,800 $ 246,644 $ 2,000 $ (101,314) $ 933,468
------------- ------------- ------------- ------------- ----------------- -------------
------------- ------------- ------------- ------------- ----------------- -------------
</TABLE>

See accompanying notes.

F-7
<PAGE>
ARDEN REALTY, INC.

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------------
PRE-ACQUISITION
PERIOD FOR
THE ARDEN
ARDEN 1997 PENDING OTHER REALTY, INC.
REALTY, INC. ACQUISITIONS(F) ACQUISITIONS(G) ADJUSTMENTS PRO FORMA
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental.................................... $ 21,892 $ 6,960 $ 4,205 $ 387(H) $ 33,444
Tenant reimbursements..................... 958 305 104 -- 1,367
Parking--net.............................. 1,490 346 105 -- 1,941
Other..................................... 576 67 26 -- 669
------------- ------ ------ ------------- -------------
24,916 7,678 4,440 387 37,421
Other income................................ 54 -- -- -- 54
------------- ------ ------ ------------- -------------
Total revenues.......................... 24,970 7,678 4,440 387 37,475

EXPENSES
Property expenses......................... 7,894 2,540 1,476 279(J) 12,189
REIT general and administrative........... 918 -- -- 82(K) 1,000
Interest.................................. 3,024 -- -- 2,335(L) 5,359
Depreciation and amortization............. 3,562 -- -- 1,958(M) 5,520
------------- ------ ------ ------------- -------------
Total expenses.......................... 15,398 2,540 1,476 4,654 24,068
------------- ------ ------ ------------- -------------
Income before minority interests............ 9,572 5,138 2,964 (4,267) 13,407
Minority interests.......................... (1,134) -- -- (6) (N) (1,140)
------------- ------ ------ ------------- -------------
Net income.................................. $ 8,438 $ 5,138 $ 2,964 $ (4,273) $ 12,267
------------- ------ ------ ------------- -------------
------------- ------ ------ ------------- -------------
Weighted average common shares outstanding
before the conversion of OP Units......... 21,921 31,921
------------- -------------
------------- -------------
Net Income per common share................. $ 0.38 $ 0.38
------------- -------------
------------- -------------
Pro forma net income per share reflecting
the pro forma effects of solely the
Offering and the purchase of the Pending
Acquisitions(P)........................... $ 0.39
-------------
-------------
</TABLE>

See accompanying notes.

F-8
<PAGE>
ARDEN REALTY, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------------------------------
EQUITY IN NET
ARDEN ARDEN LOSS OF
REALTY, INC. PREDECESSORS NONCOMBINED PRE-ACQUISITION
CONSOLIDATED COMBINED ENTITIES PERIOD FOR
OCT. 9, 1996 JAN. 1, 1996 JAN. 1, 1996 THE
TO TO TO 1996 1997
DEC. 31, 1996 OCT. 8, 1996 OCT. 8, 1996 ACQUISITIONS(E) ACQUISITIONS(F)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental................................... $ 17,041 $ 32,287 $ 12,828 $ 23,095 $ 28,520
Tenant reimbursements.................... 803 2,031 243 733 1,419
Parking-net.............................. 1,215 3,692 846 1,161 1,346
Other.................................... 375 1,125 357 606 117
------------- ------------- ------------- ------------- -------------
19,434 39,135 14,274 25,595 31,402
Other income............................... 138 1,330 -- -- --
------------- ------------- ------------- ------------- -------------
Total revenues......................... 19,572 40,465 14,274 25,595 31,402
------------- ------------- ------------- ------------- -------------

EXPENSES
Property expenses........................ 6,005 14,224 6,053 11,449 10,712
General and administrative............... 753 1,758 -- -- --
Interest................................. 1,280 24,521 7,356 -- --
Depreciation and amortization............ 3,108 5,264 2,705 -- --
------------- ------------- ------------- ------------- -------------
Total expenses......................... 11,146 45,767 16,114 11,449 10,712
------------- ------------- ------------- ------------- -------------
Equity in net (loss) of noncombined
entities................................. -- (336) 336 -- --
------------- ------------- ------------- ------------- -------------
Income (loss) before minority interests and
extraordinary items...................... 8,426 (5,638) (1,504) 14,146 20,690
Minority interests......................... (993) 721 (721) -- --
------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary items... 7,433 (4,917) (2,225) 14,146 20,690
Extraordinary (loss) gain on early
extinguishment of debt, net of minority
interests share.......................... (13,105) 1,877 -- -- --
------------- ------------- ------------- ------------- -------------
Net (loss) income.......................... $ (5,672) $ (3,040) $ (2,225) $ 14,146 $ 20,690
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Weighted average common shares outstanding
before conversion of OP Units............ 21,680
-------------
-------------
Net (loss) income per common share......... $ (.26)
-------------
-------------
Pro forma net income per share reflecting
the pro forma effects solely of the
Offering and the purchase of the Pending
Acquisitions(P)..........................

ARDEN
PENDING OTHER REALTY, INC.
ACQUISITIONS(G) ADJUSTMENTS PRO FORMA
------------- ---------------- -------------
<S> <C> <C> <C>
REVENUES
Rental................................... $ 16,624 $ 1,816(H) $ 132,211
Tenant reimbursements.................... 414 -- 5,643
Parking-net.............................. 403 -- 8,663
Other.................................... 559 -- 3,139
------------- -------- -------------
18,000 1,816 149,656
Other income............................... -- (1,253)(I) 215
------------- -------- -------------
Total revenues......................... 18,000 563 149,871
------------- -------- -------------
EXPENSES
Property expenses........................ 6,111 1,226(J) 55,780
General and administrative............... -- 1,489(K) 4,000
Interest................................. -- (11,721)(L) 21,436
Depreciation and amortization............ -- 10,644(M) 21,721
------------- -------- -------------
Total expenses......................... 6,111 1,638 102,937
------------- -------- -------------
Equity in net (loss) of noncombined
entities................................. -- -- --
------------- -------- -------------
Income (loss) before minority interests and
extraordinary items...................... 11,889 (1,075) 46,934
Minority interests......................... -- (2,996)(N) (3,989)
------------- -------- -------------
Income (loss) before extraordinary items... 11,889 (4,071) 42,945
Extraordinary (loss) gain on early
extinguishment of debt, net of minority
interests share.......................... -- 11,228(O) --
------------- -------- -------------
Net (loss) income.......................... $ 11,889 $ 7,157 $ 42,945
------------- -------- -------------
------------- -------- -------------
Weighted average common shares outstanding
before conversion of OP Units............ 31,680
-------------
-------------
Net (loss) income per common share......... $ 1.36
-------------
-------------
Pro forma net income per share reflecting
the pro forma effects solely of the
Offering and the purchase of the Pending
Acquisitions(P).......................... $ 0.01
-------------
-------------
</TABLE>

See accompanying notes.

F-9
<PAGE>
ARDEN REALTY, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
(IN THOUSANDS)

1. ADJUSTMENTS TO THE PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

The adjustments to the Pro Forma Condensed Consolidated Balance Sheet as of
March 31, 1997 are as follows:

A. Acquisition of the Second Quarter 1997 Acquisitions with $1,650,000 of
cash and deposits and with proceeds of $37,200,000 of mortgage loans payable and
$149,600,000 on the unsecured lines of credit

Purchase price and actual and estimated additional closing costs of the
Second Quarter 1997 Acquisitions are as follows:

<TABLE>
<CAPTION>
PURCHASE
SECOND QUARTER 1997 ACQUISITIONS PRICE
- ---------------------------------------------------------------------- -------------
<S> <C>
10780 Santa Monica.................................................... $ 10,550
Clarendon Crest....................................................... 5,250
Noble Professional Center............................................. 6,750
South Bay Centre...................................................... 19,150
8383 Wilshire......................................................... 59,100
Parkway Center........................................................ 7,450
Centerpointe La Palma................................................. 80,200
-------------
Total............................................................... $ 188,450
-------------
-------------
</TABLE>

B. Sale of 10,000,000 shares of Common Stock in the Offering:

<TABLE>
<S> <C>
Gross proceeds from the Offering...................................... $ 260,625
Costs associated with the Offering.................................... (13,981)
-------------
246,644
-------------
-------------

Par value of Common Stock............................................. 100
Additional paid in capital from proceeds from sale of Common Stock.... 246,544
-------------
$ 246,644
-------------
-------------
</TABLE>

F-10
<PAGE>
ARDEN REALTY, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)
(IN THOUSANDS)

1. ADJUSTMENTS TO THE PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
C. Acquisition of the Pending Acquisitions with use of proceeds from the
Offering and borrowings under the lines of credit

Purchase price and actual and estimated additional closing costs of the
Pending Acquisitions are as follows:

<TABLE>
<CAPTION>
PENDING ACQUISITIONS
- ----------------------------------------------------------------------
<S> <C>
1000 Town Center...................................................... $ 14,050
Mariner Court......................................................... 11,800
Pacific Gateway II.................................................... 25,225
Crown Cabot........................................................... 28,300
299 Euclid............................................................ 7,200
Harbor Corporate Center............................................... 4,450
1821 Dyer............................................................. 7,230
1100 Glendon.......................................................... 29,575
Carlsberg Corporate Center............................................ 11,800
-------------
Total............................................................... $ 139,630
-------------
-------------
</TABLE>

D. Repayments of mortgage loans and lines of credit

<TABLE>
<S> <C>
Proceeds from the Mortgage Financing.................................. $ 175,000
Repayment of mortgage loan with proceeds from the Mortgage
Financing........................................................... (175,000)
Additional draws on the Credit Facility to pay financing costs
incurred in connection with the Mortgage Financing and the amendment
to the Credit Facility.............................................. 3,872
Additional draws on the Credit Facility to fund required reserve
account in accordance with the Mortgage Financing................... 4,000
Proceeds from the Offering used to pay down lines of credit........... (109,186)
-------------
$ (101,314)
-------------
-------------
</TABLE>

F-11
<PAGE>
ARDEN REALTY, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)
(IN THOUSANDS)

2. ADJUSTMENTS TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

The pro forma adjustments reflected in the Pro Forma Condensed Consolidated
Statements of Operations for the three months ended March 31, 1997 and the year
ended December 31, 1996 are set forth below:

E. Represents the preacquisition period for the 17 properties acquired in
1996.

1996 ACQUISITIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
400 IMPERIAL 10351
CORPORATE 5832 9665 BANK 100 303 SANTA
POINTE BOLSA WILSHIRE TOWER BROADWAY NORWALK GLENOAKS MONICA
------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Rental............. $ 390 $ 80 $ 548 $ 1,351 $ 1,554 $ 1,387 $ 1,980 $ 1,134
Tenant
reimbursements... 103 19 29 107 40 48 11
Parking--net....... 28 10 58 124 88 66 129 99
Other.............. 23 32 15 74 4 138 7
----- --- ----- ----------- ----------- ----------- ----------- -----------
Total revenues... 544 90 657 1,519 1,823 1,497 2,295 1,251
Property expenses.... 123 8 203 574 581 578 956 551
----- --- ----- ----------- ----------- ----------- ----------- -----------
Excess of revenue
over certain
expenses............ $ 421 $ 82 $ 454 $ 945 $ 1,242 $ 919 $ 1,339 $ 700
----- --- ----- ----------- ----------- ----------- ----------- -----------
----- --- ----- ----------- ----------- ----------- ----------- -----------

<CAPTION>
BURBANK
EXECUTIVE
PLAZA AND LOS
CALIFORNIA ANGELES SUMITOMO 10350
2730 GRAND FEDERAL CENTER CORPORATE 5200 WEST BANK SANTA
WILSHIRE AVENUE BUILDING PROMENADE CENTER CENTURY BUILDING MONICA
----------- ----------- ----------- ------------- ----------- ----------- ----------- -----------
<S> <C>
Revenue
Rental............. $ 960 $ -- $ 2,156 $ 2,097 $ 5,882 $ 1,021 $ 1,926 $ 629
Tenant
reimbursements... -- -- 51 128 115 79 3
Parking--net....... 43 -- 164 40 254 58
Other.............. 12 -- 288 2 9 2
----------- ----- ----------- ------ ----------- ----------- ----------- -----
Total revenues... 1,015 -- 2,320 2,148 6,298 1,178 2,268 692
Property expenses.... 451 -- 976 982 2,881 1,188 1,070 327
----------- ----- ----------- ------ ----------- ----------- ----------- -----
Excess of revenue
over certain
expenses............ $ 564 $ -- $ 1,344 $ 1,166 $ 3,417 $ (10) $ 1,198 $ 365
----------- ----- ----------- ------ ----------- ----------- ----------- -----
----------- ----- ----------- ------ ----------- ----------- ----------- -----

TOTAL
---------
Revenue
Rental............. $ 23,095
Tenant
reimbursements... 733
Parking--net....... 1,161
Other.............. 606
---------
Total revenues... 25,595
Property expenses.... 11,449
---------
Excess of revenue
over certain
expenses............ $ 14,146
---------
---------
</TABLE>

F. Represents the actual preacquisition results for the 1997 Acquisitions:

THE 1997 ACQUISITIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
WHITTIER
FINANCIAL,
CLARENDON
10780 CREST, AND NOBLE
535 SANTA CALIFORNIA 6800 PROFESSIONAL
BRAND MONICA TWIN CENTRE OWENSMOUTH CENTER
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue
Rental.................................. $ 707 $ 1,455 $ 5,580 $ 532 $ 794
Tenant reimbursements................... 74 57 225 26 5
Parking--net ........................... 90 136 228 -- 51
Other................................... -- 2 15 5 --
----- ----------- ----------- ----- -----
Total revenues........................ 871 1,650 6,048 563 850
Property expenses......................... 459 417 1,757 485 347
----- ----------- ----------- ----- -----
Excess of revenue over certain expenses... $ 412 $ 1,233 $ 4,291 $ 78 $ 503
----- ----------- ----------- ----- -----
----- ----------- ----------- ----- -----

SOUTH BAY 8383 PARKWAY CENTERPOINTE
CENTRE WILSHIRE CENTER LA PALMA TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue
Rental.................................. $ 2,691 $ 6,628 $ 911 $ 9,222 $ 28,520
Tenant reimbursements................... 143 -- 92 797 1,419
Parking--net ........................... -- 832 -- 9 1,346
Other................................... 26 31 -- 38 117
----------- ----------- ----------- ----------- -----------
Total revenues........................ 2,860 7,491 1,003 10,066 31,402
Property expenses......................... 1,270 2,867 276 2,834 10,712
----------- ----------- ----------- ----------- -----------
Excess of revenue over certain expenses... $ 1,590 $ 4,624 $ 727 $ 7,232 $ 20,690
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>

F-12
<PAGE>
ARDEN REALTY, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)
(IN THOUSANDS)

2. ADJUSTMENTS TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)

PRE-ACQUISITION PERIOD FOR THE 1997 ACQUISITIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
WHITTIER
FINANCIAL,
CLARENDON
10780 CREST, AND NOBLE
535 SANTA CALIFORNIA 6800 PROFESSIONAL
BRAND MONICA TWIN CENTRE OWENSMOUTH CENTER
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue
Rental................................... $ 147 $ 385 $ 1,265 $ 153 $ 258
Tenant reimbursements.................... 3 4 51 1 1
Parking--net............................. 14 36 58 -- --
Other.................................... -- -- 3 -- --
----- ----- ----------- ----- -----
Total revenues......................... 164 425 1,377 154 259
Property expenses.......................... 98 115 395 121 125
----- ----- ----------- ----- -----
Excess of revenue over certain expenses.... $ 66 $ 310 $ 982 $ 33 $ 134
----- ----- ----------- ----- -----
----- ----- ----------- ----- -----

SOUTH BAY 8383 PARKWAY CENTERPOINTE
CENTRE WILSHIRE CENTER LA PALMA TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue
Rental................................... $ 696 $ 1,688 $ 260 $ 2,108 $ 6,960
Tenant reimbursements.................... 29 -- 14 202 305
Parking--net............................. -- 236 -- 2 346
Other.................................... 3 22 -- 39 67
----- ----------- ----- ----------- -----------
Total revenues......................... 728 1,946 274 2,351 7,678
Property expenses.......................... 277 774 56 579 2,540
----- ----------- ----- ----------- -----------
Excess of revenue over certain expenses.... $ 451 $ 1,172 $ 218 $ 1,772 $ 5,138
----- ----------- ----- ----------- -----------
----- ----------- ----- ----------- -----------
</TABLE>

G. Represents the actual historical results for the Pending Acquisitions:

PENDING ACQUISITIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1000
TOWN CENTER
AND HARBOR
MARINER PACIFIC CROWN CORPORATE
COURT GATEWAY II CABOT 299 EUCLID CENTER
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue
Rental.............................................. $ 3,798 $ 3,355 $ 3,002 $ -- $ 776
Tenant reimbursements............................... 93 87 71 -- --
Parking--net........................................ -- -- -- -- --
Other............................................... -- 144 41 -- 5
----------- ----------- ----------- ----------- -----
Total revenues.................................... 3,891 3,586 3,114 -- 781
Property expenses..................................... 1,350 1,205 897 -- 246
----------- ----------- ----------- ----------- -----
Excess of revenue over certain expenses............... $ 2,541 $ 2,381 $ 2,217 $ -- $ 535
----------- ----------- ----------- ----------- -----
----------- ----------- ----------- ----------- -----

CARLSBERG
1100 CORPORATE
1821 DYER GLENDON CENTER TOTAL
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
Rental.............................................. $ 593 $ 3,421 $ 1,679 $ 16,624
Tenant reimbursements............................... 133 -- 30 414
Parking--net........................................ -- 342 61 403
Other............................................... -- 350 19 559
----- ----------- ----------- -----------
Total revenues.................................... 726 4,113 1,789 18,000
Property expenses..................................... 92 1,608 713 6,111
----- ----------- ----------- -----------
Excess of revenue over certain expenses............... $ 634 $ 2,505 $ 1,076 $ 11,889
----- ----------- ----------- -----------
----- ----------- ----------- -----------
</TABLE>

F-13
<PAGE>
ARDEN REALTY, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)
(IN THOUSANDS)

2. ADJUSTMENTS TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)

PENDING ACQUISITIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
1000
TOWN CENTER
AND HARBOR
MARINER PACIFIC CROWN CORPORATE
COURT GATEWAY II CABOT 299 EUCLID CENTER
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue
Rental.................................. $ 971 $ 823 $ 795 $ -- $ 179
Tenant reimbursements................... 23 21 19 -- --
Parking--net............................ 2 -- -- -- --
Other................................... -- 9 2 -- --
----- ----- ----- ----- -----
Total revenues........................ 996 853 816 -- 179
Property expenses......................... 312 289 201 -- 62
----- ----- ----- ----- -----
Excess of revenue over certain expenses... $ 684 $ 564 $ 615 $ -- $ 117
----- ----- ----- ----- -----
----- ----- ----- ----- -----

CARLSBERG
1100 CORPORATE
1821 DYER GLENDON CENTER TOTAL
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
Rental.................................. $ 148 $ 845 $ 444 $ 4,205
Tenant reimbursements................... 33 -- 8 104
Parking--net............................ -- 88 15 105
Other................................... -- 10 5 26
----- ----- ----- -----------
Total revenues........................ 181 943 472 4,440
Property expenses......................... 27 417 168 1,476
----- ----- ----- -----------
Excess of revenue over certain expenses... $ 154 $ 526 $ 304 $ 2,964
----- ----- ----- -----------
----- ----- ----- -----------
</TABLE>

H. Increase in rental revenue to adjust the 1996 Acquisitions, the 1997
Acquisitions, and the Pending Acquisitions to straightline rental revenue
calculated as though the properties were purchased at January 1, 1996.

I. Decrease in other income to eliminate nonrecurring construction fees
which would not have been realized by the Company and certain management fees
that will not be earned.

J. Increase in property general and administrative expenses related to
additional property payroll costs relating to the 1997 Acquisitions and the
Pending Acquisitions for the period ended March 31, 1997 and to the 1996
Acquisitions, 1997 Acquisitions and the Pending Acquisitions for the period
ended December 31, 1996.

K. Increase in general and administrative expenses related to expected
level of operations as a public real estate investment trust and the incremental
increase relating to the management of additional properties.

F-14
<PAGE>
ARDEN REALTY, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)
(IN THOUSANDS)

2. ADJUSTMENTS TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
</TABLE>

L. Increase (decrease) in interest expense:

<TABLE>
<S> <C> <C>
Decrease in interest expense due to repayment of mortgage loans and
lines of credit..................................................... $ (3,024) $ (33,157)
Increase in interest expense related to the Mortgage Financing and
lines of credit with an interest rate of 7.52% and LIBOR plus 1.45%,
respectively, net of amounts capitalized............................ 5,048 20,191
Increase in amortization of finance costs related to the Mortgage
Financing and the amendment to the Credit Facility, due in seven and
three years, respectively........................................... 311 1,245
------------- -------------
Net increase (decrease) in interest expense........................... $ 2,335 $ (11,721)
------------- -------------
------------- -------------
</TABLE>

M. Increase in depreciation expense:

<TABLE>
<S> <C> <C>
Increase in depreciation expense to reflect a full quarter of
depreciation for the 1997 Acquisitions and the Pending Acquisitions
for the three months ended March 31, 1997 and a full year of
depreciation for the 1996 Acquisitions, 1997 Acquisitions, and the
Pending Acquisitions for the year ended December 31, 1996, utilizing
a 40 year useful life for buildings and a 10 year useful life for
improvements........................................................ $ 1,958 $ 10,514
Increase in depreciation due to the fair value of consideration paid
in excess of book value of interests in properties acquired from
nonaffiliates in connection with the completion of the IPO.......... -- 130
------------- -------------
Net increase in depreciation expense.................................. $ 1,958 $ 10,644
------------- -------------
------------- -------------
</TABLE>

N. To reflect adjustment for minority interest of 8.5% in the

<TABLE>
<S> <C> <C>
Operating Partnership
</TABLE>

O. To eliminate net extraordinary loss related to early extinguishment of
debt

F-15
<PAGE>
ARDEN REALTY, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)
(IN THOUSANDS)

2. ADJUSTMENTS TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)
P. Additional proforma net income per share information is included below.

The following table sets forth the pro forma effects of solely the Offering
and the purchase of the Pending Acquisitions (in thousands, except per share
data):

<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Historical net income (loss).................................................. $ 8,438 $ (5,672)
Arden Predecessors combined net loss.......................................... -- (3,040)
Pro forma net income of the Pending Acquisitions.............................. 2,225 9,051
------- -------
Pro forma net income of the Company and Pending Acquisitions.................. $ 10,663 $ 339
------- -------
------- -------
Common Stock outstanding on a historical basis................................ 21,921 21,680
Common Stock issued in the Offering to purchase the Pending Acquisitions...... 5,574 5,574
------- -------
Common Stock outstanding-pro forma............................................ 27,495 27,254
------- -------
------- -------
Net income per share reflecting the pro forma effects of the Offering and
purchase of the Pending Acquisitions......................................... $ 0.39 $ 0.01
------- -------
------- -------
</TABLE>

The following table sets forth the pro forma effect of solely the Offering
and repayment of the debt (in thousands, except per share data):

<TABLE>
<CAPTION>
THREE MONTHS OCTOBER 9, 1996
ENDED TO
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Historical net income (loss).................................................. $ 8,438 $ (5,672)
Pro forma decrease in interest expense associated with the repayment of debt
outstanding at beginning of period........................................... 1,042 160
------- -------
Net income (loss) adjusted for repayment of debt.............................. $ 9,480 $ (5,512)
------- -------
------- -------
Common Stock outstanding on a historical basis................................ 21,921 21,680
Common Stock issued in the Offering for repayment of debt..................... 4,108 4,108
------- -------
Common Stock outstanding-pro forma............................................ 26,029 25,788
------- -------
------- -------
Net income (loss) per share reflecting the pro forma effect of the repayment
of debt...................................................................... $ 0.36 $ (0.21)
------- -------
------- -------
</TABLE>

F-16
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying consolidated balance sheet of Arden Realty,
Inc. and the combined balance sheet of the Arden Predecessors as of December 31,
1996 and 1995, respectively, and the related consolidated statements of
operations, stockholders' equity and cash flows of Arden Realty, Inc. for the
period from October 9, 1996 (commencement of operations) to December 31, 1996
and the related combined statements of operations, owners' equity and cash flows
of the Arden Predecessors for the period January 1, 1996 to October 8, 1996 and
for the years ended December 31, 1995 and 1994. Our audits also included the
financial statement schedule III, commercial office properties and accumulated
depreciation. These financial statements and the financial statement schedule
are the responsibility of the management of Arden Realty, Inc. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based upon our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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. and the combined financial position of the Arden Predecessors at December
31, 1996 and 1995, respectively, and the consolidated results of operations and
cash flows of Arden Realty, Inc. for the period October 9, 1996 to December 31,
1996 and the combined results of operations and cash flows of the Arden
Predecessors for the period January 1, 1996 to October 8, 1996 and for the years
ended December 31, 1995 and 1994 in conformity with generally accepted
accounting principles. Also, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be set forth therein.

Ernst & Young LLP

Los Angeles, California
January 31, 1997

F-17
<PAGE>
ARDEN REALTY, INC. CONSOLIDATED BALANCE SHEETS
AND
ARDEN PREDECESSORS COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
ARDEN REALTY, INC. ARDEN
----------------------------- PREDECESSORS
DECEMBER 31, DECEMBER 31,
1996 1995
MARCH 31, ------------- -------------
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Commercial office properties:
Land.................................................................. $ 131,238 $ 116,513 $ 24,193
Buildings and improvements............................................ 456,495 417,970 138,171
Tenant improvements................................................... 13,413 12,224 1,806
------------- ------------- -------------
601,146 546,707 164,170
Less: accumulated depreciation........................................ (20,510) (17,139) (3,296)
------------- ------------- -------------
Commercial office properties-net........................................ 580,636 529,568 160,874
Cash and cash equivalents............................................... 822 7,632 790
Restricted cash......................................................... -- -- 12,249
Rent and other receivables.............................................. 2,093 2,293 1,095
Deferred rent........................................................... 6,609 6,069 1,778
Prepaid financing and leasing costs, net of accumulated amortization of
$1,100, $859, and $421, respectively.................................. 4,485 4,013 1,359
Prepaid expenses and other assets....................................... 4,693 1,681 1,071
Investments in noncombined entities..................................... -- -- 3,163
------------- ------------- -------------
Total assets........................................................ $ 599,338 $ 551,256 $ 182,379
------------- ------------- -------------
------------- ------------- -------------

LIABILITIES
Mortgage loans payable.................................................. $ 137,800 $ 104,000 $ 167,638
Unsecured lines of credit............................................... 60,000 51,000 813
Accounts payable and accrued expenses................................... 9,243 6,178 3,398
Deferred interest....................................................... -- -- 884
Security deposits....................................................... 3,958 3,590 1,430
Dividends and distributions payable..................................... 8,677 8,844 --
------------- ------------- -------------
Total liabilities................................................... 219,678 173,612 174,163
------------- ------------- -------------
Minority interests in Operating Partnership............................. 47,563 45,667 --
Minority interests in combined entities................................. -- -- 100
STOCKHOLDERS' EQUITY/OWNERS' EQUITY
Preferred stock, $.01 par value, 20,000,000 shares authorized, none
issued................................................................ -- -- --
Common stock, $.01 par value, 100,000,000 shares authorized, 21,692,833
and 21,679,500 issued and outstanding, respectively................... 217 217 --
Additional paid-in capital.............................................. 331,880 337,432 --
Accumulated deficit..................................................... -- (5,672) --
Owners' equity.......................................................... -- -- 8,116
------------- ------------- -------------
Total stockholders' equity/owners' equity........................... 332,097 331,977 8,116
------------- ------------- -------------
Total liabilities and stockholders' equity/owners' equity........... $ 599,338 $ 551,256 $ 182,379
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

See accompanying notes.

F-18
<PAGE>
ARDEN REALTY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
AND
ARDEN PREDECESSORS COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ARDEN PREDECESSORS
----------------------------
ARDEN REALTY, FOR THE
ARDEN REALTY, ARDEN INC. YEARS
INC. PREDECESSORS ----------------- ENDED
----------------- ----------------- FOR THE PERIOD FOR THE PERIOD DECEMBER
FOR THE THREE FOR THE THREE OCTOBER 9, 1996 JANUARY 1, 1996 31,
MONTHS ENDED MONTHS ENDED TO TO ---------
MARCH 31, 1997 MARCH 31, 1996 DECEMBER 31, 1996 OCTOBER 8, 1996 1995
----------------- ----------------- ----------------- ----------------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Revenues from rental operations:
Rental................................. $ 21,892 $ 8,607 $ 17,041 $ 32,287 $ 8,832
Tenant reimbursements.................. 958 638 803 2,031 403
Parking--net of expenses............... 1,490 879 1,215 3,692 751
Other rental operations................ 576 280 375 1,125 250
----------------- ----------------- ----------------- ------- ---------
24,916 10,404 19,434 39,135 10,236
Other income............................. 54 415 138 1,330 1,457
----------------- ----------------- ----------------- ------- ---------
Total revenues....................... 24,970 10,819 19,572 40,465 11,693
----------------- ----------------- ----------------- ------- ---------
EXPENSES
Property expenses:
Repairs and maintenance................ 2,841 930 1,980 3,092 1,027
Utilities.............................. 2,423 706 1,844 3,456 953
Real estate taxes...................... 1,378 702 1,033 2,031 502
Insurance.............................. 384 781 290 2,460 279
Ground rent............................ 51 44 78 806 19
Marketing and other.................... 817 452 780 2,379 560
----------------- ----------------- ----------------- ------- ---------
Total property expenses.............. 7,894 3,615 6,005 14,224 3,340
General and administrative............... 918 364 753 1,758 1,377
Interest................................. 3,024 6,662 1,280 24,521 5,537
Depreciation and amortization............ 3,562 1,582 3,108 5,264 1,898
----------------- ----------------- ----------------- ------- ---------
Total expenses....................... 15,398 12,223 11,146 45,767 12,152
----------------- ----------------- ----------------- ------- ---------
Equity in net (loss) income of noncombined
entities................................. -- (84) -- (336) (116)
----------------- ----------------- ----------------- ------- ---------
Income (loss) before minority interests and
extraordinary items...................... 9,572 (1,488) 8,426 (5,638) (575)
Minority interests' share of loss (income)
of Arden Predecessors.................... -- 187 -- 721 (1)
Minority interests in Operating
Partnership.............................. (1,134) -- (993) -- --
----------------- ----------------- ----------------- ------- ---------
Income (loss) before extraordinary items... 8,438 (1,301) 7,433 (4,917) (576)
Extraordinary (loss) gain on early
extinguishment of debt, net of minority
interests' share of $1,798 for the period
October 9, 1996 to December 31, 1996..... -- -- (13,105) 1,877 --
----------------- ----------------- ----------------- ------- ---------
Net income (loss).......................... $ 8,438 $ (1,301) $ (5,672) $ (3,040) $ (576)
----------------- ----------------- ----------------- ------- ---------
----------------- ----------------- ----------------- ------- ---------
Net income (loss) per common share:
Income before extraordinary item......... $ 0.38 $ 0.34
Extraordinary loss on early
extinguishment of debt................. -- (0.60)
----------------- -----------------
Net income (loss) per common share....... $ 0.38 $ (0.26)
----------------- -----------------
----------------- -----------------
Weighted average common shares
outstanding.............................. 21,921,256 21,679,500
----------------- -----------------
----------------- -----------------

<CAPTION>
1994
---------
<S> <C>
REVENUES
Revenues from rental operations:
Rental................................. $ 5,157
Tenant reimbursements.................. 217
Parking--net of expenses............... 382
Other rental operations................ 111
---------
5,867
Other income............................. 685
---------
Total revenues....................... 6,552
---------
EXPENSES
Property expenses:
Repairs and maintenance................ 901
Utilities.............................. 581
Real estate taxes...................... 272
Insurance.............................. 50
Ground rent............................ --
Marketing and other.................... 387
---------
Total property expenses.............. 2,191
General and administrative............... 689
Interest................................. 1,673
Depreciation and amortization............ 1,143
---------
Total expenses....................... 5,696
---------
Equity in net (loss) income of noncombined
entities................................. 201
---------
Income (loss) before minority interests and
extraordinary items...................... 1,057
Minority interests' share of loss (income)
of Arden Predecessors.................... 1
Minority interests in Operating
Partnership.............................. --
---------
Income (loss) before extraordinary items... 1,058
Extraordinary (loss) gain on early
extinguishment of debt, net of minority
interests' share of $1,798 for the period
October 9, 1996 to December 31, 1996..... --
---------
Net income (loss).......................... $ 1,058
---------
---------
Net income (loss) per common share:
Income before extraordinary item.........
Extraordinary loss on early
extinguishment of debt.................
Net income (loss) per common share.......
Weighted average common shares
outstanding..............................
</TABLE>

See accompanying notes.

F-19
<PAGE>
ARDEN REALTY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNTS CAPITAL DEFICIT EQUITY
------------ ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at October 8, 1996.................................. 100
Retirement of originally issued shares.................... (100)
Common Stock bonus to certain employees................... 5,000
Sale of Common Stock net of offering costs of $36,181..... 21,674,500 $ 217 $ 397,092 $ 397,309
Distributions paid to Arden Predecessors.................. -- -- (16,554) (16,554)
Allocation of minority interests in Operating
Partnership............................................. -- -- (35,301) (35,301)
Net loss.................................................. -- -- -- $ (5,672) (5,672)
Dividends declared and payable............................ -- -- (7,805) -- (7,805)
------------ ----- ---------- ------------ ------------
Balance at December 31, 1996................................ 21,679,500 $ 217 $ 337,432 $ (5,672) $ 331,977
------------ ----- ---------- ------------ ------------
------------ ----- ---------- ------------ ------------
Common Stock issued in connection with the exercise of
options (Unaudited)....................................... 13,333 -- 267 -- 267
Stock option compensation (Unaudited)....................... -- -- 92 -- 92
Net income (Unaudited)...................................... -- -- -- 8,438 8,438
Dividend declared and payable (Unaudited)................... -- -- (5,911) (2,766) (8,677)
------------ ----- ---------- ------------ ------------
Balance at March 31, 1997 (Unaudited)....................... 21,692,833 $ 217 $ 331,880 $ -- $ 332,097
------------ ----- ---------- ------------ ------------
------------ ----- ---------- ------------ ------------
</TABLE>

See accompanying notes.

ARDEN PREDECESSORS

COMBINED STATEMENTS OF OWNERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
OWNERS'
EQUITY
-------------
<S> <C>
Balance at December 31, 1993.................................................................................. $ 2,722
Owners' contributions....................................................................................... 9,452
Owners' distributions....................................................................................... (1,389)
Net income.................................................................................................. 1,058
-------------
Balance at December 31, 1994.................................................................................. 11,843
Owners' contributions....................................................................................... 7,427
Owners' distributions....................................................................................... (10,578)
Net loss.................................................................................................... (576)
-------------
Balance at December 31, 1995.................................................................................. 8,116
Owners' contributions....................................................................................... 2,923
Owners' distributions....................................................................................... (2,309)
Net loss for the period January 1 to October 8, 1996........................................................ (3,040)
-------------
Balance at October 8, 1996.................................................................................... $ 5,690
-------------
-------------
</TABLE>

See accompanying notes.

F-20
<PAGE>
ARDEN REALTY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
AND
ARDEN PREDECESSORS COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ARDEN
REALTY, INC.
ARDEN ARDEN ---------------
REALTY, INC. PREDECESSORS FOR THE PERIOD
--------------- --------------- OCTOBER 9, 1996
FOR THE THREE FOR THE THREE TO
MONTHS ENDED MONTHS ENDED DECEMBER 31,
MARCH 31, 1997 MARCH 31, 1996 1996
--------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................... $ 8,438 $ (1,301) $ (5,672)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary loss (gain) on early extinguishment of
debt.................................................... -- -- 13,105
Minority interests in Operating Partnership............... 1,134 -- 993
Equity in net loss (income) of noncombined entities....... -- 84 --
(Loss) income allocable to minority interests of Arden
Predecessors............................................ -- (187) --
Depreciation and amortization............................. 3,562 1,582 3,108
Amortization of loan costs and fees....................... 50 30 8
Decrease (increase) in rents and other receivables........ 200 (640) 557
Increase in deferred rent................................. (540) (496) (618)
(Increase) decrease in prepaid financing and leasing
costs................................................... (745) 38 (1,201)
(Increase) decrease in prepaid expenses and other
assets.................................................. (2,887) (225) 499
Increase (decrease) in accounts payable and accrued
expenses................................................ 3,065 640 (2,911)
Increase in deferred interest............................. -- 2,046 --
Increase in security deposits............................. 368 460 797
--------------- --------------- ---------------
Net cash provided by operating activities................... 12,645 2,031 8,665
--------------- --------------- ---------------
INVESTING ACTIVITIES:
Acquisitions and improvements to commercial office
properties................................................ (53,677) (95,157) (164,763)
Decrease (increase) in investments in noncombined
entities.................................................. -- -- --
--------------- --------------- ---------------
Net cash used in investing activities....................... (53,677) (95,157) (164,763)
--------------- --------------- ---------------
FINANCING ACTIVITIES:
Cash from contributed net assets............................ -- -- 23,707
Distributions to Arden Predecessors in exchange for
partnership assets........................................ -- -- (16,554)
Proceeds from mortgage loans................................ 33,800 100,036 104,000
Repayment of mortgage loans................................. -- (1,311) (368,471)
Proceeds from unsecured lines of credit..................... 9,000 26 51,000
Repayments of unsecured lines of credit..................... -- (250) (3,737)
Payments of additional interest............................. -- -- (23,524)
Proceeds from issuance of Common Stock, net of offering
costs..................................................... 267 -- 397,309
(Increase) decrease in restricted cash...................... -- (8,018) --
Contributions from minority interests....................... -- 1,000 --
Distributions to minority interests......................... -- (13) --
Owners' contributions....................................... -- 2,500 --
Dividends paid/owners' distributions........................ (8,845) (549) --
--------------- --------------- ---------------
Net cash provided by financing activities................... 34,222 93,421 163,730
--------------- --------------- ---------------
Net (decrease) increase in cash and cash equivalents........ (6,810) 295 7,632
Cash and cash equivalents at beginning of period............ 7,632 790 --
--------------- --------------- ---------------
Cash and cash equivalents at end of period.................. $ 822 $ 1,085 $ 7,632
--------------- --------------- ---------------
--------------- --------------- ---------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of interest
capitalized............................................... $ 2,860 $ 4,260 $ 3,130
--------------- --------------- ---------------
--------------- --------------- ---------------

ARDEN PREDECESSORS
---------------------------------------------------
FOR THE
FOR THE PERIOD YEARS ENDED
JANUARY 1, 1996 DECEMBER 31,
TO ---------------------------------
OCTOBER 8, 1996 1995 1994
--------------- --------------- ---------------

<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................... $ (3,040) $ (576) $ 1,058
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary loss (gain) on early extinguishment of
debt.................................................... (1,877) -- --
Minority interests in Operating Partnership............... -- -- --
Equity in net loss (income) of noncombined entities....... 336 116 (201)
(Loss) income allocable to minority interests of Arden
Predecessors............................................ (721) 1 (1)
Depreciation and amortization............................. 5,264 1,898 1,143
Amortization of loan costs and fees....................... 202 211 21
Decrease (increase) in rents and other receivables........ (1,866) (1,074) 198
Increase in deferred rent................................. (1,735) (672) (746)
(Increase) decrease in prepaid financing and leasing
costs................................................... (1,243) (633) (582)
(Increase) decrease in prepaid expenses and other
assets.................................................. (1,136) (947) (428)
Increase (decrease) in accounts payable and accrued
expenses................................................ 2,883 2,501 267
Increase in deferred interest............................. 7,607 884 --
Increase in security deposits............................. 547 1,121 105
--------------- --------------- ---------------
Net cash provided by operating activities................... 5,221 2,830 834
--------------- --------------- ---------------
INVESTING ACTIVITIES:
Acquisitions and improvements to commercial office
properties................................................ (119,083) (127,663) (10,622)
Decrease (increase) in investments in noncombined
entities.................................................. -- 4,305 (7,299)
--------------- --------------- ---------------
Net cash used in investing activities....................... (119,083) (123,358) (17,921)
--------------- --------------- ---------------
FINANCING ACTIVITIES:
Cash from contributed net assets............................ -- -- --
Distributions to Arden Predecessors in exchange for
partnership assets........................................ -- -- --
Proceeds from mortgage loans................................ 120,485 142,501 8,139
Repayment of mortgage loans................................. (5,051) (7,060) --
Proceeds from unsecured lines of credit..................... 5,188 3,310 1,240
Repayments of unsecured lines of credit..................... (2,264) (3,244) (791)
Payments of additional interest............................. -- -- --
Proceeds from issuance of Common Stock, net of offering
costs..................................................... -- -- --
(Increase) decrease in restricted cash...................... 2,166 (11,649) 94
Contributions from minority interests....................... 1,000 -- 100
Distributions to minority interests......................... (64) -- --
Owners' contributions....................................... 2,923 7,427 9,452
Dividends paid/owners' distributions........................ (2,309) (10,578) (1,389)
--------------- --------------- ---------------
Net cash provided by financing activities................... 122,074 120,707 16,845
--------------- --------------- ---------------
Net (decrease) increase in cash and cash equivalents........ 8,212 179 (242)
Cash and cash equivalents at beginning of period............ 790 611 853
--------------- --------------- ---------------
Cash and cash equivalents at end of period.................. $ 9,002 $ 790 $ 611
--------------- --------------- ---------------
--------------- --------------- ---------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of interest
capitalized............................................... $ 15,719 $ 4,022 $ 1,547
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>

See accompanying notes.

F-21
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Arden Realty, Inc. (the "Company"), through its controlling interest in
Arden Realty Limited Partnership (the "Operating Partnership"), is engaged in
the ownership, acquisition, management, renovation, operation, and leasing of
commercial office properties (collectively, the "Properties") located in
Southern California. The Company was formed in 1996 to continue and expand the
real estate business of NAMIZ, Inc., formerly known as Arden Realty Group, Inc.
("Namiz"), and a group of affiliated entities (the "Arden Predecessors").

ORGANIZATION AND FORMATION OF THE COMPANY

The Company was incorporated in Maryland in May 1996. On October 9, 1996,
the Company completed an initial public offering (the "IPO") of 18,847,500
shares of $.01 par value common stock (the "Common Stock"). The IPO price was
$20.00 per share resulting in gross proceeds of $376,950,000. Also on October 9,
1996, the underwriters exercised their over allotment option and, accordingly,
the Company issued an additional 2,827,000 shares of Common Stock and received
gross proceeds of $56,540,000. The aggregate proceeds to the Company, net of
underwriters' discount, advisory fee and offering costs aggregating $36,181,000,
were approximately $397,309,000.

Concurrently with the consummation of the IPO, the Company and the Operating
Partnership engaged in the following transactions (the "Formation
Transactions"):

- Pursuant to separate contribution agreements (the "Contribution
Agreements"), the following additional contributions were made by certain
other participants in the Formation Transactions (the "Unit Participants")
to the Operating Partnership in exchange for limited partner interests in
the Operating Partnership ("OP Units"): (i) the remaining interests in the
Arden Predecessors and in certain of the Initial Properties (I.E., all
interests not acquired by the Company pursuant to the Option Agreements)
and (ii) certain assets, including management contracts relating to
certain of the Initial Properties and the contract rights to purchase two
properties (303 Glenoaks and 12501 East Imperial Highway). The Unit
Participants making such contributions (a total of seven individuals and
entities including Namiz, Richard Ziman, Victor Coleman, and Arthur
Gilbert), received an aggregate of 2,889,071 OP Units, with a value of
approximately $57.8 million based on the IPO price of the Common Stock.

F-22
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- The Company, through the Operating Partnership, borrowed $57 million
aggregate principal amount under a one year loan which is non-recourse to
the Company and the Operating Partnership and at the closing of the IPO
was secured by cross-collateralized and cross-defaulted first mortgage
liens on nine of the Initial Properties.

- Approximately $33 million of the net proceeds of the IPO were used by the
Operating Partnership to purchase two properties, 303 Glenoaks and 12501
East Imperial Highway.

- The Company used a portion of the proceeds of the IPO and the mortgage
financing in place to repay approximately $370 million of mortgage debt
secured by the Initial Properties and indebtedness outstanding under lines
of credit assumed by the Operating Partnership in the Formation
Transactions.

The transfer of the Initial Properties and operating interests of affiliates
of the Company to the Operating Partnership for cash or OP Units has been
accounted for at the historical cost of those interests, similar to a pooling of
interests. All transfers by nonaffiliates have been accounted for at the fair
value of the OP Units issued or cash consideration paid.

2. BASIS OF PRESENTATION AND SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES

ARDEN REALTY, INC.

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

The minority interests at December 31, 1996 represent a limited partnership
interest in the Operating Partnership of approximately 12%.

ARDEN PREDECESSORS

The Arden Predecessors were not a legal entity but rather a combination of
partnerships and an affiliated real estate management corporation. The
properties and entities were all managed by Messrs. Ziman and Coleman. In those
instances where the financial interests held by Messrs. Ziman, Coleman, Gilbert
and their affiliates were also controlling interests, the entities have been
combined in the accompanying financial statements. Minority interests have been
recorded for those entities that the affiliated Unit Participants controlled but
were not wholly owned. Where controlling interests were not held by these
affiliated Unit Participants, or the Arden Predecessor did not have the
unilateral right to refinance the debt on the property, the entities were
accounted for as investments in noncombined entities utilizing the equity method
of accounting.

RISKS AND UNCERTAINTIES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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.

F-23
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. BASIS OF PRESENTATION AND SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
COMMERCIAL OFFICE PROPERTIES AND FURNITURE, FIXTURES AND EQUIPMENT

The properties are recorded at cost less accumulated depreciation. If
impairment conditions exist, the Company makes an assessment of the
recoverability of the carrying amounts of the Properties by estimating the
future undiscounted cash flows, excluding interest charges. If the carrying
amount exceeds the aggregate future cash flows, the Company would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property. Any long-lived assets to be disposed of are to be valued at estimated
fair value less costs to sell. Based on such periodic assessments, no
impairments have been determined and, therefore, no real estate carrying amounts
have been adjusted by the Company or the Arden Predecessors.

Repairs and maintenance are expensed as incurred. Replacements and
betterments in excess of $500 are capitalized and depreciated over their
estimated useful lives.

Depreciation is calculated using the straight-line method and forty year
lives for buildings and ten year lives for building improvements. Amortization
of tenant improvements is calculated using the straight-line method over the
term of the related lease.

CASH EQUIVALENTS

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

RESTRICTED CASH

Restricted cash consisted of cash held as collateral to provide credit
enhancement for certain mortgage loans payable and cash reserves for capital
expenditures, tenant improvements, security deposits and property taxes. Upon
completion of the Formation Transactions, all restricted cash was released.

PREPAID COSTS

Prepaid leasing costs are amortized on a straight-line basis over the term
of the related lease.

Fees and costs incurred in obtaining long-term financing are amortized over
the terms of the related loan agreements.

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 rent. Property operating cost reimbursements due from
tenants for common area maintenance, real estate taxes and other recoverable
costs are recognized in the period the expenses are incurred.

STOCK OPTIONS, GRANTS AND APPRECIATION RIGHTS

The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and the related interpretations in accounting
for employee stock options, grants and appreciation rights. In accordance with
FASB No. 123, "Accounting for Stock Based Compensation," the Company has elected
to provide the required footnote disclosures (see Note 13).

F-24
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. BASIS OF PRESENTATION AND SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES

Prior to October 9, 1996 the combined and noncombined entities that made up
the Arden Predecessors consisted of a Subchapter S corporation, limited
liability companies and partnerships. Taxable income for such entities is
recorded on the separate tax returns of the membership unit holders and
individual partners and, accordingly, no provision for income taxes was recorded
in the accompanying financial statements of the Arden Predecessors.

The Company generally will not be subject to federal income taxes as long as
it qualifies as a real estate investment trust ("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, the Company is allowed to reduce taxable income by all or a portion of
distributions to stockholders and must distribute at least 95% of its taxable
income to qualify as a REIT. As dividends have eliminated taxable income, 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 1996, the Company declared a dividend of $.36 per share, payable to
record owners of the shares on December 31, 1996. For federal income tax
purposes, $.28 per share was reported to stockholders as ordinary income for
1996. The remaining $.08 per share will be reported to stockholders in 1997.

PER SHARE DATA

Net income (loss) per share of Common Stock is based upon the weighted
average number of common shares outstanding during the period. Primary earnings
per share of Common Stock are based upon the weighted average number of such
shares outstanding and the assumed equivalent shares outstanding during the
period. The assumed exercise of outstanding stock options, using the treasury
stock method, is not materially dilutive and such amounts are not presented. The
conversion of OP Units into Common Stock (see Note 7) would have no effect on
per share amounts as the OP Units share proportionately with the shares of
Common Stock in the results of the Operating Partnership.

RECLASSIFICATIONS

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

UNAUDITED INTERIM STATEMENTS

The consolidated financial statements as of March 31, 1997 and for the three
months ended March 31, 1997 and the combined financial statements for the three
months ended March 31, 1996 are unaudited. In the opinion of management, such
financial statements reflect all adjustments necessary for a fair presentation
of the results of the respective interim periods and all such adjustments are of
a normal, recurring nature.

F-25
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. COMMERCIAL OFFICE PROPERTIES

The Company and the Arden Predecessors capitalize interest and taxes related
to buildings under construction and renovation, including tenant improvements,
to the extent such assets qualify for capitalization. Total interest capitalized
was $57,000, $8,000, and $265,000 for the period October 9, 1996 to December 31,
1996 and the years ended December 31, 1995, and 1994, respectively.

Nine of the commercial office properties are encumbered by the $104,000,000
mortgage loan (Note 5)

Office space in the properties is generally leased to tenants under lease
terms which provide for the tenants to pay for increases in operating expenses
in excess of specified amounts.

Noncancelable operating leases with tenants expire on various dates through
2013. The future minimum lease payments to be received under leases existing as
of December 31, 1996, are as follows:

<TABLE>
<S> <C>
1997.......................................... $79,279,000
1998.......................................... 67,629,000
1999.......................................... 56,086,000
2000.......................................... 42,927,000
2001.......................................... 33,273,000
Thereafter.................................... 61,262,000
-----------
$340,456,000
-----------
-----------
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses. The Company leases the land
underlying either the office buildings and/or parking structures of five of its
buildings.

Future minimum ground lease payments due under existing ground leases are as
follows:

<TABLE>
<S> <C>
1997........................................... $1,440,000
1998........................................... 1,440,000
1999........................................... 1,506,000
2000........................................... 1,130,000
2001........................................... 1,093,000
Thereafter..................................... 59,214,000
----------
$65,823,000
----------
----------
</TABLE>

4. INVESTMENTS IN NONCOMBINED ENTITIES

The Company's affiliates did not own controlling financial interests in
certain of the Arden Predecessors. These investments were accounted for
utilizing the equity method of accounting. Under such accounting method, the net
equity investment of the Company's affiliates was reflected on the combined
balance sheets, and the combined statements of operations included the
affiliates' share of net income or loss from the entities. Subsequent to the
IPO, the Company acquired the nonaffiliated Cash Participants'

F-26
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. INVESTMENTS IN NONCOMBINED ENTITIES (CONTINUED)
interests and accordingly, consolidates the accounts of these properties. The
affiliates' ownership interest in each entity was as follows:

<TABLE>
<CAPTION>
AFFILIATES'
ENTITY OWNERSHIP %
- ---------------------------------------------------------------------- ---------------
<S> <C>
Bristol Encino Associates, LLC........................................ 20.9%
222 Harbor Associates, LLC............................................ 26.3%
Beverly Ventura Associates, L.P....................................... 50.0%
5000 Spring Associates Tenancy in Common.............................. 77.5%
</TABLE>

Although the Company's affiliates owned a 77.5% interest in 5000 Spring
Associates Tenancy-in-Common, they did not have the unilateral right to
refinance the property. As a result, this investment was accounted for utilizing
equity accounting.

Condensed combined balance sheets and operating information is presented
below for all noncombined entities.

CONDENSED COMBINED BALANCE SHEETS OF NONCOMBINED ENTITIES
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Assets:
Land.......................................................................... $ 16,229
Buildings and improvements.................................................... 75,376
Tenant improvements........................................................... 2,957
------------
94,562
Less: Accumulated Depreciation................................................ (3,354)
------------
91,208
Other assets.................................................................. 7,220
------------
Total assets................................................................ $ 98,428
------------
------------
Liabilities and owners' equity:
Mortgage loans payable........................................................ $ 85,545
Other liabilities............................................................. 3,248
Predecessors' equity.......................................................... 3,163
Other owners' equity.......................................................... 6,472
------------
Total liabilities and owners' equity........................................ $ 98,428
------------
------------
</TABLE>

F-27
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. INVESTMENTS IN NONCOMBINED ENTITIES (CONTINUED)
CONDENSED COMBINED STATEMENTS OF OPERATIONS OF NONCOMBINED ENTITIES
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE THREE FOR THE PERIOD FOR THE YEARS ENDED
MONTHS ENDED JANUARY 1, 1996 DECEMBER 31,
MARCH 31, 1996 TO --------------------
(UNAUDITED) OCTOBER 8, 1996 1995 1994
--------------- ----------------- --------- ---------
<S> <C> <C> <C> <C>
Revenues.................................................. $ 4,312 $ 14,274 $ 17,720 $ 7,736
------ ------- --------- ---------
Expenses:
Property operating expenses............................. 1,773 6,053 7,758 3,331
Interest................................................ 2,170 7,356 8,243 3,436
Depreciation and amortization........................... 814 2,705 2,475 1,041
------ ------- --------- ---------
Total expenses........................................ 4,757 16,114 18,476 7,808
------ ------- --------- ---------
Net (loss)............................................ $ (445) $ (1,840) $ (756) $ (72)
------ ------- --------- ---------
------ ------- --------- ---------
</TABLE>

In 1994, the noncombined entities incurred losses totaling $466,000 on
Beverly Atrium and Woodland Hills Financial Center as a result of an earthquake
in Los Angeles County, California. This amount is included in property operating
expenses.

The significant accounting policies used by the noncombined entities are
similar to those used by the Arden Predecessors.

MORTGAGE LOANS PAYABLE OF NONCOMBINED ENTITIES

Mortgage loans payable consisted of six loans collateralized by various
properties, bearing interest based on various indices plus a specified margin.
One of the loans required additional interest of $434,000 or approximately 2% of
the original principal balance. In connection with the IPO, the Company repaid
all of its mortgage debt, including the amounts payable by the noncombined
entities.

5. MORTGAGE LOANS PAYABLE

The Company has a mortgage loan due to Lehman Capital, a division of Lehman
Brothers Holdings Inc. ("Lehman"), for $104,000,000 dated October 9, 1996. The
loan is secured by nine fully cross-collateralized and cross-defaulted first
trust deeds on real property bearing interest at LIBOR plus 1.5% on or before
March 31, 1997 and LIBOR plus 2.0% for any subsequent period through maturity.
Interest only payments are to be made monthly and all principal and unpaid
interest is due on September 30, 1997.

The LIBOR rate was 5.6% and 5.7% at December 31, 1996 and 1995,
respectively.

The Arden Predecessors had two mortgage loans totaling $142,200,000, at
December 31, 1995 and two totaling $120,260,000 incurred subsequent to December
31, 1995. These loans were payable to Lehman and were secured by fourteen first
deeds of trust and one second deed of trust, bearing interest at LIBOR plus 5.5%
and 4.5%, respectively. The loan agreements required additional interest of
$21,875,000 (Tier I Additional Interest) which was due to increase the day after
the first anniversary date of the loans by $5,129,000 (Tier II Additional
Interest). One of the loans provided for additional interest of $5,129,000 to
accrue after the second anniversary of the loan (Tier III Additional Interest).

The Arden Predecessors had a mortgage loan due to banks totaling
$25,438,000, dated March 1, 1993. The loan was secured by a first trust deed on
real property, bearing interest, at the option of the Arden

F-28
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. MORTGAGE LOANS PAYABLE (CONTINUED)
Predecessors, at LIBOR plus a margin of 1.0%, the treasury rate plus a margin of
1.75%, or the Prime Rate plus 0.25%. Interest only payments were due monthly,
and monthly payments of principal began March 1, 1996.

In connection with the IPO, the Company repaid all of the Arden
Predecessor's mortgage debt. These repayments resulted in: (i) an extraordinary
gain to the Arden Predecessors of $1,877,000 relating to a partial forgiveness
of debt by one lender negotiated by the Arden Predecessors in anticipation of
the IPO; and (ii) an extraordinary loss to the Company of $14,857,000
($13,105,000, net of minority interests) relating to the payments of the
unamortized portions of the Tier I additional interest and unamortized loan
fees.

Effective January 2, 1997, the Company entered into interest rate floor and
cap transactions with a notional amount of $155,000,000. The Company has entered
into these agreements to convert floating rate liabilities to fixed rate
liabilities. The agreements fix the LIBOR portion of the interest rate on the
Company's variable rate debt at 6.6% through March 2004. The Company does not
hold or issue the interest rate floor and cap agreements for trading purposes.
The Company is exposed to possible credit risk if the counterparties fail to
perform, however, this risk is minimized by entering into the agreements with
significant financial institutions.

6. UNSECURED LINES OF CREDIT

The Company has a line of credit, with a total commitment of $150,000,000
from a group of banks led by Wells Fargo. The Company may borrow $75,000,000 on
an unsecured basis with the remainder to be secured by real property. The
aggregate outstanding balance was $51,000,000 (unsecured) at December 31, 1996.
The line accrues interest at LIBOR plus 1.5% for secured borrowings, and LIBOR
plus 1.75% for unsecured borrowings. The line is scheduled to mature on January
1, 1999, subject to a one-year extension at the request of the Company and if
certain conditions are met. The undisbursed portion at December 31, 1996 was
$99,000,000.

The Arden Predecessors had three unsecured lines of credit, with a total
commitment of $2,713,000, from two domestic banks. The aggregate outstanding
balance was $813,000 at December 31, 1995. The loans accrued interest at the
Prime Rate. These loans were repaid in connection with the IPO.

7. STOCKHOLDERS' EQUITY

An OP Unit and a share of Common Stock have essentially the same economic
characteristics as they share equally in the total net income or loss and
distributions of the Operation Partnership. Beginning on the first anniversary
of the consummation of the IPO, OP Units issued in the Formation Transactions
may be redeemed for cash or, at the election of the Company, for shares of
common stock on a one-for-one basis.

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosures of estimated fair value of financial instruments
at December 31, 1996 were determined by management, using available market
information and appropriate valuation methodologies. Considerable judgment is
necessary to interpret market data and develop estimated fair value. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.

F-29
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Cash equivalents, accounts payable, the line of credit and other financial
instruments are carried at amounts which reasonably approximate their fair value
amounts.

The mortgage note payable of the Company has an estimated aggregate fair
value which approximates its carrying value. Estimated fair value is based on
interest rates currently available to the Company for issuance of debt with
similar terms and remaining maturities.

The mortgage loans payable of the Arden Predecessors as of December 31, 1995
consisted primarily of mortgage loans with loan to value ratios in excess of
conforming loans generally offered by financial institutions. These loans
provided for variable indexed rates and, in most cases, significant additional
interest due at maturity. Accordingly, management believed it was not practical
to determine fair values due to the lack of availability of current market
information on terms, including information on appropriate discount rates for
computing discounted cash flows, of similar financial instruments. Other than
the mortgage loans payable, the carrying amounts of financial instruments
approximated their fair values.

9. NON-CASH INVESTING AND FINANCING ACTIVITIES

Additional supplemental disclosures of non-cash investing and financing
activities for the period from October 9, 1996 to December 31, 1996 are as
follows:

(1) The following summarizes the net assets contributed in exchange for
2,889,071 OP Units (in thousands):

<TABLE>
<S> <C>
ASSETS:
Commercial office properties, net................................. $ 366,324
Cash and cash equivalents......................................... 23,707
Rents and other receivables....................................... 2,850
Deferred rent receivable.......................................... 5,451
Prepaid financing and leasing costs, net.......................... 3,841
Prepaid expenses and other assets................................. 2,157
---------
Total assets.................................................... $ 404,330
---------
---------

LIABILITIES:
Notes payable--affiliates......................................... $ 368,471
Mortgages and notes payable....................................... 3,737
Unsecured lines of credit......................................... 9,089
Accrued expenses and other liabilities............................ 9,505
Deferred interest deposits........................................ 2,794
---------
Total liabilities............................................... 393,596
---------
Owners' equity contributed........................................ $ 10,734
---------
---------
</TABLE>

(2) The Company purchased a 310,910 square foot multi-tenant office building
for $9,962,000 of cash and the issuance of 55,805 OP Units valued at $1,430,000.

For the three months ended March 31, 1997 (Unaudited), the Company purchased
a 155,189 square foot office building for $18,737,000 utilizing proceeds from
the mortgage financing with Lehman and the issuance of 26,880 OP Units valued at
approximately $763,000.

F-30
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. COMMITMENTS AND CONTINGENCIES

OFFICE RENT EXPENSE

The Company leases office space for its corporate offices. The future
minimum rental payments due under the terms of the lease are $123,000 for each
of the next three years and $62,000 in the final year. The lease expires June
30, 2000. The Company has the right to renew the lease for two, one-year terms
prior to expiration of the initial lease terms, and may cancel the lease at any
time with 90 days' notice.

LITIGATION

Management does not believe there is any litigation threatened against the
Company or the Arden Predecessors other than routine litigation arising out of
the ordinary course of business, some of which is expected to be covered by
liability insurance and all of which is not expected to have a material adverse
effect on the consolidated financial statements of the Company or the combined
financial statements of the Arden Predecessors.

CONCENTRATION OF CREDIT RISK

The Company maintains its 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.

11. RELATED PARTY TRANSACTIONS

Included in other income are management fees of $95,000, and $213,000 for
1995 and 1994, respectively, from various affiliated partnerships.

12. PROPERTY ACQUISITIONS

In February 1996, the Arden Predecessors acquired four office buildings
totaling 913,000 square feet for a purchase price of $93.0 million. The
buildings are located in Beverly Hills, Culver City, Huntington Beach, and San
Diego, California. The purchase was financed by a mortgage loan from Lehman
which was repaid in connection with the IPO (see Note 5).

In July 1996, the Predecessors acquired a 192,000 square feet building
located in Long Beach, California for $19.8 million. The purchase was financed
by a mortgage loan from Lehman which was repaid in connection with the IPO (see
Note 5).

In conjunction with the IPO in October 1996, the Company acquired two
buildings totaling 298,000 square feet for $34.7 million. The buildings are
located in Burbank and Norwalk, California and were purchased with proceeds from
the IPO.

In October 1996, the Company purchased a 96,300 square foot building located
in Los Angeles, California for $11.0 million. The purchase was financed with
proceeds from the mortgage financing payable to Lehman.

In November 1996, the Company completed a series of transactions to acquire
three office properties, including an 84,500 square foot building located in El
Segundo, California for $3.5 million, two office buildings totaling 142,900
square feet located in Burbank, California for $13.0 million, and a project
located in Santa Monica, California comprised of a 55,100 square foot office and
12,700 square foot 16 unit

F-31
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

12. PROPERTY ACQUISITIONS (CONTINUED)
apartment complex for $9.5 million. All three acquisitions were funded with
proceeds from the mortgage financing payable to Lehman and its line of credit.

In December 1996, the Company completed a series of transactions to acquire
five office properties. The acquisitions included:

<TABLE>
<CAPTION>
PURCHASE PRICE
SQUARE FEET LOCATION (IN MILLIONS)
- ----------- ---------------------- ---------------
<C> <S> <C>
174,800 Ventura, CA $ 11.6
389,300 Monterey Park, CA 42.0
110,600 Sherman Oaks, CA 12.8
310,990 Los Angeles, CA 11.4
42,300 Los Angeles, CA 4.3
</TABLE>

These acquisitions were funded with proceeds from the mortgage financing
payable to Lehman, draws from the unsecured line of credit, and the issuance of
55,805 OP Units.

13. STOCK INCENTIVE PLAN

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee and directors stock options,
stock grants and stock appreciation rights because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," 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
granted by the Company equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

The Company established a stock incentive plan for the purpose of attracting
and retaining executive officers, directors and other key employees. As of
December 31, 1996, 1,500,000 of the Company's authorized shares have been
reserved for the issuance of options, grants and appreciation rights under such
plan and options to purchase an aggregate of 905,000 shares were granted on
October 4, 1996 at an exercise price equal to the IPO price of $20.00 per share.
A total of 865,000 of the options will vest in three equal annual installments
and 40,000 will vest in four equal annual installments from the grant date.

On December 2, 1996, and December 27, 1996, 10,000 and 15,000 options,
respectively, were granted at exercise prices equal to $24.38 and $26.63,
respectively (the market prices at the date of grant). All of the holders of
these options have a ten year period to exercise, and all options vest in three
equal annual installments from the respective grant dates.

Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company 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 pricing model with the following weighted-average
assumptions for 1996: risk-free interest rate of 6.7%; dividend yield 5.8%;
volatility factor of the expected market price of the Company's Common Stock of
.23; and a weighted average expected life of the option of ten 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
the

F-32
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

13. STOCK INCENTIVE PLAN (CONTINUED)
Company's employee and directors 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 its 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. The Company's
pro forma information follows (in thousands, except earnings per share
information):

<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 9, 1996
TO
DECEMBER 31, 1996
-----------------
<S> <C>
Pro forma income before extraordinary items................................ $ 7,189
Extraordinary loss on early extinguishment of debt......................... (13,105)
--------
Net loss................................................................... $ (5,916)
--------
--------
Pro forma income before extraordinary items per share...................... $ 0.33
Extraordinary loss on early extinguishment of debt......................... (0.60)
--------
Pro forma net loss......................................................... $ (0.27)
--------
--------
</TABLE>

A summary of the Company's stock option activity, and related information
for the period October 9, 1996 to December 31, 1996 follows:

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1997 (UNAUDITED)
------------------------------
OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
(000S) EXERCISE PRICE (000S) EXERCISE PRICE
----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period...... -- -- 930 $ 20.15
Granted............................... 930 $ 20.15 10 27.00
Exercised............................. -- -- (13) 20.00
Forfeited............................. -- -- (37) 20.00
----- ------ ----- ------
Outstanding, December 31, 1996........ 930 $ 20.15 890 $ 20.24
----- ------ ----- ------
----- ------ ----- ------
Exercisable at end of year............ -- -- -- --
Weighted-average fair value of options
granted............................. $ 3.40
-----
-----
</TABLE>

Exercise prices for options outstanding as of December 31, 1996 ranged from
$20.00 to $26.63. The weighted average remaining contractual life of those
options is 9.8 years.

14. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

The unaudited pro forma condensed consolidated statement of operations for
the year ended December 31, 1996 is presented as if the IPO, the Formation
Transactions, and the acquisitions of the Properties acquired during 1996 prior
to the IPO and at the time of the IPO (the "Initial Properties") and the
acquisition of the nine properties acquired subsequent to the IPO through
December 31, 1996 had all occurred at the beginning of the year.

The pro forma condensed consolidated statement of operations is not
necessarily indicative of what the Company's results of operations would have
been assuming the completion of the Formation

F-33
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

14. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(CONTINUED)
Transactions, the IPO, and acquisitions at the beginning of the period
indicated, nor does it purport to project the Company's results of operations
for any future period.

ARDEN REALTY, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(A)
EQUITY IN NET
LOSS OF
ARDEN ARDEN NONCOMBINED (B) (C) (D)
REALTY, INC. PREDECESSORS ENTITIES PRE-ACQUISITION PRE-ACQUISITION PRE-ACQUISITION
OCTOBER 9, JANUARY 1, JANUARY 1, PERIOD FOR PERIOD FOR PERIOD FOR
1996 TO 1996 TO 1996 TO PROPERTIES PROPERTIES ACQUISITIONS
DECEMBER 31, OCTOBER 8, OCTOBER 8, ACQUIRED PRIOR ACQUIRED AT THE SUBSEQUENT TO
1996 1996 1996 TO THE IPO TIME OF THE IPO THE IPO
------------ ------------ ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Revenues from rental
operations:
Rental...................... $ 17,041 $ 32,287 $ 12,828 $ 3,923 $ 3,367 $ 15,805
Tenant reimbursements....... 803 2,031 243 258 88 387
Parking, net of expenses.... 1,215 3,692 846 308 195 658
Other rental operations..... 375 1,125 357 144 142 320
------------ ------------ ------------- ------- ------- ---------------
19,434 39,135 14,274 4,633 3,792 17,170
Other income.................. 138 1,330 -- -- -- --
------------ ------------ ------------- ------- ------- ---------------
Total revenue............... 19,572 40,465 14,274 4,633 3,792 17,170
------------ ------------ ------------- ------- ------- ---------------
EXPENSES
Property expenses............. 6,005 14,224 6,053 1,489 1,534 8,426
General and administrative.... 753 1,758 -- -- -- --
Interest...................... 1,280 24,521 7,356 -- -- --
Depreciation and
amortization................. 3,108 5,264 2,705 -- -- --
------------ ------------ ------------- ------- ------- ---------------
Total expenses.............. 11,146 45,767 16,114 1,489 1,534 8,426
------------ ------------ ------------- ------- ------- ---------------
Equity in net (loss) of
noncombined entities......... -- (336) 336 -- -- --
------------ ------------ ------------- ------- ------- ---------------
Income (loss) before minority
interests and extraordinary
items........................ 8,426 (5,638) (1,504) 3,144 2,258 8,744
Minority interests............ (993) 721 (721) -- -- --
------------ ------------ ------------- ------- ------- ---------------
Income (loss) before
extraordinary items.......... 7,433 (4,917) (2,225) 3,144 2,258 8,744
Extraordinary (loss) gain on
early extinguishment of debt,
net of minority interests
share........................ (13,105) 1,877 -- -- -- --
------------ ------------ ------------- ------- ------- ---------------
Net loss...................... $ (5,672) $ (3,040) $ (2,225) $ 3,144 $ 2,258 $ 8,744
------------ ------------ ------------- ------- ------- ---------------
------------ ------------ ------------- ------- ------- ---------------
Weighted average common shares
outstanding before conversion
of OP Units.................. 21,679,500
------------
------------
Net (loss) income per common
share........................ $ (0.26)
------------
------------

ARDEN
REALTY,
PRO FORMA INC. PRO
TOTAL ADJUSTMENTS FORMA
--------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Revenues from rental
operations:
Rental...................... $ 85,251 $ 64(E) $ 85,315
Tenant reimbursements....... 3,810 -- 3,810
Parking, net of expenses.... 6,914 -- 6,914
Other rental operations..... 2,463 -- 2,463
--------- ----------- -----------
98,438 64 98,502
Other income.................. 1,468 (1,253)(F) 215
--------- ----------- -----------
Total revenue............... 99,906 (1,189) 98,717
--------- ----------- -----------
EXPENSES
Property expenses............. 37,731 108(G) 37,839
General and administrative.... 2,511 1,289(H) 3,800
Interest...................... 33,157 (22,632)(I) 10,525
Depreciation and
amortization................. 11,077 2,693(J) 13,770
--------- ----------- -----------
Total expenses.............. 84,476 (18,542) 65,934
--------- ----------- -----------
Equity in net (loss) of
noncombined entities......... -- -- --
--------- ----------- -----------
Income (loss) before minority
interests and extraordinary
items........................ 15,430 17,353 32,783
Minority interests............ (993) (2,928)(K) (3,921)
--------- ----------- -----------
Income (loss) before
extraordinary items.......... 14,437 14,425 28,862
Extraordinary (loss) gain on
early extinguishment of debt,
net of minority interests
share........................ (11,228) 11,228(L) --
--------- ----------- -----------
Net loss...................... $ 3,209 $ 25,653 $ 28,862
--------- ----------- -----------
--------- ----------- -----------
Weighted average common shares
outstanding before conversion
of OP Units.................. 21,679,500
-----------
-----------
Net (loss) income per common
share........................ $ 1.33
-----------
-----------
</TABLE>

- ------------------------

(A) To account for Arden Predecessor entities on a post-offering consolidated
basis.

(B) To record the pre-offering historical activity of the Initial Properties
acquired prior to the IPO.

F-34
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

14. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(CONTINUED)
(D) To record the pre-acquisition combined financial activity of the following
acquisitions subsequent to the Offering:

<TABLE>
<CAPTION>
PROPERTY ACQUISITION DATE
- ------------------------------------------------------------------------------------ --------------------
<S> <C>
10351 Santa Monica October 1996
2730 Wilshire November 1996
Burbank Executive Plaza November 1996
California Federal Building November 1996
Grand Avenue Plaza November 1996
Los Angeles Corporate Center December 1996
Sumitomo Bank Building December 1996
5200 West Century December 1996
Center Promenade December 1996
10350 Santa Monica December 1996
</TABLE>

(E) Increase in rental revenue to adjust the Initial Properties for straightline
rental revenue.

(F) Decrease in other income to eliminate non-recurring construction fees which
would not have been realized by the Company and certain management fees that
will not be earned.

(G) Increase in property general and administrative expense related to
additional property payroll costs relating to the Initial Properties and the
properties acquired subsequent to the IPO.

(H) Increase in general and administrative expenses related to expected level of
operations as a public real estate investment trust.

(I) Decrease in interest expense:

<TABLE>
<S> <C>
Decrease in interest expense due to repayment of mortgage loans............. $ (31,877)
Increase in interest expense related to the new mortgage loan and line of
credit with an interest rate of LIBOR plus 1.5% and LIBOR plus 1.75%,
respectively, due in one year, net of amounts capitalized.................. 9,050
Increase in amortization of finance costs related to the line of credit..... 195
---------
Net decrease in interest expense............................................ $ (22,632)
---------
---------
</TABLE>

(J) Increase in depreciation expense:

<TABLE>
<S> <C>
Increase in depreciation expense to reflect a full year of depreciation for
the 1996 Initial Properties and acquisitions subsequent to the IPO,
utilizing a 40 year useful life for buildings and a ten year useful life for
improvements................................................................ $ 2,563
Increase in depreciation due to the fair value of consideration paid in
excess of book value of interests in properties acquired from
nonaffiliates............................................................... 130
---------
$ 2,693
---------
---------
</TABLE>

(K) Adjustment for minority interest of 12% in the Operating Partnership.

(L) To eliminate extraordinary loss related to early extinguishment of debt.

F-35
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

15. OTHER EVENTS RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)

COMMERCIAL OFFICE PROPERTIES

In March 1997, the Company completed a series of transactions to acquire
four office properties located in California, including a 109,187 square foot
building located in Glendale from a related party for $10.2 million, an 80,014
square foot building in Woodland Hills for $7.5 million, a 135,415 square foot
building in Whittier for $14.3 million, and a 155,189 square foot building in
Bakersfield for $19.5 million. These acquisitions were funded with existing
working capital, and proceeds from the mortgage financing payable to Lehman and
the unsecured lines of credit. In addition, 26,880 OP Units, valued at
approximately $763,000, were issued in conjunction with the purchase of the
property located in Bakersfield.

In April 1997, the Company purchased an additional four office properties
located in California, including a 43,063 square foot building located in
Woodland Hills for $5.2 million, a 51,828 square foot building in Sherman Oaks
for $6.7 million, a 92,486 square foot building in West Los Angeles for $10.6
million and a 202,830 square foot building in Gardena for $19.1 million. These
acquisitions were funded with proceeds from the mortgage financing payable to
Lehman and draws from the unsecured lines of credit.

In May 1997, the Company purchased an additional two office properties
located in California, including a 417,463 square foot office property in
Beverly Hills, California for $59.0 million and a 61,333 square foot office
property in Bakersfield, California for $7.4 million. These acquisitions were
funded with proceeds from the the Company's revolving credit agreement.

In June 1997, the Company purchased a 597,550 square foot office property in
La Palma, California for $80.1 million. This acquisition was funded with
proceeds from the Company's Credit Facility.

MORTGAGE NOTES PAYABLE

On June 11, 1997, the Company refinanced its existing $175 million mortgage
loan payable to Lehman with a new $175 million mortgage financing (the "Mortgage
Financing") from Lehman. The Mortgage Financing is non-recourse and secured by
fully cross-collateralized and cross-defaulted first mortgage liens on 18 of the
Company's properties which are held by a special purpose subsidiary of the
Company, and has a fifteen year term. The Company may repay the principal amount
on June 10, 2004 (Anticipated Repayment Date, as defined). The Mortgage
Financing bears interest at a fixed rate of 7.5% through the Anticipated
Repayment Date and bears interest at the greater of (i) 9.52% and (ii) the sum
of 3% and the average of the yields of the U.S. Treasury Constant Maturities
with terms most nearly approximating those of U.S. Obligations having maturities
as close as possible to the seventh anniversary of the Anticipated Repayment
Date, as determined by Lehman. The Company intends to repay the Mortgage
Financing on the Anticipated Repayment Date. The Mortgage Financing requires
monthly payments of interest only with all principal due in a balloon payment at
maturity. The Mortgage Financing is subject to certain covenants and requires a
compensating balance of $4 million.

The LIBOR rate was 5.8% and 5.6% at March 31, 1997 and December 31, 1996,
respectively.

On May 5, 1997, the Company entered into a revolving credit agreement with
Wells Fargo Bank (the "Bridge Facility"). The Bridge Facility is unsecured,with
a total commitment of $110,000,000.

F-36
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

15. OTHER EVENTS RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
(CONTINUED)
On June 11, 1997, the Company amended its then existing credit facility with
a $300 million unsecured line of credit (the "Credit Facility") from a group of
banks led by Wells Fargo (the "Lenders"). The interest rate of the Credit
Facility ranges between LIBOR plus 1.2% and LIBOR plus 1.45% depending on the
leverage ratio of the Company. Once the Company achieves a long-term, unsecured,
investment grade debt rating, the interest rate may be lowered to between LIBOR
plus 0.9% to LIBOR plus 1.15% depending on such debt rating. Under certain
circumstances, the Company has the option to convert the interest rate from
LIBOR to the prime rate plus 0.5%. The outstanding principal balance of the
Credit Facility is due on June 1, 2000.

The Credit Facility is subject to customary conditions to closing and
borrowing, contains representations and warranties and defaults customary in
REIT financings, and contains financial covenants, including requirements for a
minimum tangible net worth, maximum liabilities to asset values, and minimum
interest, unsecured interest and fixed charge coverage ratios (all calculated as
defined in the Credit Facility documentation) and requirements to maintain a
pool of unencumbered properties which meet certain defined characteristics and
are approved by the Lenders. The Credit Facility also contains restrictions on,
among other things, indebtedness, investments, distributions, liens and mergers.

Pursuant to a separate agreement, Wells Fargo has advanced $26 million to
the Company which is secured by two Properties. This advance bears interest at
the Wells Fargo Prime Rate and is scheduled to mature on July 10, 1997. Upon
receipt of the Lender's consent to add the two Properties which currently secure
this advance to the Credit Facility's unencumbered pool of properties, the
Company will draw down $26 million from the Credit Facility to repay the
advance.

The City National Bank Prime Rate was 8.5% at March 31, 1997.

STOCKHOLDERS EQUITY

In March 1997, options to purchase 13,333 shares of Common Stock were
exercised.

On March 28, 1997, the Operating Partnership issued 26,880 OP Units valued
at approximately $763,000 in connection with the acquisition of the property
located in Bakersfield, California.

Net income per share was calculated using the weighted average number of
shares of Common Stock outstanding of 21,921,256 for the three months ended
March 31, 1997.

In February 1997, the Financing Accounting Standards Board (FASB), issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" which
is required to be adopted on December 31, 1997. At that time the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be excluded. This
pronouncement will not have a material impact on primary earnings per share for
the first quarter ended March 31, 1997. The Company has not yet determined what
the impact of Statement 128 will be on the calculation of fully diluted earnings
per share.

F-37
<PAGE>
ARDEN REALTY, INC.
AND ARDEN PREDECESSORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

15. OTHER EVENTS RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
(CONTINUED)
PROPOSED TRANSACTION

The Company intends to consummate a public offering (the "Offering") of
10,000,000 shares of its Common Stock. In connection with the Offering, the
Company intends to use the net proceeds to acquire nine properties for
approximately $139,630,000 and repay approximately net $101,314,000 of its
Credit Facility.

PRO FORMA NET INCOME PER SHARE

The following table sets forth the effects of solely the Offering and
repayment of debt with the proceeds of the Offering (in thousands, except per
share data):

<TABLE>
<CAPTION>
THREE MONTHS OCTOBER 9, 1996
ENDED TO
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Historical net income (loss).................................................. $ 8,438 $ (5,672)
Pro forma decrease in interest expense associated with the repayment of debt
outstanding at the beginning of the period................................... 1,042 160
------- -------
Net income adjusted for repayment of debt..................................... $ 9,480 $ (5,512)
------- -------
------- -------
Common Stock outstanding on a historical basis................................ 21,921 21,680
Common Stock issued in the Offering for repayment of debt..................... 4,108 4,108
------- -------
Shares of Common Stock outstanding -- pro forma............................... 26,029 25,788
------- -------
------- -------
Net income (loss) per share reflecting the pro forma effect of the repayment
of debt...................................................................... $ 0.36 $ (0.21)
------- -------
------- -------
</TABLE>

F-38
<PAGE>
ARDEN REALTY, INC.
SCHEDULE III
COMMERCIAL OFFICE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SQUARE FOOT DATA)
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
INITIAL COSTS BASIS STEP-UP SUBSEQUENT TO
------------------------ ------------------------ ACQUISITION
SQUARE BUILDINGS AND BUILDINGS AND ---------------
PROPERTY NAME FOOTAGE LAND IMPROVEMENTS LAND IMPROVEMENTS IMPROVEMENTS(2)
- ----------------------- ------------- -------- ------------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Century Park Center.... 243,404 $ 7,189 $ 16,742 -- -- $ 4,935
Beverly Atrium......... 61,314 4,127 11,513 $ 117 $ 328 637
Woodland Hills......... 224,955 6,566 14,754 365 880 2,005
222 South Harbor....... 175,391 515 11,199 94 2,075 1,029
425 Broadway........... 71,589 1,500 4,436 305 918 292
1950 Sawtelle.......... 103,772 1,988 7,263 -- -- 443
Bristol Plaza.......... 84,014 1,820 3,380 257 485 310
16000 Ventura.......... 174,841 1,700 17,189 185 1,929 1,021
5000 East Spring....... 163,358 -- 11,658 -- 424 1,502
70 South Lake.......... 100,133 1,360 9,097 -- -- 170
Westwood Terrace....... 135,943 2,103 16,850 -- -- 240
Westlake--5601
Lindero.............. 105,830 2,577 6,067 -- -- 1,561
The New Wilshire....... 202,704 1,200 19,902 -- -- 819
Calabasas Commerce
Center............... 123,121 1,262 9,725 -- -- 11
Long Beach--DF&G....... 272,013 -- 14,452 -- -- 23
Skyview Center......... 391,675 6,514 33,701 -- -- 1,221
400 Corporate Pointe... 164,598 3,382 17,527 75 390 351
5832 Bolsa............. 49,355 690 3,526 15 80 95
9665 Wilshire.......... 158,684 6,697 22,230 139 473 771
Imperial Bank Tower.... 540,413 3,722 35,184 64 625 3,471
100 Broadway........... 191,727 4,570 15,255 -- -- 363
Norwalk................ 122,175 4,508 5,532 -- -- --
303 Glenoaks........... 175,449 6,500 18,132 -- -- 244
10351 Santa Monica..... 96,251 3,080 7,906 -- -- 115
2730 Wilshire.......... 67,820 3,515 5,944 -- -- 33
Grand Avenue........... 84,500 620 2,832 -- -- 57
Burbank Executive
Plaza................ 60,395 1,100 4,384 -- -- 29
California Federal
Building............. 82,467 1,500 5,981 -- -- --
Center Promenade....... 174,837 2,310 9,266 -- -- --
Los Angeles Corporate
Center............... 389,293 26,781 15,139 -- -- --
5200 West Century...... 310,910 2,080 9,360 -- -- --
Sumitomo Bank
Building............. 110,641 2,560 10,257 -- -- --
10350 Santa Monica..... 42,292 861 3,456 -- -- --
------------- -------- ------------- -------- ------ -------
5,455,864 $114,897 $ 399,839 $ 1,616 $ 8,607 $ 21,748
------------- -------- ------------- -------- ------ -------
------------- -------- ------------- -------- ------ -------

TOTAL COSTS
-----------------------
BUILDINGS
AND ACCUMULATED YEAR
PROPERTY NAME LAND IMPROVEMENTS TOTAL DEPRECIATION(1) ENCUMBRANCES(3) BUILT
- ----------------------- -------- ------------ -------- --------------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Century Park Center.... $ 7,189 $ 21,677 $ 28,866 $ 3,371 1972
Beverly Atrium......... 4,244 12,478 16,722 1,281 1989
Woodland Hills......... 6,931 17,639 24,570 1,942 1972
222 South Harbor....... 609 14,303 14,912 949 $ 6,225 1986
425 Broadway........... 1,805 5,646 7,451 340 3,575 1984
1950 Sawtelle.......... 1,988 7,706 9,694 442 4,925 1988
Bristol Plaza.......... 2,077 4,175 6,252 237 -- 1982
16000 Ventura.......... 1,885 20,139 22,024 966 9,100 1980
5000 East Spring....... -- 13,584 13,584 973 6,575 1989
70 South Lake.......... 1,360 9,267 10,627 287 -- 1982
Westwood Terrace....... 2,103 17,090 19,193 514 10,125 1988
Westlake--5601
Lindero.............. 2,577 7,628 10,205 672 -- 1989
The New Wilshire....... 1,200 20,721 21,921 610 -- 1989
Calabasas Commerce
Center............... 1,262 9,736 10,998 289 -- 1990
Long Beach--DF&G....... -- 14,475 14,475 413 -- 1987
Skyview Center......... 6,514 34,922 41,436 1,063 27,300 1981
400 Corporate Pointe... 3,457 18,268 21,725 491 -- 1987
5832 Bolsa............. 705 3,701 4,406 98 -- 1985
9665 Wilshire.......... 6,836 23,474 30,310 593 16,750 1972
Imperial Bank Tower.... 3,786 39,280 43,066 990 19,425 1982
100 Broadway........... 4,570 15,618 20,188 246 -- 1987
Norwalk................ 4,508 5,532 10,040 63 -- 1978
303 Glenoaks........... 6,500 18,376 24,876 157 -- 1983
10351 Santa Monica..... 3,080 8,021 11,101 41 -- 1984
2730 Wilshire.......... 3,515 5,977 9,492 19 -- 1985
Grand Avenue........... 620 2,889 3,509 9 -- 1980
Burbank Executive
Plaza................ 1,100 4,413 5,513 13 -- 1983
California Federal
Building............. 1,500 5,981 7,481 19 -- 1978
Center Promenade....... 2,310 9,266 11,576 10 -- 1982
Los Angeles Corporate
Center............... 26,781 15,139 41,920 16 -- 1986
5200 West Century...... 2,080 9,360 11,440 10 -- 1982
Sumitomo Bank
Building............. 2,560 10,257 12,817 11 -- 1970
10350 Santa Monica..... 861 3,456 4,317 4 -- 1979
-------- ------------ -------- ------- ---------------
$116,513 $ 430,194 $546,707 $ 17,139 $ 104,000
-------- ------------ -------- ------- ---------------
-------- ------------ -------- ------- ---------------
</TABLE>

- ----------------------------------
(1) The depreciable life for buildings and improvements ranges from ten to forty
years. Tenant improvements are depreciated over the remaining term of the
lease.

(2) Includes total capitalized interest of $685.

(3) All of these Properties are collateral for a single mortgage loan. The
encumbrance allocated to an individual property is based on the related
individual release price.

F-39
<PAGE>
ARDEN REALTY, INC.

SCHEDULE III--COMMERCIAL OFFICE PROPERTIES AND ACCUMULATED DEPRECIATION
(CONTINUED)

The changes in real estate for each of the periods in the three years ended
December 31, 1996 are as follows:

<TABLE>
<CAPTION>
YEARS ENDED
OCTOBER 9, 1996 JANUARY 1, 1996 DECEMBER 31,
TO TO ---------------------
DECEMBER 31, 1996 OCTOBER 8, 1996 1995 1994
----------------- ----------------- ---------- ---------
<S> <C> <C> <C> <C>
Real estate balance at beginning of period.......... $ 283,579 $ 164,170 $ 36,507 $ 25,885
Improvements........................................ 2,366 6,626 2,245 1,955
Consolidation of non-combined entities(1)........... 96,935 -- -- --
Acquisition of properties........................... 153,604 112,783 125,418 8,667
Consideration paid in exchange for interests of
non-affiliates.................................... 10,223 -- -- --
-------- -------- ---------- ---------
Balance at end of period............................ $ 546,707 $ 283,579 $ 164,170 $ 36,507
-------- -------- ---------- ---------
-------- -------- ---------- ---------
</TABLE>

The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, and furniture and fixtures for each of the periods in the
three years ended December 31, 1996 are as follows:

<TABLE>
<CAPTION>
YEARS ENDED
OCTOBER 9, 1996 JANUARY 1, 1996 DECEMBER 31,
TO TO --------------------
DECEMBER 31, 1996 OCTOBER 8, 1996 1995 1994
----------------- ----------------- --------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of period.......................... $ 8,345 $ 3,296 $ 1,530 $ 481
Depreciation for period................................. 2,948 5,049 1,766 1,049
Consolidation of non-combined entities(1)............... 5,846 -- -- --
------- ------ --------- ---------
Balance at end of period................................ $ 17,139 $ 8,345 $ 3,296 $ 1,530
------- ------ --------- ---------
------- ------ --------- ---------
</TABLE>

- ------------------------

(1) The non-combined entities were consolidated as a result of the Company
purchasing the controlling interests as part of the Formation Transactions.

F-40
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders

Arden Realty, Inc.

We have audited the accompanying combined statement of revenue and certain
expenses of the 1996 Pre IPO Properties for the year ended December 31, 1995.
This combined statement of revenue and certain expenses is the responsibility of
the management. Our responsibility is to express an opinion on the combined
statement of revenue and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statement of revenue and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. 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 audit provides a
reasonable basis for our opinion.

The accompanying combined statement of revenue and certain expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission. Certain expenses (described in Note 1) that
would not be comparable to those resulting from the proposed future operations
of the properties are excluded and the statement is not intended to be a
complete presentation of the revenue and expenses of the properties.

In our opinion, the combined statement of revenue and certain expenses
presents fairly, in all material respects, the combined revenue and certain
expenses, as defined above, of the 1996 Pre IPO Properties for the year ended
December 31, 1995, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
April 10, 1996,
except for Note 1,
as to which the
date is October 9, 1996

F-41
<PAGE>
1996 PRE IPO PROPERTIES

COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental........................................................................ $ 19,391
Tenant reimbursements......................................................... 961
Parking--net of expenses...................................................... 1,859
Other......................................................................... 350
-----------
Total revenue............................................................... 22,561
-----------

CERTAIN EXPENSES:
Property operating and maintenance............................................ 5,401
Real estate taxes............................................................. 1,753
Insurance..................................................................... 521
Ground rent................................................................... 1,067
Bad debts..................................................................... 106
-----------
Total certain expenses...................................................... 8,848
-----------
Excess of revenue over certain expenses................................... $ 13,713
-----------
-----------
</TABLE>

See accompanying notes to combined statement of revenue and certain expenses.

F-42
<PAGE>
1996 PRE IPO PROPERTIES

NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying combined statement of revenue and certain expenses includes
the combined operations of five commercial office properties located in southern
California which were acquired in 1996 (the "Pre IPO Properties") from
nonaffiliated third parties. The properties were acquired by entities in which
substantial interests are owned by Richard Ziman, Victor Coleman, Arthur Gilbert
and related individuals and controlled by them (the "Arden Predecessors"). The
properties were purchased for cash utilizing funds from new debt financing. Two
of the properties (400 Corporate Pointe and 5832 Bolsa) were acquired from a
single seller. The Arden Predecessors, along with other unrelated parties,
entered into a series of transactions with Arden Realty, Inc., a Maryland
corporation, to form a real estate investment trust (the "REIT") to continue and
expand the business of the Arden Predecessors. All of the properties have been
managed by NAMIZ, Inc., a California corporation, since their acquisition by the
Arden Predecessors.

The Pre IPO Properties are as follows:

<TABLE>
<CAPTION>
APPROXIMATE
RENTABLE
SOUTHERN CALIFORNIA SQUARE ACQUISITION
PROPERTY NAME LOCATION FOOTAGE ACQUISITION DATE PRICE
- ------------------------------------------ -------------------- ------------ ---------------- --------------
<S> <C> <C> <C> <C>
5832 Bolsa................................ Huntington Beach 49,355 February 1996 $ 4,654,000
400 Corporate Pointe...................... Culver City 164,598 February 1996 21,206,000
9665 Wilshire............................. Beverly Hills 158,684 February 1996 29,331,000
Imperial Bank Tower....................... San Diego 540,413 February 1996 39,474,000
100 Broadway.............................. Long Beach 191,727 July 1, 1996 19,799,000
------------ --------------
1,104,777 $ 114,464,000
------------ --------------
------------ --------------
</TABLE>

BASIS OF PRESENTATION

The accompanying statement was prepared to comply with rules and regulations
of the Securities and Exchange Commission. The accompanying statement was
prepared on a combined basis because the properties were controlled by the Arden
Predecessors. There are no interproperty accounts to be eliminated.

The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of the
Pre IPO Properties have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs not
directly comparable to the future operations of the Pre IPO Properties.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

F-43
<PAGE>
1996 PRE IPO PROPERTIES

NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RISKS AND UNCERTAINTIES

2. COMMERCIAL OFFICE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1995 are as follows:

<TABLE>
<S> <C>
1996.......................................................... $19,849,000
1997.......................................................... 18,159,000
1998.......................................................... 16,405,000
1999.......................................................... 15,866,000
2000.......................................................... 14,204,000
Thereafter.................................................... 34,744,000
-----------
$119,227,000
-----------
-----------
</TABLE>

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

Office space in the properties is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts.

F-44
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying combined statement of revenue and certain
expenses of 303 Glenoaks and 12501 Imperial Highway for the year ended December
31, 1995. This combined statement of revenue and certain expenses is the
responsibility of the management of 303 Glenoaks and 12501 Imperial Highway. Our
responsibility is to express an opinion on the combined statement of revenue and
certain expenses based on our audit.

In our opinion, the combined statement of revenue and certain expenses of
303 Glenoaks and 12501 Imperial Highway presents fairly, in all material
respects, the combined revenue and certain expenses, as defined above, of 303
Glenoaks and 12501 Imperial Highway for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
April 19, 1996,
except for Note 1,
as to which the
date is October 9, 1996

F-45
<PAGE>
303 GLENOAKS AND 12501 IMPERIAL HIGHWAY
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental........................................................................ $ 4,280
Tenant reimbursements......................................................... 54
Parking--net of expenses...................................................... 133
Other......................................................................... 85
-----------
Total revenue............................................................... 4,552
-----------
CERTAIN EXPENSES:
Property operating and maintenance............................................ 1,606
Real estate taxes............................................................. 412
Insurance..................................................................... 151
Bad debts..................................................................... 18
Other......................................................................... 41
-----------
Total certain expenses...................................................... 2,228
-----------
Excess of revenue over certain expenses................................... $ 2,324
-----------
-----------
</TABLE>

See accompanying notes to combined statement of revenue and certain expenses.

F-46
<PAGE>
303 GLENOAKS AND 12501 IMPERIAL HIGHWAY
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying combined statement of revenue and certain expenses includes
the combined operations of two commercial office properties located in southern
California (the "Properties") which were acquired by Arden Realty, Inc., a
Maryland corporation (the "Company") from the same nonaffiliated third party,
concurrently with the consummation of the Company's initial public offering of
Common Stock.

The Properties are as follows:

<TABLE>
<CAPTION>
APPROXIMATE
SOUTHERN RENTABLE
CALIFORNIA SQUARE ACQUISITION
PROPERTY NAME LOCATION FOOTAGE PRICE
- ----------------------------------------------------- ---------- ------------ -------------
<S> <C> <C> <C>
303 Glenoaks......................................... Burbank 175,449 $ 24,632,000
12501 East Imperial.................................. Norwalk 122,175 10,040,000
------------ -------------
297,624 $ 34,672,000
------------ -------------
------------ -------------
</TABLE>

BASIS OF PRESENTATION

The accompanying combined statement has been prepared to comply with rules
and regulations of the Securities and Exchange Commission.

The accounts of the Properties are combined in the statement of revenue and
certain expenses and there are no interproperty accounts to be eliminated. The
accompanying statement is not representative of the actual operations for the
periods presented as certain expenses that may not be comparable to the expenses
expected to be incurred by the Company in the future operations of the
Properties have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs not
directly comparable to the future operations of the Properties.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

RISKS AND UNCERTAINTIES

F-47
<PAGE>
303 GLENOAKS AND 12501 IMPERIAL HIGHWAY
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES (CONTINUED)

2. COMMERCIAL OFFICE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1995 are as follows:

<TABLE>
<CAPTION>
<S> <C>
1996........................................................................... $ 5,310,000
1997........................................................................... 5,185,000
1998........................................................................... 4,175,000
1999........................................................................... 2,789,000
2000........................................................................... 1,770,000
Thereafter..................................................................... 1,739,000
-------------
$ 20,968,000
-------------
-------------
</TABLE>

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

Office space in the Properties is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts.

F-48
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying statement of revenue and certain expenses
of 10351 Santa Monica for the twelve months ended October 31, 1996. This
statement of revenue and certain expenses is the responsibility of the
management of 10351 Santa Monica. Our responsibility is to express an opinion on
the statement of revenue and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.

The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission. Certain expenses (described in Note 1) that would not be
comparable to those resulting from the proposed future operations of the
property are excluded and the statement is not intended to be a complete
presentation of the revenue and expenses of the property.

In our opinion, the statement of revenue and certain expenses of 10351 Santa
Monica presents fairly, in all material respects, the revenue and certain
expenses, as defined above, of 10351 Santa Monica for the twelve months ended
October 31, 1996, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
February 5, 1997

F-49
<PAGE>
10351 SANTA MONICA

STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE TWELVE MONTHS ENDED OCTOBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental............................................................................ $ 1,386
Tenant reimbursements............................................................. 9
Parking--net of expenses.......................................................... 119
Other............................................................................. 7
---------
Total revenue................................................................... 1,521
---------
CERTAIN EXPENSES:
Property operating and maintenance................................................ 527
Real estate taxes................................................................. 81
Insurance......................................................................... 36
---------
Total certain expenses.......................................................... 644
---------
Excess of revenue over certain expenses....................................... $ 877
---------
---------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-50
<PAGE>
10351 SANTA MONICA

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE TWELVE MONTHS ENDED OCTOBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statement of revenue and certain expenses includes the
operations of 10351 Santa Monica (the "Property") located in Southern California
which was acquired by Arden Realty, Inc. (the "Company") from a nonaffiliated
third party. The Property was acquired for $11,000,000 and has approximately
96,251 rentable square feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

The accompanying statement is not representative of the actual operations
for the period presented, as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of the
Property have been excluded. Excluded expenses consist of interest, depreciation
and amortization and property general and administrative costs not directly
comparable to the future operation of the Property.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

RISKS AND UNCERTAINTIES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996, are as follows:

<TABLE>
<S> <C>
1997............................................................ $1,374,000
1998............................................................ 1,121,000
1999............................................................ 991,000
2000............................................................ 805,000
2001............................................................ 677,000
Thereafter...................................................... 804,000
---------
$5,772,000
---------
---------
</TABLE>

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

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts. At October 31, 1996, two of the Property's tenants
accounted for approximately 31% of the Property's aggregate annualized base
rent.

F-51
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders

Arden Realty, Inc.

We have audited the accompanying statement of revenue and certain expenses
of 2730 Wilshire for the twelve months ended October 31, 1996. This statement of
revenue and certain expenses is the responsibility of the management of 2730
Wilshire. Our responsibility is to express an opinion on the statement of
revenue and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the statement of revenue and certain expenses of 2730
Wilshire presents fairly, in all material respects, the revenue and certain
expenses, as defined above, of 2730 Wilshire for the twelve months ended October
31, 1996, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
February 5, 1997

F-52
<PAGE>
2730 WILSHIRE

STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE TWELVE MONTHS ENDED OCTOBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental............................................................................ $ 1,039
Parking--net of expenses.......................................................... 46
Other............................................................................. 15
---------
Total revenue................................................................... 1,100
---------
CERTAIN EXPENSES:
Property operating and maintenance................................................ 340
Real estate taxes................................................................. 102
Insurance......................................................................... 44
---------
Total certain expenses.......................................................... 486
---------
Excess of revenue over certain expenses....................................... $ 614
---------
---------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-53
<PAGE>
2730 WILSHIRE

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE TWELVE MONTHS ENDED OCTOBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statement of revenue and certain expenses includes the
operations of 2730 Wilshire (the "Property") located in Southern California
which was acquired by Arden Realty, Inc. (the "Company") from a nonaffiliated
third party. The Property was acquired for $9,500,000 and has approximately
67,820 rentable square feet, of which 12,740 represents 16 multi-family housing
units, the rents of which are partially subsidized by the Department of Housing
and Urban Development. The multi-family housing units are leased on a month to
month basis.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

RISKS AND UNCERTAINTIES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996, are as follows:

<TABLE>
<S> <C>
1997............................................................ $ 991,000
1998............................................................ 903,000
1999............................................................ 888,000
2000............................................................ 755,000
2001............................................................ 528,000
Thereafter...................................................... 569,000
---------
$4,634,000
---------
---------
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses or the multi-family housing
units.

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts. At October 31, 1996, one of the Property's tenants
acccounted for approximately 15% of the Property's aggregate annualized base
rent.

F-54
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders

Arden Realty, Inc.

We have audited the accompanying combined statement of revenue and certain
expenses of Burbank Executive Plaza and California Federal Building for the
twelve months ended October 31, 1996. This combined statement of revenue and
certain expenses is the responsibility of the management of Burbank Executive
Center. Our responsibility is to express an opinion on the combined statement of
revenue and certain expenses based on our audit.

In our opinion, the combined statement of revenue and certain expenses of
Burbank Executive Plaza and California Federal Building presents fairly, in all
material respects, the combined revenue and certain expenses, as defined above,
of Burbank Executive Plaza and California Federal Building for the twelve months
ended October 31, 1996, in conformity with generally accepted accounting
principles.

Ernst & Young LLP

Los Angeles, California
February 7, 1997

F-55
<PAGE>
BURBANK EXECUTIVE PLAZA AND CALIFORNIA FEDERAL BUILDING

COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE TWELVE MONTHS ENDED OCTOBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental............................................................................ $ 2,353
Parking--net of expenses.......................................................... 173
---------
Total revenue................................................................... 2,526
---------

CERTAIN EXPENSES:
Property operating and maintenance................................................ 823
Real estate taxes................................................................. 185
Insurance......................................................................... 45
---------
Total certain expenses.......................................................... 1,053
---------
Excess of revenue over certain expenses....................................... $ 1,473
---------
---------
</TABLE>

See accompanying notes to combined statement of revenue and certain expenses.

F-56
<PAGE>
BURBANK EXECUTIVE PLAZA AND CALIFORNIA FEDERAL BUILDING

NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE TWELVE MONTHS ENDED OCTOBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying combined statement of revenue and certain expenses includes
the operations of Burbank Executive Plaza and California Federal Building (the
"Properties") located in Southern California which was acquired by Arden Realty,
Inc. (the "Company") from the same nonaffiliated third party. The Properties
were acquired for $13,000,000 and has approximately 142,862 rentable square
feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

The accounts of the Properties are combined in the statement of revenue and
certain expenses and there are no interproperty accounts to be eliminated. The
accompanying statement is not representative of the actual operations for the
period presented, as certain expenses that may not be comparable to the expenses
expected to be incurred by the Company in the future operations of the
Properties have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs not
directly comparable to the future operation of the Properties.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

RISKS AND UNCERTAINTIES

The preparation of combined financial statements, in conformity with
generally accepted accounting principles, requires management 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 combined
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996, are as follows:

<TABLE>
<S> <C>
1997............................................................ $2,186,000
1998............................................................ 1,610,000
1999............................................................ 1,319,000
2000............................................................ 668,000
2001............................................................ 601,000
Thereafter...................................................... 675,000
---------
$7,059,000
---------
---------
</TABLE>

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

Office space in the Properties is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts. At October 31, 1996, four of the Properties'
tenants accounted for approximately 56% of the Properties' aggregate annualized
base rent.

F-57
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders

Arden Realty, Inc.

We have audited the accompanying statement of revenue and certain expenses
of Center Promenade for the period January 1, 1996 to December 17, 1996. This
statement of revenue and certain expenses is the responsibility of the
management of Center Promenade. Our responsibility is to express an opinion on
the statement of revenue and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the statement of revenue and certain expenses of Center
Promenade presents fairly, in all material respects, the revenue and certain
expenses, as defined above, of Center Promenade for the period January 1, 1996
to December 17, 1996, in conformity with generally accepted accounting
principles.

Ernst & Young LLP

Los Angeles, California
February 5, 1997

F-58
<PAGE>
CENTER PROMENADE

STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE PERIOD JANUARY 1, 1996 TO DECEMBER 17, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental............................................................................ $ 2,097
Tenant reimbursements............................................................. 51
---------
Total revenue................................................................... 2,148
---------

CERTAIN EXPENSES:
Property operating and maintenance................................................ 756
Real estate taxes................................................................. 171
Insurance......................................................................... 50
Bad debts......................................................................... 5
---------
Total certain expenses.......................................................... 982
---------
Excess of revenue over certain expenses....................................... $ 1,166
---------
---------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-59
<PAGE>
CENTER PROMENADE

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE PERIOD JANUARY 1, 1996 TO DECEMBER 17, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statement of revenue and certain expenses includes the
operations of Center Promenade (the "Property") located in Southern California
which was acquired by Arden Realty, Inc. (the "Company") from a nonaffiliated
third party. The Property was acquired for $11,550,000 and has approximately
174,837 rentable square feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

RISKS AND UNCERTAINTIES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996, are as follows:

<TABLE>
<S> <C>
1997............................................................ $1,661,000
1998............................................................ 1,462,000
1999............................................................ 1,151,000
2000............................................................ 683,000
2001............................................................ 407,000
Thereafter...................................................... 213,000
---------
$5,577,000
---------
---------
</TABLE>

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

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts.

F-60
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders

Arden Realty, Inc.

We have audited the accompanying statement of revenue and certain expenses
of Los Angeles Corporate Center for the period January 1, 1996 to December 18,
1996. This statement of revenue and certain expenses is the responsibility of
the management of Los Angeles Corporate Center. Our responsibility is to express
an opinion on the statement of revenue and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the statement of revenue and certain expenses of Los Angeles
Corporate Center presents fairly, in all material respects, the revenue and
certain expenses, as defined above, of Los Angeles Corporate Center for the
period January 1, 1996 to December 18, 1996, in conformity with generally
accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
February 5, 1997

F-61
<PAGE>
LOS ANGELES CORPORATE CENTER

STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE PERIOD JANUARY 1, 1996 TO DECEMBER 18, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental................................ $5,882
Tenant reimbursements................. 128
Other................................. 288
------
Total revenue....................... 6,298
------

CERTAIN EXPENSES:
Property operating and maintenance.... 2,090
Real estate taxes..................... 367
Insurance............................. 217
Other................................. 207
------
Total certain expenses.............. 2,881
------
Excess of revenue over certain
expenses......................... $3,417
------
------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-62
<PAGE>
LOS ANGELES CORPORATE CENTER

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE PERIOD JANUARY 1, 1996 TO DECEMBER 18, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statement of revenue and certain expenses includes the
operations of Los Angeles Corporate Center (the "Property") located in Southern
California which was acquired by Arden Realty, Inc. (the "Company"), from a
nonaffiliated third party. The Property was acquired for $41,850,000 and has
approximately 389,293 rentable square feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

RISKS AND UNCERTAINTIES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996, are as follows:

<TABLE>
<S> <C>
1997.................................... $ 6,304,000
1998.................................... 3,979,000
1999.................................... 1,715,000
2000.................................... 996,000
2001.................................... 473,000
Thereafter.............................. --
-----------
$13,467,000
-----------
-----------
</TABLE>

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

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts. At December 18, 1996, two of the Property's tenants
accounted for approximately 68% of the Property's aggregate annualized base
rent.

F-63
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders

Arden Realty, Inc.

We have audited the accompanying statement of revenue and certain expenses
of 5200 West Century for the period January 1, 1996 to December 19, 1996. This
statement of revenue and certain expenses is the responsibility of the
management of 5200 West Century. Our responsibility is to express an opinion on
the statement of revenue and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the statement of revenue and certain expenses of 5200 West
Century presents fairly, in all material respects, the revenue and certain
expenses, as defined above, of 5200 West Century for the period January 1, 1996
to December 19, 1996, in conformity with generally accepted accounting
principles.

Ernst & Young LLP

Los Angeles, California
February 5, 1997

F-64
<PAGE>
5200 WEST CENTURY

STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE PERIOD JANUARY 1, 1996 TO DECEMBER 19, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental............................................................................ $ 1,021
Tenant reimbursements............................................................. 115
Parking--net of expenses.......................................................... 40
Other............................................................................. 2
---------
Total revenue................................................................... 1,178
---------

CERTAIN EXPENSES:
Property operating and maintenance................................................ 841
Real estate taxes................................................................. 135
Insurance......................................................................... 212
---------
Total certain expenses.......................................................... 1,188
---------
Excess of revenue over certain expenses....................................... $ (10)
---------
---------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-65
<PAGE>
5200 WEST CENTURY

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE PERIOD JANUARY 1, 1996 TO DECEMBER 19, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statement of revenue and certain expenses includes the
operations of 5200 West Century (the "Property") located in Southern California
which was acquired by Arden Realty, Inc. (the "Company") from a nonaffiliated
third party. The Property was acquired for $11,400,000 and has approximately
310,910 rentable square feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

RISKS AND UNCERTAINTIES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996, are as follows:

<TABLE>
<S> <C>
1997............................................................ $ 783,000
1998............................................................ 750,000
1999............................................................ 684,000
2000............................................................ 575,000
2001............................................................ 562,000
Thereafter...................................................... 3,258,000
---------
$6,612,000
---------
---------
</TABLE>

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

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts. At December 19, 1996, two of the Property's tenants
accounted for approximately 53% of the Property's aggregate annualized base
rent.

F-66
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying statement of revenue and certain expenses
of Sumitomo Bank Building for the period January 1, 1996 to December 20, 1996.
This statement of revenue and certain expenses is the responsibility of the
management of Sumitomo Bank Building. Our responsibility is to express an
opinion on the statement of revenue and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the statement of revenue and certain expenses of Sumitomo
Bank Building presents fairly, in all material respects, the revenue and certain
expenses, as defined above, of Sumitomo Bank Building for the period January 1,
1996 to December 20, 1996, in conformity with generally accepted accounting
principles.

Ernst & Young LLP

Los Angeles, California
February 5, 1997

F-67
<PAGE>
SUMITOMO BANK BUILDING

STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE PERIOD JANUARY 1, 1996 TO DECEMBER 20, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental............................................................................ $ 1,926
Tenant reimbursements............................................................. 79
Parking--net of expenses.......................................................... 254
Other............................................................................. 9
---------
Total revenue................................................................... 2,268
---------
CERTAIN EXPENSES:
Property operating and maintenance................................................ 859
Real estate taxes................................................................. 161
Insurance......................................................................... 51
---------
Total certain expenses.......................................................... 1,071
---------
Excess of revenue over certain expenses....................................... $ 1,197
---------
---------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-68
<PAGE>
SUMITOMO BANK BUILDING

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE PERIOD JANUARY 1, 1996 TO DECEMBER 20, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statement of revenue and certain expenses includes the
operations of Sumitomo Bank Building (the "Property") located in Southern
California which was acquired by Arden Realty, Inc. (the "Company") from a
nonaffiliated third party. The Property was acquired for $12,800,000 and has
approximately 110,641 rentable square feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

RISKS AND UNCERTAINTIES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996, are as follows:

<TABLE>
<S> <C>
1997............................................................ $1,655,000
1998............................................................ 1,223,000
1999............................................................ 730,000
2000............................................................ 385,000
2001............................................................ 93,000
Thereafter...................................................... --
---------
$4,086,000
---------
---------
</TABLE>

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

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts. At December 20, 1996, one of the Property's tenants
accounted for approximately 11% of the Property's aggregate annualized base
rent.

F-69
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying statement of revenue and certain expenses
of 10350 Santa Monica for the period January 1, 1996 to December 27, 1996. This
statement of revenue and certain expenses is the responsibility of the
management of 10350 Santa Monica. Our responsibility is to express an opinion on
the statement of revenue and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the statement of revenue and certain expenses of 10350 Santa
Monica presents fairly, in all material respects, the revenue and certain
expenses, as defined above, of 10350 Santa Monica for the period January 1, 1996
to December 27, 1996, in conformity with generally accepted accounting
principles.

Ernst & Young LLP

Los Angeles, California
February 5, 1997

F-70
<PAGE>
10350 SANTA MONICA

STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE PERIOD JANUARY 1, 1996 TO DECEMBER 27, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental.............................................................................. $ 629
Tenant reimbursements............................................................... 3
Parking--net of expenses............................................................ 58
Other............................................................................... 2
---------
Total revenue..................................................................... 692
---------
CERTAIN EXPENSES:
Property operating and maintenance.................................................. 271
Real estate taxes................................................................... 45
Insurance........................................................................... 11
---------
Total certain expenses............................................................ 327
---------
Excess of revenue over certain expenses......................................... $ 365
---------
---------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-71
<PAGE>
10350 SANTA MONICA

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE PERIOD JANUARY 1, 1996 TO DECEMBER 27, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statement of revenue and certain expenses includes the
operations of 10350 Santa Monica (the "Property") located in Southern California
which was acquired by Arden Realty, Inc. (the "Company") from a nonaffiliated
third party. The Property was acquired for $4,300,000 and has approximately
42,292 rentable square feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

RISKS AND UNCERTAINTIES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996, are as follows:

<TABLE>
<S> <C>
1997.................................................... $ 583,000
1998.................................................... 402,000
1999.................................................... 265,000
2000.................................................... 156,000
2001.................................................... 28,000
Thereafter.............................................. 14,000
---------
$1,448,000
---------
---------
</TABLE>

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

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts. At December 27, 1996, two of the Property's tenants
accounted for approximately 30% of the Property's aggregate annualized base
rent.

F-72
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying statements of revenue and certain expenses
of 535 Brand for each of the three years in the period ended December 31, 1996.
This statement of revenue and certain expenses is the responsibility of the
management of 535 Brand. Our responsibility is to express an opinion on the
statements of revenue and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of revenue and certain
expenses 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.

The accompanying statements of revenue and certain expenses were prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission. Certain expenses (described in Note 1) that would not
be comparable to those resulting from the proposed future operations of the
property are excluded and the statements are not intended to be a complete
presentation of the revenue and expenses of the property.

In our opinion, the statements of revenue and certain expenses of 535 Brand
present fairly, in all material respects, the revenue and certain expenses, as
defined above, of 535 Brand for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
March 4, 1997

F-73
<PAGE>
535 BRAND
STATEMENTS OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
REVENUE:
Rental................................................................................. $ 707 $ 799 $ 870
Tenant reimbursements.................................................................. 74 86 102
Parking--net of expenses............................................................... 90 92 84
--------- --------- ---------
Total revenue...................................................................... 871 977 1,056
--------- --------- ---------
CERTAIN EXPENSES:
Property operating and maintenance..................................................... 350 359 404
Real estate taxes...................................................................... 75 74 71
Insurance.............................................................................. 34 27 27
--------- --------- ---------
Total certain expenses............................................................. 459 460 502
--------- --------- ---------
Excess of revenue over certain expenses.......................................... $ 412 $ 517 $ 554
--------- --------- ---------
--------- --------- ---------
</TABLE>

See accompanying notes to statements of revenue and certain expenses.

F-74
<PAGE>
535 BRAND

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statements of revenue and certain expenses include the
operations of 535 Brand (the "Property") located in Southern California which
was acquired by Arden Realty, Inc. (the "Company"), from Arthur Gilbert, a
minority interest OP Unit holder and former member of the Board of Directors of
the Company. The Property was acquired for $10,175,000 and has 109,187 rentable
square feet.

BASIS OF PRESENTATION

The accompanying statements have been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

The accompanying statements are not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of the
Property have been excluded. Excluded expenses consist of interest, depreciation
and amortization and property general and administrative costs not directly
comparable to the future operation of the Property.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

USE OF ESTIMATES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997.................................................... $ 372,000
1998.................................................... 298,000
1999.................................................... 248,000
2000.................................................... 221,000
2001.................................................... 215,000
Thereafter.............................................. 342,000
---------
$1,696,000
---------
---------
</TABLE>

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

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts. At December 31, 1996, two of the Property's tenants
accounted for approximately 55% of the Property's aggregate annualized base
rent.

F-75
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying combined statement of revenue and certain
expenses of the Whittier Financial Center, Clarendon Crest and California Twin
Centre (the "Properties") for the year ended December 31, 1996. This combined
statement of revenue and certain expenses is the responsibility of the
management of the Properties. Our responsibility is to express an opinion on the
combined statement of revenue and certain expenses based on our audit.

The accompanying combined statement of revenue and certain expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission. Certain expenses (described in Note 1) that
would not be comparable to those resulting from the proposed future operations
of the property are excluded and the statement is not intended to be a complete
presentation of the revenue and expenses of the Properties.

In our opinion, the combined statement of revenue and certain expenses of
Whittier Financial Center, Clarendon Crest and California Twin Centre presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of the Properties for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
February 24, 1997

F-76
<PAGE>
WHITTIER FINANCIAL CENTER, CLARENDON CREST AND CALIFORNIA TWIN CENTRE

COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental............................................................................ $ 5,580
Tenant reimbursements............................................................. 225
Parking--net of expenses.......................................................... 228
Other............................................................................. 15
---------
Total revenue................................................................... 6,048
---------
CERTAIN EXPENSES:
Property operating and maintenance................................................ 1,243
Real estate taxes................................................................. 350
Insurance......................................................................... 164
---------
Total certain expenses.......................................................... 1,757
---------
Excess of revenue over certain expenses....................................... $ 4,291
---------
---------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-77
<PAGE>
WHITTIER FINANCIAL CENTER, CLARENDON CREST AND CALIFORNIA TWIN CENTRE

NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying combined statement of revenue and certain expenses include
the operations of three commercial office properties located in Southern
California (the "Properties") which were acquired by Arden Realty, Inc., a
Maryland corporation (the "Company") from the same nonaffiliated third party.

The Properties acquired are as follows:

<TABLE>
<CAPTION>
APPROXIMATE
SOUTHERN RENTABLE
CALIFORNIA SQUARE ACQUISITION
PROPERTY NAME LOCATION FOOTAGE PRICE
- -------------------------------------------- ------------------ ------------ -------------
<S> <C> <C> <C>
Whittier Financial Center................... Whittier 135,415 $ 14,327,000
Clarendon Crest............................. Woodland Hills 43,063 5,222,000
California Twin Centre...................... Bakersfield 155,189 19,528,000
-------------
$ 39,077,000
-------------
-------------
</TABLE>

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission. The accompanying
statement was prepared on a combined basis because the properties were acquired
from a single owner. There are no interproperty accounts to be eliminated.

The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of the
Properties have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs not
directly comparable to the future operation of the Properties.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

USE OF ESTIMATES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

F-78
<PAGE>
WHITTIER FINANCIAL CENTER, CLARENDON CREST AND CALIFORNIA TWIN CENTRE

NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 1996

2. COMMERCIAL OFFICE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997................................................... $5,650,000
1998................................................... 5,406,000
1999................................................... 5,214,000
2000................................................... 4,959,000
2001................................................... 3,507,000
Thereafter............................................. 4,000,000
----------
$28,736,000
----------
----------
</TABLE>

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

Office space in the Properties is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts. At December 31, 1996, five of the Properties'
tenants accounted for approximately 60% of the Properties' aggregate annualized
base rent.

F-79
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying statement of revenue and certain expenses
of 10780 Santa Monica for the year ended December 31, 1996. This statement of
revenue and certain expenses is the responsibility of the management of 10780
Santa Monica. Our responsibility is to express an opinion on the statement of
revenue and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the statement of revenue and certain expenses of 10780 Santa
Monica presents fairly, in all material respects, the revenue and certain
expenses, as defined above, of 10780 Santa Monica for the year ended December
31, 1996, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
February 28, 1997

F-80
<PAGE>
10780 SANTA MONICA
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental............................................................................ $ 1,455
Tenant reimbursements............................................................. 57
Parking--net of expenses.......................................................... 136
Other............................................................................. 2
---------
Total revenue................................................................... 1,650
---------
CERTAIN EXPENSES:
Property operating and maintenance................................................ 303
Real estate taxes................................................................. 88
Insurance......................................................................... 26
---------
Total certain expenses.......................................................... 417
---------
Excess of revenue over certain expenses....................................... $ 1,233
---------
---------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-81
<PAGE>
10780 SANTA MONICA

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statement of revenue and certain expenses include the
operations of 10780 Santa Monica (the "Property") located in Southern California
which was acquired by Arden Realty, Inc. (the "Company"), from a nonaffiliated
third party. The Property was acquired for $10,533,000 and has 92,486 rentable
square feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of the
Property have been excluded. Excluded expenses consist of interest, depreciation
and amortization and property general and administrative costs not directly
comparable to the future operation of the Property.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

USE OF ESTIMATES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997.................................................... $1,024,000
1998.................................................... 679,000
1999.................................................... 481,000
2000.................................................... 315,000
2001.................................................... 155,000
Thereafter.............................................. --
---------
$2,654,000
---------
---------
</TABLE>

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

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts.

F-82
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying statement of revenue and certain expenses
of Noble Professional Center for the year ended December 31, 1996. This
statement of revenue and certain expenses is the responsibility of the
management of Noble Professional Center. Our responsibility is to express an
opinion on the statement of revenue and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the statement of revenue and certain expenses of Noble
Professional Center presents fairly, in all material respects, the revenue and
certain expenses, as defined above, of Noble Professional Center for the year
ended December 31, 1996, in conformity with generally accepted accounting
principles.

Ernst & Young LLP

Los Angeles, California
March 7, 1997

F-83
<PAGE>
NOBLE PROFESSIONAL CENTER
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental............................................................................. $ 794
Tenant reimbursements.............................................................. 5
Parking--net of expenses........................................................... 51
---------
Total revenue.................................................................... 850
---------
CERTAIN EXPENSES:
Property operating and maintenance................................................. 258
Real estate taxes.................................................................. 59
Insurance.......................................................................... 30
---------
Total certain expenses........................................................... 347
---------
Excess of revenue over certain expenses........................................ $ 503
---------
---------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-84
<PAGE>
NOBLE PROFESSIONAL CENTER

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statement of revenue and certain expenses include the
operations of Noble Professional Center (the "Property") located in Southern
California which was acquired by Arden Realty, Inc. (the "Company"), from a
nonaffiliated third party. The Property was acquired for $6,720,000 and has
approximately 51,828 rentable square feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with the rules and
regulations of the Securities and Exchange Commission.

The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of the
Property have been excluded. Excluded expenses consist of interest, depreciation
and amortization and property general and administrative costs not directly
comparable to the future operation of the Property.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

USE OF ESTIMATES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997.................................................... $ 848,000
1998.................................................... 868,000
1999.................................................... 554,000
2000.................................................... 301,000
2001.................................................... 135,000
Thereafter.............................................. 25,000
---------
$2,731,000
---------
---------
</TABLE>

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

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts. At December 31, 1996, three of the Property's
tenants accounted for approximately 54% of the Property's aggregate annualized
base rent.

F-85
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying statement of revenue and certain expenses
of South Bay Centre for the year ended December 31, 1996. This statement of
revenue and certain expenses is the responsibility of the management of South
Bay Centre. Our responsibility is to express an opinion on the statement of
revenue and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the statement of revenue and certain expenses of South Bay
Centre presents fairly, in all material respects, the revenue and certain
expenses, as defined above, of South Bay Centre for the year ended December 31,
1996, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
May 7, 1997

F-86
<PAGE>
SOUTH BAY CENTRE
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental............................................................................ $ 2,691
Tenant reimbursements............................................................. 143
Other............................................................................. 26
---------
Total revenue................................................................... 2,860
---------
CERTAIN EXPENSES:
Property operating and maintenance................................................ 974
Real estate taxes................................................................. 190
Insurance......................................................................... 106
---------
Total certain expenses.......................................................... 1,270
---------
Excess of revenue over certain expenses....................................... $ 1,590
---------
---------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-87
<PAGE>
SOUTH BAY CENTRE

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statement of revenue and certain expenses include the
operations of South Bay Centre (the "Property") located in Southern California
which was acquired by Arden Realty, Inc. (the "Company"), from a nonaffiliated
third party. The Property was acquired for $19,100,000 and has 202,830 rentable
square feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of the
Property have been excluded. Excluded expenses consist of interest, depreciation
and amortization, land lease expense, and property general and administrative
costs not directly comparable to the future operation of the Property.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

USE OF ESTIMATES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997................................................... $11,521,000
1998................................................... 10,622,000
1999................................................... 9,466,000
2000................................................... 7,718,000
2001................................................... 5,362,000
Thereafter............................................. 6,774,000
----------
$51,463,000
----------
----------
</TABLE>

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

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts. At December 31, 1996, two of the Property's tenants
accounted for approximately 54% of the Property's aggregate annualized base
rent.

F-88
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying statement of revenue and certain expenses
of 8383 Wilshire for the year ended December 31, 1996. This statement of revenue
and certain expenses is the responsibility of the management of 8383 Wilshire.
Our responsibility is to express an opinion on the statement of revenue and
certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the statement of revenue and certain expenses of 8383
Wilshire presents fairly, in all material respects, the revenue and certain
expenses, as defined above, of 8383 Wilshire for the year ended December 31,
1996, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
April 24, 1997

F-89
<PAGE>
8383 WILSHIRE

STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental............................................................................ $ 6,628
Parking--net of expenses.......................................................... 832
Other income...................................................................... 31
---------
Total revenue................................................................... 7,491
---------
CERTAIN EXPENSES:
Property operating and maintenance................................................ 2,003
Real estate taxes................................................................. 634
Insurance......................................................................... 230
---------
Total certain expenses.......................................................... 2,867
---------
Excess of revenue over certain expenses....................................... $ 4,624
---------
---------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-90
<PAGE>
8383 WILSHIRE

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statement of revenue and certain expenses include the
operations of 8383 Wilshire (the "Property") located in Southern California
which was acquired by Arden Realty, Inc. (the "Company"), from a nonaffiliated
third party. The Property was acquired for approximately $59,000,000 and has
417,463 rentable square feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of the
Property have been excluded. Excluded expenses consist of interest, depreciation
and amortization and property general and administrative costs not directly
comparable to the future operation of the Property.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

USE OF ESTIMATES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997................................................... $5,881,000
1998................................................... 4,654,000
1999................................................... 3,981,000
2000................................................... 3,238,000
2001................................................... 2,448,000
Thereafter............................................. 3,784,000
----------
$23,986,000
----------
----------
</TABLE>

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

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts.

F-91
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying statement of revenue and certain expenses
of Parkway Center for the year ended December 31, 1996. This statement of
revenue and certain expenses is the responsibility of the management of Parkway
Center. Our responsibility is to express an opinion on the statement of revenue
and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the statement of revenue and certain expenses of Parkway
Center presents fairly, in all material respects, the revenue and certain
expenses, as defined above, of Parkway Center for the year ended December 31,
1996, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
May 6, 1997

F-92
<PAGE>
PARKWAY CENTER

STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental............................................................................ $ 911
Tenant reimbursements............................................................. 92
---------
Total revenue................................................................... 1,003
---------
CERTAIN EXPENSES:
Property operating and maintenance................................................ 208
Real estate taxes................................................................. 61
Insurance......................................................................... 7
---------
Total certain expenses.......................................................... 276
---------
Excess of revenue over certain expenses....................................... $ 727
---------
---------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-93
<PAGE>
PARKWAY CENTER

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statement of revenue and certain expenses include the
operations of Parkway Center (the "Property") located in Southern California
which was acquired by Arden Realty, Inc. (the "Company"), from a nonaffiliated
third party. The Property was acquired for $7,400,000 and has 61,333 rentable
square feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of the
Property have been excluded. Excluded expenses consist of interest, depreciation
and amortization, land lease expense, and property general and administrative
costs not directly comparable to the future operation of the Property.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

USE OF ESTIMATES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997.................................................... $1,051,000
1998.................................................... 1,002,000
1999.................................................... 915,000
2000.................................................... 863,000
2001.................................................... 519,000
Thereafter.............................................. 512,000
---------
$4,862,000
---------
---------
</TABLE>

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

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts. At December 31, 1996, three of the Property's
tenants accounted for approximately 70% of the Property's aggregate annualized
base rent.

F-94
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying statement of revenue and certain expenses
of Centerpointe La Palma for the year ended December 31, 1996. This statement of
revenue and certain expenses is the responsibility of the management of
Centerpointe La Palma. Our responsibility is to express an opinion on the
statement of revenue and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the statement of revenue and certain expenses of
Centerpointe La Palma presents fairly, in all material respects, the revenue and
certain expenses, as defined above, of Centerpointe La Palma for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
April 30, 1997

F-95
<PAGE>
CENTERPOINTE LA PALMA

STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental........................................................................... $ 9,222
Tenant reimbursements............................................................ 797
Parking--net of expenses......................................................... 9
Other............................................................................ 38
---------
Total revenue.................................................................. 10,066
---------
CERTAIN EXPENSES:
Property operating and maintenance............................................... 2,042
Real estate taxes................................................................ 620
Insurance........................................................................ 172
---------
Total certain expenses......................................................... 2,834
---------
Excess of revenue over certain expenses...................................... $ 7,232
---------
---------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-96
<PAGE>
CENTERPOINTE LA PALMA

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statement of revenue and certain expenses include the
operations of Centerpointe La Palma (the "Property") located in Southern
California which will be acquired by Arden Realty, Inc. (the "Company"), from a
nonaffiliated third party. The Property was acquired for $80,100,000 and has
597,550 rentable square feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

Excluded expenses consist of interest, depreciation and amortization, land
lease expense, and property general and administrative costs not directly
comparable to the future operation of the Property.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

USE OF ESTIMATES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997................................................... $8,123,000
1998................................................... 7,317,000
1999................................................... 5,686,000
2000................................................... 4,741,000
2001................................................... 4,117,000
Thereafter............................................. 14,960,000
----------
$44,944,000
----------
----------
</TABLE>

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

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts. At December 31, 1996, one of the Property's tenants
accounted for approximately 25% of the Property's aggregate annualized base
rent.

F-97
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying statement of revenue and certain expenses
of 1100 Glendon for the year ended December 31, 1996. This statement of revenue
and certain expenses is the responsibility of the management of 1100 Glendon.
Our responsibility is to express an opinion on the statement of revenue and
certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the statement of revenue and certain expenses of 1100
Glendon presents fairly, in all material respects, the revenue and certain
expenses, as defined above, of 1100 Glendon for the year ended December 31,
1996, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
May 30, 1997

F-98
<PAGE>
1100 GLENDON

STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental............................................................................ $ 3,421
Gain on lease termination......................................................... 308
Parking--net of expenses.......................................................... 342
Other............................................................................. 42
---------
Total revenue................................................................... 4,113
---------
CERTAIN EXPENSES:
Property operating and maintenance................................................ 1,279
Real estate taxes................................................................. 169
Insurance......................................................................... 160
---------
Total certain expenses.......................................................... 1,608
Excess of revenue over certain expenses....................................... $ 2,505
---------
---------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-99
<PAGE>
1100 GLENDON

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statement of revenue and certain expenses include the
operations of 1100 Glendon (the "Property") located in Southern California which
is to be acquired by Arden Realty, Inc. (the "Company"), from a nonaffiliated
third party. The Property is to be acquired for approximately $29,500,000 and
has 282,013 rentable square feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of the
Property have been excluded. Excluded expenses consist of interest, depreciation
and amortization and property general and administrative costs not directly
comparable to the future operation of the Property.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

USE OF ESTIMATES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997.................................................... $1,853,000
1998.................................................... 909,000
1999.................................................... 499,000
2000.................................................... 294,000
2001.................................................... 192,000
Thereafter.............................................. 286,000
---------
$4,033,000
---------
---------
</TABLE>

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

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts.

F-100
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying statement of revenue and certain expenses
of Pacific Gateway II for the year ended December 31, 1996. This statement of
revenue and certain expenses is the responsibility of the management of Pacific
Gateway II. Our responsibility is to express an opinion on the statement of
revenue and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the statement of revenue and certain expenses of Pacific
Gateway II presents fairly, in all material respects, the revenue and certain
expenses, as defined above, of Pacific Gateway II for the year ended December
31, 1996, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
June 6, 1997

F-101
<PAGE>
PACIFIC GATEWAY II
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental............................................................................ $ 3,355
Tenant reimbursements............................................................. 87
Other income...................................................................... 144
---------
Total revenue................................................................... 3,586
---------
CERTAIN EXPENSES:
Property operating and maintenance................................................ 925
Real estate taxes................................................................. 214
Insurance......................................................................... 66
---------
Total certain expenses.......................................................... 1,205
---------
Excess of revenue over certain expenses....................................... $ 2,381
---------
---------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-102
<PAGE>
PACIFIC GATEWAY II

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statement of revenue and certain expenses include the
operations of Pacific Gateway II (the "Property") located in Southern California
which will be acquired by Arden Realty, Inc. (the "Company"), from a
nonaffiliated third party. The Property will be acquired for approximately
$25,150,000 and have 223,731 rentable square feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of the
Property have been excluded. Excluded expenses consist of interest, depreciation
and amortization and property general and administrative costs not directly
comparable to the future operation of the Property.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

USE OF ESTIMATES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997................................................... $3,403,000
1998................................................... 2,829,000
1999................................................... 2,632,000
2000................................................... 2,322,000
2001................................................... 1,426,000
Thereafter............................................. 2,340,000
----------
$14,952,000
----------
----------
</TABLE>

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

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts. At December 31, 1996, three of the Property's
tenants accounted for approximately 53% of the Property's aggregate annualized
base rent.

F-103
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying combined statement of revenue and certain
expenses of 1000 Town Center and Mariner Court for the year ended December 31,
1996. This combined statement of revenue and certain expenses is the
responsibility of the management of 1000 Town Center and Mariner Court. Our
responsibility is to express an opinion on the combined statement of revenue and
certain expenses based on our audit.

The accompanying combined statement of revenue and certain expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission. Certain expenses (described in Note 1) that
would not be comparable to those resulting from the proposed future operations
of the property are excluded and the statement is not intended to be a complete
presentation of the revenue and expenses of the property.

In our opinion, the combined statement of revenue and certain expenses of
1000 Town Center and Mariner Court presents fairly, in all material respects,
the combined revenue and certain expenses, as defined above, of 1000 Town Center
and Mariner Court for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
May 2, 1997

F-104
<PAGE>
1000 TOWN CENTER AND MARINER COURT
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental............................................................................ $ 3,798
Tenant reimbursements............................................................. 93
---------
Total revenue................................................................... 3,891
---------

Certain Expenses:
Property operating and maintenance................................................ 1,007
Real estate taxes................................................................. 264
Insurance......................................................................... 79
---------
Total certain expenses.......................................................... 1,350
---------
Excess of revenue over certain expenses....................................... $ 2,541
---------
---------
</TABLE>

See accompanying notes to combined statement of revenue and certain expenses.

F-105
<PAGE>
1000 TOWN CENTER AND MARINER COURT

NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying combined statement of revenue and certain expenses includes
the operations of 1000 Town Center and Mariner Court (the "Properties") located
in Southern California which will be acquired by Arden Realty, Inc. (the
"Company"), from a nonaffiliated third party. The Properties will be acquired
for approximately $25,750,000 and have 213,089 rentable square feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of the
Properties have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs not
directly comparable to the future operation of the Properties.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

USE OF ESTIMATES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997................................................... $3,576,000
1998................................................... 3,331,000
1999................................................... 2,840,000
2000................................................... 1,923,000
2001................................................... 1,104,000
Thereafter............................................. 698,000
----------
$13,472,000
----------
----------
</TABLE>

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

Office space in the Properties is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts. At December 31, 1996, four of the Properties'
tenants accounted for approximately 55% of the Properties' aggregate annualized
base rent.

F-106
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying statement of revenue and certain expenses
of Crown Cabot for the year ended December 31, 1996. This statement of revenue
and certain expenses is the responsibility of the management of Crown Cabot. Our
responsibility is to express an opinion on the statement of revenue and certain
expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the statement of revenue and certain expenses of Crown Cabot
presents fairly, in all material respects, the revenue and certain expenses, as
defined above, of Crown Cabot for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
May 2, 1997

F-107
<PAGE>
CROWN CABOT
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUE:
Rental............................................................................ $ 3,002
Tenant reimbursements............................................................. 71
Other income...................................................................... 41
---------
Total revenue................................................................... 3,114
---------
CERTAIN EXPENSES:
Property operating and maintenance................................................ 582
Real estate taxes................................................................. 213
Insurance......................................................................... 102
---------
Total certain expenses.......................................................... 897
---------
Excess of revenue over certain expenses....................................... $ 2,217
---------
---------
</TABLE>

See accompanying notes to statement of revenue and certain expenses.

F-108
<PAGE>
CROWN CABOT

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The accompanying statement of revenue and certain expenses include the
operations of Crown Cabot (the "Property") located in Southern California which
will be acquired by Arden Realty, Inc. (the "Company"), from a nonaffiliated
third party. The Property will be acquired for approximately $28,225,000 and has
172,900 rentable square feet.

BASIS OF PRESENTATION

The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.

The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of the
Property have been excluded. Excluded expenses consist of interest, depreciation
and amortization and property general and administrative costs not directly
comparable to the future operation of the Property.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

USE OF ESTIMATES

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

2. COMMERCIAL OFFICE PROPERTY

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997............................................................ $3,218,000
1998............................................................ 2,359,000
1999............................................................ 1,579,000
2000............................................................ 1,072,000
2001............................................................ 465,000
Thereafter...................................................... 12,000
---------
$8,705,000
---------
---------
</TABLE>

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

Office space in the Property is generally leased to tenants under lease
terms which provide for the tenants to pay increases in operating expenses in
excess of specified amounts. At December 31, 1996, two of the Property's tenants
accounted for approximately 33% of the Property's aggregate annualized base
rent.

F-109
<PAGE>
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No dealer, salesman or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or any of the Underwriters. This
Prospectus does not constitute an offer of any securities other than those to
which it relates or an offer to sell, or a solicitation of an offer to buy, to
any person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that the information
contained herein is correct as of any time subsequent to the date hereof.

---------------------

SUMMARY TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
---
<S> <C>
Prospectus Summary................................. 1
Risk Factors....................................... 15
The Company........................................ 26
Business and Growth Strategies..................... 28
Use of Proceeds.................................... 31
Price Range of Common Stock and Distribution
History.......................................... 31
Capitalization..................................... 33
Selected Financial Information..................... 34
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 38
Southern California Economy and Office Markets..... 50
Properties......................................... 55
Management......................................... 93
Formation Transactions............................. 101
Policies With Respect to Certain Activities........ 103
Certain Transactions............................... 106
Partnership Agreement.............................. 107
Principal and Management Stockholders.............. 111
Capital Stock...................................... 112
Certain Provisions of Maryland Law and the
Company's Charter and Bylaws..................... 115
Shares Available for Future Sale................... 118
Federal Income Tax Considerations.................. 119
ERISA Considerations............................... 133
Underwriting....................................... 136
Experts............................................ 137
Legal Matters...................................... 138
Additional Information............................. 138
Glossary........................................... 139
Index to Financial Statements...................... F-1
</TABLE>

10,000,000 SHARES

ARDEN REALTY, INC.

COMMON STOCK

-------------------

PROSPECTUS
, 1997

---------------------

LEHMAN BROTHERS

ALEX. BROWN & SONS
INCORPORATED

A.G. EDWARDS & SONS, INC.

MORGAN STANLEY DEAN WITTER

SMITH BARNEY INC.

EVEREN SECURITIES, INC.

RAYMOND JAMES &
ASSOCIATES, INC.

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