Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1998
Commission file number 1-12193
ARDEN REALTY, INC.
(Exact name of registrant as specified in its charter)
Maryland 9504578533
(State or other jurisdiction of (I.R.S. EmployerIdentification No.)
incorporation or organization)
11601 Wilshire Boulevard,
4th Floor
Los Angeles, California 90025-1740
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code: (310) 966-2600
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of April 30, 1998, there were 62,319,631 shares of the registrant's
Common Stock, $.01 par value, issued and outstanding.
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Arden Realty, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
<S> <C> <C>
March 31, December 31,
1998 1997
--------- ------------
Assets (Unaudited)
Commercial properties:
Land $ 451,641 $ 241,440
Buildings and improvements 1,548,783 975,791
Tenant improvements 28,059 21,801
---------- ----------
2,028,483 1,239,032
Less: accumulated depreciation (46,763) (35,860)
---------- ----------
1,981,720 1,203,172
Cash and cash equivalents 4,262 5,300
Restricted cash 6,223 4,040
Rent and other receivables 9,927 10,203
Mortgage notes receivable, net 14,452 14,430
Deferred rent 10,064 8,811
Prepaid financing and leasing
costs, net of accumulated
amortization of $3,420 and
$2,649, respectively 14,374 12,680
Prepaid expenses and other assets 12,713 25,368
--------- --------
Total assets $2,053,735 $1,284,004
========== ==========
Liabilities
Mortgage loans payable $ 540,250 $ 237,166
Unsecured lines of credit 38,100 240,400
Accounts payable and
accrued expenses 24,659 16,458
Security deposits 9,871 6,847
Dividends payable 25,708 14,177
---------- ---------
Total liabilities 638,588 515,048
========== =========
Minority interests 70,355 95,973
Stockholders' Equity
Preferred stock, $.01 par value,
20,000,000 shares
authorized, none issued -- --
Common Stock, $.01 par value,
100,000,000 shares authorized,
61,209,499 and 35,796,704
issued and outstanding,
respectively 612 358
Additional paid-in capital 1,344,180 672,625
----------- ----------
Total stockholders' equity 1,344,792 672,983
----------- ----------
Total liabilities and
stockholders' equity $2,053,735 $1,284,004
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
Arden Realty, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
<S> <C> <C>
Three Months Ended
March 31,
--------------------
1998 1997
--------- ---------
(Unaudited)
Revenues $54,759 $24,916
Property operating expenses 16,738 7,894
------- -------
38,021 17,022
General and administrative 1,635 918
Interest 8,612 3,024
Depreciation and amortization 11,296 3,562
Interest and other income (1,458) (54)
------- ------
Income before minority interests 17,936 9,572
Minority interests (1,752) (1,134)
------- -------
Net income $16,184 $ 8,438
======= =======
Net income per common share:
Basic $ .34 $ .39
======= =======
Diluted $ .34 $ .38
======= =======
Weighted average common shares:
Basic 47,617 21,682
======= =======
Diluted 47,834 21,921
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
Arden Realty, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<S> <C> <C>
Three Months Ended
March 31,
-------------------
OPERATING ACTIVITIES: 1998 1997
-------- --------
(Unaudited)
Net income $16,184 $ 8,438
Adjustments to reconcile net
income to net cash provided
by operating activities:
Minority interests 1,752 1,134
Depreciation and amortization 11,296 3,562
Amortization of loan costs and fees 378 50
Changes in operating assets and liabilities:
Rents and other receivables 254 200
Deferred rent (1,253) (540)
Prepaid financing and leasing costs (2,465) (745)
Prepaid expenses and other assets 12,655 (2,887)
Accounts payable and accrued expenses 8,201 3,065
Security deposits 3,024 368
------- -------
Net cash provided by operating activities 50,026 12,645
------- -------
INVESTING ACTIVITIES:
Acquisitions and improvements
to commercial properties (811,151) (53,677)
-------- -------
FINANCING ACTIVITIES:
Proceeds from mortgage loans 303,220 33,800
Repayments of mortgage loans (136) --
Proceeds from unsecured lines of credit 85,650 9,000
Repayments of unsecured lines of credit (287,950) --
Increase in restricted cash (2,183) --
Proceeds from issuance of Common Stock,
net of offering costs 677,434 267
Distributions to minority interests (1,771) --
Dividends paid (14,177) (8,845)
-------- -------
Net cash provided by financing activities 760,087 34,222
-------- -------
Net decrease in cash and cash equivalents (1,038) (6,810)
Cash and cash equivalents at beginning
of period 5,300 7,632
------- ------
Cash and cash equivalents at end of period $ 4,262 $ 822
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for interest,
net of amount capitalized $ 8,002 $ 2,860
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
Arden Realty, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
(Unaudited)
1. Description of Business
Arden Realty, Inc. (the "Company"), through its controlling
interest in Arden Realty Limited Partnership (the "Operating
Partnership") and its other subsidiaries, is engaged in owning,
acquiring, managing, leasing, and renovating commercial
properties located in Southern California. As of March 31, 1998
the Company's portfolio of properties included 128 commercial
properties with approximately 16.5 million rentable square feet
(the "Properties").
The accompanying consolidated financial statements include
the accounts of the Company, the Operating Partnership and its
other subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Minority interests for the three month periods ended March
31, 1998 and 1997 includes limited partnership interests in the
Operating Partnership of approximately 6.8% and 12%,
respectively.
2. Interim Financial Data
The accompanying consolidated financial statements should be
read in conjunction with the Company's 1997 Annual Report on Form
10-K as filed with the Securities and Exchange Commission. The
accompanying financial information reflects all adjustments which
are, in the opinion of management, of a normal recurring nature
and necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for the interim
periods. Interim results of operations are not necessarily
indicative of the results to be expected for the full year.
3. New Accounting Standards
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131,
"Segment Reporting" ("Statement 131"). Statement 131 is
effective for fiscal years beginning after December 15, 1997 and
requires disclosure of selected information about reportable
segments. Implementation of Statement 131 will have no impact on
the Company's reporting of results of operations.
In March 1998, the Financial Accounting Standards Board
Emerging Issues Task Force ("EITF") reached a consensus on Issue
97-11, concluding that internal preacquisition costs related to
the purchase of an operating property should be expensed as
incurred. The Company has adopted the provisions of EITF Abstract
97-11, and management does not believe that the Company's results
of operations will be materially impacted.
4. Acquisitions
In January 1998, the Company purchased five office
properties located in Southern California including a 58,105
square foot office property located in Newhall ("Sunset Pointe
Plaza") for approximately $8.5 million, a 167,045 square foot
office property located in San Diego ("Activity Business Center")
for approximately $14.9 million, a 326,227 square foot office
property located in Beverly Hills ("9100 Wilshire") for
approximately $65.1 million, a 49,639 square foot office property
located in Westlake Village ("Westlake Gardens") for
approximately $7.3 million, and a 282,013 square foot office
property located in Los Angeles ("1100 Glendon") for
approximately $29.6 million. These acquisitions were funded with
existing working capital, draws from the Company's Amended Credit
Facility, proceeds from the Bridge Loan, (as defined below) and
the assumption of two mortgage loans payable secured by the
Activity Business Center and 1100 Glendon Properties.
The Company assumed a mortgage note payable of approximately
$8.2 million in connection with the acquisition of Activity
Business Center. The note bears interest at 2.2% per annum plus
the yield to maturity at the bid price of obligations of the
United States Treasury maturing on April 30, 2006 (with an
effective rate of 8.85% at March 31, 1998). The note requires
monthly payments of principal, interest, and impound payments for
taxes and insurance, and matures on May 1, 2006. This mortgage
note prohibits prepayment prior to May 1, 2002.
The Company also assumed a mortgage note payable of
approximately $15.4 million in connection with the acquisition of
1100 Glendon. The note bears interest at 8.09% per annum,
requires monthly payments of principal and interest and matures
on April 30, 2003.
The Company borrowed $60.0 million from Lehman Brothers
Realty Corporation (the "Bridge Loan") in connection with the
acquisition of 9100 Wilshire. The Bridge Loan is secured by
three of the Company's properties, bears interest at LIBOR plus
.75% per annum (with an effective rate of 6.434% at March 31,
1998), requires monthly payments of interest, and matures on May
20, 1998.
On March 1, 1998, the Company acquired a portfolio of 50
primarily office and R&D/industrial properties (the "LBA
Portfolio"), aggregating approximately 5.2 million rentable
square feet for a purchase price of approximately $619.9 million,
including $1.8 million of closing costs and the estimated $3.6
million value of warrants to purchase 2.5 million shares of the
Company's Common Stock, at a price of $29.59 per share, subject
to adjustment. The LBA Portfolio consists of 34 office
properties containing approximately 3.6 million rentable square
feet, 15 R&D/industrial properties containing approximately 1.5
million rentable square feet, and one retail property containing
144,225 rentable square feet, all located in Southern California.
As partial consideration for this acquisition, the Operating
Partnership issued 203,420 Operating Partnership Units ("OP
Units") valued at approximately $5.8 million. The Company also
borrowed $200 million from Lehman Brothers Realty Corporation
(the "Lehman Brothers Loan"). The $200 million mortgage loan is
secured by 40 properties, bears interest at LIBOR plus 1.0% per
annum (with an effective rate of 6.684% at March 31, 1998),
requires monthly payments of interest, and matures on July 1,
1998. See Note 7.
On March 25, 1998, the Company exercised its option to
purchase the remaining 25% interest in the World Savings Center
for $27.5 million. In connection with this purchase, the Company
assumed an additional $15.0 million of debt under an existing
mortgage note (the "World Savings Note"). See Note 7.
On March 31, 1998, the Company acquired the undeveloped
commercial property portions of the 70-acre Howard Hughes Center
(the "Center") for approximately $38.6 million. The Center,
located in El Segundo, California, is a mixed-use development
currently containing three office buildings, an executive health
and athletic club and entitlements for an additional 1.3 million
square feet of office space. This acquisition was funded with
existing working capital and a draw on the Company's Amended
Credit Facility.
5. 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 Operating
Partnership. OP Units may be redeemed for cash or, at the
election of the Company, for shares of Common Stock on a one-for-
one basis.
In January 1998, 226,880 OP Units were exchanged for Common
Stock.
On February 23, 1998, the Company completed the most recent
of three February 1998 equity offerings (the "February 1998
Offerings") resulting in the issuance of an aggregate of
25,185,915 shares of Common Stock with gross proceeds totaling
approximately $713.2 million. Aggregate proceeds to the Company
from the February 1998 Offerings, net of underwriters' discount
and offering costs aggregating approximately $35.7 million, were
approximately $677.5 million. Of these February 1998 Offerings,
2,185,915 shares of Common Stock were issued to the trustees of
two unrelated registered unit investment trusts and the remaining
23,000,000 shares were issued in a secondary public offering. The
Company used the net proceeds from the February 1998 Offerings to
fund the acquisition of the LBA Portfolio described above, to
repay the outstanding balances on its lines of credit and for
working capital.
On March 1, 1998, the Operating Partnership issued 203,420
OP Units valued at approximately $5.8 million in connection with
acquisition of the LBA Portfolio and issued warrants to purchase
2.5 million shares of Common Stock at a price of $29.59 per
share, subject to adjustment (see Note 4).
On March 17, 1998, the Company declared a first quarter
dividend of $.42 per share to shareholders of record on March 31, 1998.
<TABLE>
6. Revenue From Rental Operations and Property Operating Expenses
<S> <C> <C>
Three Months Ended
March 31,
-------------------
1998 1997
-------- -------
(in thousands)
(Unaudited)
Revenues From Rental Operations:
Rental $48,689 $21,892
Tenant reimbursements 1,883 958
Parking, net of expense 2,650 1,490
Other rental operations 1,537 576
------- -------
Total rental revenues 54,759 24,916
------- -------
Property Operating Expenses:
Repairs and maintenance 5,352 2,841
Utilities 4,616 2,423
Real estate taxes 4,100 1,378
Insurance 806 384
Ground rent 178 51
Marketing and other 1,686 817
------ ------
Total property operating expenses 16,738 7,894
------ ------
$38,021 $17,022
======= =======
</TABLE>
7. Subsequent Events
In December 1997, the Company issued 542,382 OP Units in
connection with its acquisition of the World Savings Center
office property. On April 16, 1998, the Company redeemed these
OP Units at a cost of approximately $16.3 million based on the
original issuance price of the OP Units.
In April 1998, the Company acquired two office properties
located in Southern California including a 35,696 square foot
office property located in West Los Angeles ("11075 Santa
Monica") for approximately $4.9 million, funded with proceeds
from existing working capital and a draw on one of the Company's
lines of credit and a 235,926 square foot office property located
in El Segundo ("Continental Grand Plaza") for approximately $47.5
million, funded with proceeds from existing working capital, a
draw on one of the Company's lines of credit and the issuance of
10,412 OP Units valued at approximately $300,000.
On April 16, 1998, the Company refinanced $100 million of
the $200 million Lehman Brothers Loan at a fixed rate of 6.78%
per annum.
On April 23, 1998, the Company completed an offering (the
"April 1998 Offering") of 1,110,132 shares of Common Stock. The
shares from the April 1998 Offering were issued to the trustee of
a registered unit investment trust at an offering price of
$28.375 per share. Gross proceeds from this offering were
approximately $31.5 million. The aggregate proceeds to the
Company, net of underwriters' discount and offering costs
aggregating approximately $1.8 million, were approximately $29.7
million.
On May 1, 1998, the $60.0 million World Savings Note was
repaid in full with proceeds from a draw on the Company's Amended
Credit Facility.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion relates to the consolidated
financial statements of the Company and should be read in
conjunction with the financial statements and related notes
thereto included in the Company's 1997 Annual Report on Form 10-K.
Since its initial public offering in October 1996, the
Company has pursued a strategy of acquiring underperforming
commercial properties, properties in need of renovation,
properties which provide attractive yields with stable cash flow,
and more recently fully entitled commercial undeveloped real
estate, all in Southern California submarkets where the Company
can utilize its local market expertise. The Company has also used
its active in-house management, leasing and finance expertise to
maximize growth in cash flow. In particular, during the three
months ended March 31, 1998 the Company has:
. Raised approximately $713.2 million of equity in a series of
three public offerings. Proceeds to the Company from these
offerings, net of underwriters' discount, advisory fee and
offering costs aggregating approximately $35.7 million, were
approximately $677.5 million.
. Acquired a total of 56 commercial properties, all located in
Southern California, with approximately 6.2 million rentable
square feet.
. Acquired the undeveloped commercial property portions of the
70-acre Howard Hughes Center (the "Center") for approximately
$38.6 million. The Center, located in El Segundo, California, is
a mixed-use development currently containing three office
buildings, an executive health and athletic club and entitlements
for an additional 1.3 million square feet of office space.
The Company intends to continue focusing on maximizing
growth in cash flow and enhancing the value of its portfolio of
commercial properties. These objectives will be pursued by active
management of the Company's existing portfolio, through strategic
acquisitions and through development of new office or
R&D/industrial properties in submarkets where it has local market
expertise.
The Company's financial position and operating results are
primarily comprised of its portfolio of commercial properties and
income derived therefrom. Therefore, financial data from period
to period will be affected by the timing of any significant
property acquisitions. Due to the Company's aggressive
acquisition program, the Company expects there will be
significant variability in financial data from period to period.
Recent Developments
On April 23, 1998, the Company completed an offering of
1,110,132 shares of Common Stock. These shares were issued to
the trustee of a registered unit investment trust at an offering
price of $28.375 per share. Gross proceeds from this offering
were approximately $31.5 million. The aggregate proceeds to the
Company, net of underwriter's discount and offering costs
aggregating approximately $1.8 million, were approximately $29.7
million.
<TABLE>
Results of Operations
Comparison of the three months ended March 31, 1998 to the
three months ended March 31, 1997.
<S> <C> <C> <C> <C>
Three Months
Ended Dollar Percent
March 31, Change Change
---------------- ------ --------
1998 1997
-------- -------
(in thousands, except percentage data)
Revenue (Unaudited)
Revenues from rental operations:
Rental $48,689 $21,892 $26,797 122%
Tenant reimbursements 1,883 958 925 97
Parking, net of expense 2,650 1,490 1,160 78
Other rental operations 1,537 576 961 167
------- ------ ------ -----
54,759 24,916 29,843 120
Other income 1,458 54 1,404 2,600
------- ------ ------ -----
Total revenue $56,217 $24,970 $31,247 125%
======= ======= ======= =====
Expenses
Property operations:
Repairs and maintenance $ 5,352 $ 2,841 $ 2,511 88%
Utilities 4,616 2,423 2,193 91
Real estate taxes 4,100 1,378 2,722 198
Insurance 806 384 422 110
Ground rent 178 51 127 249
Marketing and other 1,686 817 869 106
------- ------ ------ ----
Total property expenses 16,738 7,894 8,844 112
General and administrative 1,635 918 717 78
Interest 8,612 3,024 5,588 185
Depreciation and amortization 11,296 3,562 7,734 217
------- ------ ------ ----
Total expenses $38,281 $15,398 $22,883 149%
======= ======= ======= ====
</TABLE>
Rental revenue increased approximately $26.8 million or 122%
for the three months ended March 31, 1998 compared to the same
period in 1997. Rental revenue from properties owned for the
entire three month periods ended March 31, 1998 and 1997
increased approximately $37,000 in 1998 compared to the prior
year, primarily from an overall increase in rental rates at these
properties, partially offset by the reversing effect of straight-
line rent adjustments for certain leases in 1998. Rental revenue
from properties acquired after January 1, 1997 was approximately
$26.7 million higher for the three months ended March 31, 1998
compared to the same period in 1997, primarily due to the timing
of these acquisitions.
Tenant reimbursements increased approximately $925,000 or
97% for the three months ended March 31, 1998 compared to the
same period in 1997. Tenant reimbursements from properties owned
for the entire three month periods ended March 31, 1998 and 1997
decreased approximately $76,000 for the three months ended March
31, 1998 compared to the same period in 1997, primarily as a
result of resetting base years for leases that were retenanted.
Tenant reimbursements from properties acquired after January 1,
1997 were approximately $1.0 million higher for the three months
ended March 31, 1998 compared to the same period in 1997,
primarily due to the timing of these acquisitions.
Parking revenue increased approximately $1.2 million or 78%
for the three months ended March 31, 1998 compared to the same
period in 1997. Parking revenue from properties owned for the
entire three month periods ended March 31, 1998 and 1997
increased approximately $26,000 in 1998 compared to 1997,
primarily from increased occupancy in 1998 at certain properties.
Parking revenue from the properties acquired after January 1,
1997 was approximately $1.1 million higher for the three months
ended March 31, 1998 compared to the same period in 1997,
primarily due to the timing of these acquisitions.
Revenues from other rental operations, consisting primarily
of miscellaneous tenant charges such as after hours utility,
heating and air conditioning charges, increased by $961,000 or
167% for the three months ended March 31, 1998 compared to the
same period in 1997. Excluding lease buyouts and other non-
recurring items of approximately $850,000 in 1998, revenues from
properties owned for the entire three month periods ended March
31, 1998 and 1997 decreased approximately $169,000 for the three
months ended March 31, 1998 compared to the same period in 1997,
primarily due to lower utility, heating and air conditioning
charges in 1998. Revenues from properties acquired after January
1, 1997 were approximately $280,000 higher for the three months
ended March 31, 1998 compared to the same period in 1997,
primarily due to the timing of these acquisitions.
Other income increased approximately $1.4 million for the
three months ended March 31, 1998 compared to the same period in
1997, primarily due to higher interest income from mortgage notes
receivable acquired in September 1997.
For the three months ended March 31, 1998, total property
expenses were $16.7 million, or 31% of total revenues from rental
operations, compared with total property expenses of $7.9 million
or 32% of total revenues from rental operations in 1997.
Property expenses for properties owned for the entire three month
periods ended March 31, 1998 and 1997 decreased approximately
$404,000 in 1998 compared to 1997, primarily due to benefits
achieved from economies of scale. Property expenses from
properties acquired after January 1, 1997 were $9.2 million
higher for the three months ended March 31, 1998, primarily due
to the timing of these acquisitions.
General and administrative expenses were approximately $1.6
million or 2.9% of total revenues for the three months ended
March 31, 1998 as compared to $918,000 or 3.7% of total revenues
for the same period in 1997. General and administrative expenses
as a percentage of total revenues decreased in the first three
months of 1998 compared to 1997 primarily due to benefits
achieved from economies of scale across the entire portfolio.
Interest expense increased approximately $5.6 million or
185% for the three months ended March 31, 1998 compared to the
same period in 1997, primarily as a result of higher outstanding
indebtedness to fund property acquisitions.
Depreciation and amortization increased $7.7 million or
217%, due to 1997 and 1998 acquisitions and depreciation of
capital improvements made to the Company's existing portfolio.
Following is a comparison of property operating data for 34
properties which were owned for the entire three month periods
ended March 31, 1998 and 1997 (in thousands):
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended
March 31,
------------------ Dollar Percent
1998 1997 Change Change
------- -------- ------- -------
(Unaudited)
Revenues from rental operations $24,627 $24,809 $ (182) (1)%
Property expenses 7,480 7,884 404 5%
------- ------- ------ ---
Net $17,147 $16,925 $ 222 1%
======= ======= ====== ===
</TABLE>
Revenues from rental operations for the properties owned for
the entire three month periods ended March 31, 1998 and 1997
decreased by approximately $182,000 in 1998 compared to 1997,
primarily due to the reversing effect of straight-line rent
adjustments for certain leases, lower tenant reimbursements from
resetting base years for leases that were retenanted, and lower
miscellaneous tenant charges, partially offset by increases in
rental rates and higher parking income at certain properties in 1998.
Property operating expenses for the properties owned for the
entire three month periods ended March 31, 1998 and 1997
decreased by approximately $404,000 in 1998 compared to 1997,
primarily due to benefits achieved from economies of scale.
Liquidity and Capital Resources
Cash Flows
Cash provided by operating activities increased by $37.4
million or 296%, to $50.0 million for the three months ended
March 31, 1998, as compared to $12.6 million for the same period
in 1997, primarily due to operating results from properties
acquired since January 1, 1997. Cash used in investing activities
increased by $757.5 million, to $811.2 million for the three
months ended March 31, 1998 compared to approximately $53.7
million for the same period in 1997, primarily due to the
acquisition of 56 properties in the three months ended March 31,
1998 and an increase in capital expenditures on
properties owned. Cash provided by financing activities increased
by approximately $725.9 million to $760.1 million, as compared to
$34.2 million for the same period in 1997. Cash provided by
financing activities for the three months ended March 31, 1998
consisted primarily of net proceeds from mortgage loans and the
issuance of 25,185,915 shares of Common Stock in a series of
three 1998 secondary offerings, partially offset by distributions
to shareholders and minority interest holders.
Available Borrowings, Cash Balance and Capital Resources
The Company has a $300 million unsecured line of credit (the
"Amended Credit Facility") from a group of banks led by Wells
Fargo. The Amended Credit Facility bears interest at a rate
ranging between LIBOR plus 1.2% and LIBOR plus 1.45% (with an
effective rate of 7.14% at March 31, 1998) depending on the
leverage ratio of the Company. Once the Company achieves an
investment grade unsecured debt rating, the interest rate may be
lowered to between LIBOR Plus 0.9% and 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%. In addition, the Amended Credit Facility has a
commitment fee ranging from .125% to .25% on the unused balance.
The Amended Credit Facility matures on September 1, 2000.
Proceeds from the Amended Credit Facility will be used, among
other things, to provide funds for tenant improvements and
capital expenditures and provide for working capital and other
corporate purposes. As of March 31, 1998, the aggregate
outstanding balance on the Amended Credit Facility was $33.1
million, and $266.9 million was available for additional
borrowing.
The Company also has an unsecured line of credit with a total
commitment of $10.0 million from City National Bank (the "City
National Bank Credit Facility"). The City National Bank Credit
Facility accrues interest at the City National Bank Prime Rate
less 0.875% (with an effective rate of 7.625% at March 31, 1998),
and is scheduled to mature on August 1, 1998. Proceeds from the
City National Bank Credit Facility will be used, among other
things, to provide funds for tenant improvements and capital
expenditures and provide for working capital and other corporate
purposes. As of March 31, 1998, the aggregate outstanding balance
on the City National Bank Credit Facility was $5.0 million.
As of March 31, 1998, the Company had $10.5 million in cash and
cash equivalents, including $6.2 million in restricted cash of
which $4.0 million represents an interest bearing cash deposit
required by one of the Company's mortgage loans payable.
On January 12, 1998, the Company filed a Form S-3 Registration
Statement (the "Registration Statement") with the Securities and
Exchange Commission to offer in one or more series, shares of its
$.01 par value Common Stock with an aggregate public offering
price of up to $1.0 billion. The Registration Statement was
declared effective on January 21, 1998.
On February 23, 1998, the Company completed the most recent of
three 1998 equity offerings (the "1998 Offerings") resulting in
the issuance of an aggregate of 25,185,915 shares of Common Stock
with gross proceeds totaling approximately $713.2 million.
Aggregate proceeds to the Company from these offerings, net of
underwriters' discount and offering costs aggregating
approximately $35.7 million, were approximately $677.5 million.
Of these 1998 offerings, 2,185,915 shares of Common Stock were
issued to the trustees' of two unrelated registered unit
investment trusts and the remaining 23,000,000 shares were issued
in a secondary public offering. Net proceeds from the 1998
Offerings were used to repay the outstanding balances on the
Amended Credit Facility and City National Bank Credit Facility
and to fund a portion of the LBA Portfolio acquisition. The
remaining proceeds were invested in short-term commercial paper
and used for working capital.
On April 23, 1998, the Company completed an offering of
1,110,132 shares of Common Stock. These shares were issued to
the trustee of a registered unit investment trust at an offering
price of $28.375 per share. Gross proceeds from this offering
were approximately $31.5 million. The aggregate proceeds to the
Company, net of underwriter's discount and offering costs
aggregating approximately $1.8 million were approximately $29.7
million.
As of April 23, 1998, the Company had the capacity to issue up
to $255.3 million of its Common Stock pursuant to the
Registration Statement.
The Company expects to continue meeting its short-term
liquidity and capital requirements generally through its working
capital and net cash provided by operating activities. The
Company believes that the net cash provided by operating
activities will continue to be sufficient to pay any
distributions necessary to enable the Company to continue
qualifying as a real estate investment trust. 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 and
capital requirements such as property acquisitions, scheduled
debt payments, renovation costs, expansions and other non-
recurring capital expenditures 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 Amended Credit Facility to fund acquisitions,
development activities and capital improvements on an interim
basis.
Funds from Operations
The Company considers Funds from Operations, as defined by
NAREIT, to be a useful financial measure of the operating
performance for an equity REIT. The Company believes that Funds
from Operations provides investors with an additional basis to
evaluate the ability of a REIT to incur and
service debt and to fund acquisitions and other capital
expenditures. Funds from Operations does not represent net income
or cash flows from operations as defined by generally accepted
accounting principles ("GAAP") and it should not be considered as
an alternative to these indicators in evaluating liquidity or
operating performance of the Company.
The following table reflects the calculation of the Company's
Funds from Operations for the three month periods ended March 31,
1998 and 1997:
<TABLE>
<S> <C> <C>
Three Months Ended
March 31,
--------------------
1998 1997
-------- -------
(unaudited)
Funds from Operations:
Net income $16,184 $ 8,438
Minority interests 1,177(a) 1,134
Depreciation and amortization 11,296 3,562
------- -------
Funds from Operations $28,657 $13,134
======= =======
(a) Excludes $575,000 in distributions made to the minority
partner in the World Savings Center office property.
</TABLE>
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 unusual items, plus real estate related
depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. Management
considers Funds from Operations an appropriate measure of
performance of an equity REIT because it is predicated on cash
flow analyses. 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. Funds from Operations
should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indicator of the
Company's financial performance or to cash flow 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.
PART II - Other Information
Item 1. Legal Proceedings - None
Item 2. Changes in Securities -
In March 1998, the Operating Partnership issued 203,420 OP
Units as partial consideration in the acquisition of a portfolio
of 50 primarily office and R&D/industrial properties. The holder
of the OP Units may redeem part or all of its OP Units issued in
this acquisition for cash or at the election of the Company,
exchange such OP Units for shares of Common Stock on a one-for-
one basis.
The issuance of OP Units in the above described acquisition
constitutes a private placement of securities which is exempt
from the registration requirements of the Securities Act of 1993,
as amended, pursuant to Section 4(2) and Rule 506 of Regulation D
promulgated thereunder.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a vote of Securities Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
3.1 Amended and Restated Articles of Incorporation as filed
as an exhibit to Registration Statement on Form S-11
(No. 333-8163) and incorporated herein by reference.
3.2 By-Laws of Registrant as filed as an exhibit to
Registration Statement on Form S-11 (No. 333-8163) and
incorporated herein by reference.
10.3 Warrant Agreement dated as of March 2, 1998 by and
among Arden Realty, Inc., a Maryland corporation and
AEW/LBA Acquisition Co. II, LLC, a California limited
liability company as filed as an exhibit to Form 8-K
filed on March 16, 1998 and incorporated herein by
reference.
27 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K/A dated January 23, 1998 was filed
which included information on Item 7. Item 7 contained exhibits
related to financial statements and pro forma financial
information regarding the acquisitions of four office properties.
A report on Form 8-K dated February 2, 1998 was filed which
included information on Items 2, 5, and 7. Item 2 contained a
description on the acquisition of six commercial properties.
Item 5 contained a description of the filing of a Form S-3
Registration Statement to offer one or more series of Common
Stock with an aggregate public offering price of up $1.0 billion
and a description of a contract to purchase a portfolio of 50
primarily office and R&D/industrial properties ("LBA Portfolio").
Item 7 contained financial statements of the six acquired
properties, financial statements of the LBA Portfolio, and pro
forma financial statements.
A report on Form 8-K/A dated February 13, 1998 was filed
which included information on Items 5 and 7. Item 5 contained a
description of the filing of a supplement to the Form S-3
Registration Statement (filed on January 12, 1998 and declared
effective on January 21, 1998). This supplement was initially
filed on February 2, 1998, offering 17,000,000 shares of Common
Stock and was amended on February 13, 1998 to increase the number
of shares of Common Stock offered to 20,000,000. Item 5 also
contained a description of the filing of an additional supplement
to the Form S-3 Registration Statement described above, offering
881,950 shares of Common Stock to an institutional buyer, and a
description of the Company entering into a contract to purchase a
portfolio of 50 primarily office and R&D/industrial properties.
Item 7 contained pro forma financial statements.
A report on Form 8-K dated February 19, 1998 was filed which
included information under Items 5 and 7. Item 5 contained a
description of the issuance of 881,950 shares of Common Stock on
February 18, 1998 and 23,000,000 shares of Common Stock on
February 19, 1998. Item 7 contained exhibits related to these
issuances of Common Stock.
A report on Form 8-K dated February 23, 1998 was filed which
included information under Items 5 and 7. Item 5 contained a
description of the issuance of 1,303,965 shares of Common Stock
on February 23, 1998. Item 7 contained exhibits related to this
issuance of Common Stock.
A report on Form 8-K dated March 16, 1998 was filed which
included information on Item 7. Item 7 contained financial
statements, pro forma information and exhibits. The Form 8-K was
filed in connection with the acquisition of a portfolio of 50
commercial properties.
Signatures
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
ARDEN REALTY, INC.
Date: May 15, 1998 By: /s/ Diana M. Laing
-------------------------
Diana M. Laing
Executive Vice President
Chief Financial Officer and Secretary
Date: May 15, 1998 By: /s/ Richard S. Davis
--------------------------
Richard S. Davis
Chief Accounting Officer
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0
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