<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) MARCH 26, 1998
ARDEN REALTY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 1-12193 95-4578533
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
11601 WILSHIRE BOULEVARD, FOURTH FLOOR 90025
LOS ANGELES, CALIFORNIA
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 966-2600
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF PROPERTIES ACQUIRED.
CONTINENTAL GRAND
Statement of Revenue and Certain Expenses:
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the year ended December 31,
1997
Notes to Statement of Revenue and Certain Expenses
CALABASAS TECH CENTER
Statement of Revenue and Certain Expenses:
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the year ended December 31,
1997
Notes to Statement of Revenue and Certain Expenses
(b) PRO FORMA FINANCIAL INFORMATION.
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1998
(Unaudited)
Pro Forma Consolidated Statement of Operations for the three
months ended March 31, 1998 (Unaudited)
Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1997 (Unaudited)
Notes to the Pro Forma Condensed Consolidated Financial Statements
(Unaudited)
(c) EXHIBIT
Exhibit 23.1 Consent of Independent Auditors
<PAGE> 3
Report of Independent Auditors
Board of Directors and Stockholders
Arden Realty, Inc.
We have audited the accompanying statement of revenue and certain expenses of
Continental Grand for the year ended December 31, 1997. This statement of
revenue and certain expenses is the responsibility of the management of
Continental Grand. 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 presents fairly,
in all material respects, the revenue and certain expenses, as defined above, of
Continental Grand for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Los Angeles, California
April 16, 1998
<PAGE> 4
CONTINENTAL GRAND
STATEMENT OF REVENUE AND CERTAIN EXPENSES
For the year ended December 31, 1997
(In thousands)
<TABLE>
<S> <C>
REVENUE
Rental $5,267
Tenant reimbursements 300
Parking, net of expenses 377
Other income 105
------
Total revenue 6,049
------
CERTAIN EXPENSES
Property operating and maintenance 1,197
Real estate taxes 256
Insurance 192
------
Total certain expenses 1,645
------
Excess of revenue over certain expenses $4,404
======
</TABLE>
See accompanying notes to statement of revenue and certain expenses.
<PAGE> 5
CONTINENTAL GRAND
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
For the year ended December 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying statement of revenue and certain expenses includes the
operations of Continental Grand (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
$47,550,000 and has approximately 235,926 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.
<PAGE> 6
CONTINENTAL GRAND
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
(Continued)
2. COMMERCIAL OFFICE PROPERTY
The future minimum lease payments to be received under existing operating leases
as of December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998 $ 4,551
1999 3,302
2000 2,316
2001 1,229
2002 295
Thereafter 376
--------------
Total $ 12,069
==============
</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, 1997, two of the Property's tenants
accounted for approximately 30% of the Property's aggregate annualized base
rent.
<PAGE> 7
Report of Independent Auditors
Board of Directors and Stockholders
Arden Realty, Inc.
We have audited the accompanying statement of revenue and certain expenses of
Calabasas Tech Center for the year ended December 31, 1997. This statement of
revenue and certain expenses is the responsibility of the management of
Calabasas Tech 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.
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 presents fairly,
in all material respects, the revenue and certain expenses, as defined above, of
Calabasas Tech Center for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Los Angeles, California
May 14, 1998
<PAGE> 8
CALABASAS TECH CENTER
STATEMENT OF REVENUE AND CERTAIN EXPENSES
For the year ended December 31, 1997
(In thousands)
<TABLE>
<S> <C>
REVENUE
Rental S 4,300
Tenant reimbursements 477
--------------
Total revenue 4,777
--------------
CERTAIN EXPENSES
Property operating and maintenance 323
Real estate taxes 362
Insurance 56
--------------
Total certain expenses 741
--------------
Excess of revenue over certain expenses $ 4,036
==============
</TABLE>
See accompanying notes to statement of revenue and certain expenses.
<PAGE> 9
CALABASAS TECH CENTER
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
For the year ended December 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying statement of revenue and certain expenses includes the
operations of Calabasas Tech 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 approximately
$46,120,000 and has approximately 273,526 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.
<PAGE> 10
CALABASAS TECH CENTER
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
(CONTINUED)
2. COMMERCIAL OFFICE PROPERTY
The future minimum lease payments to be received under existing operating leases
as of December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998 $ 4,883
1999 4,862
2000 4,232
2001 2,282
2002 1,355
Thereafter 1,881
-----------
Total $ 19,495
===========
</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, 1997, two of the Property's tenants
accounted for approximately 73% of the Property's aggregate annualized base
rent.
<PAGE> 11
ARDEN REALTY, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma condensed consolidated balance sheet
as of March 31, 1998 is presented as if the acquisition of properties acquired
subsequent to March 31, 1998 and on or prior to May 20, 1998, including the
properties described in Item 2 of the related Form 8-K filed on May 29, 1998 by
the Company, (the "Second Quarter 1998 Acquired Properties"), had been
consummated on March 31, 1998.
The following unaudited pro forma consolidated statements of operations
for the three months ended March 31, 1998 and for the year ended December 31,
1997 are presented as if the acquisition of the properties described in Item 2
of the related Form 8-K filed on May 29, 1998 by the Company (the "Acquired
Properties") had occurred as of January 1, 1998, and 1997, respectively.
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.
<PAGE> 12
ARDEN REALTY, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SECOND QUARTER ARDEN REALTY,
1998 ACQUIRED INC.
ARDEN REALTY, INC. PROPERTIES (A) PRO FORMA
----------------- -------------- ---------------
<S> <C> <C> <C>
ASSETS
Commercial properties, net $ 1,981,720 $ 122,100 $ 2,103,820
Cash and cash equivalents 4,262 (4,262) --
Restricted cash 6,223 -- 6,223
Rent and other receivables 9,927 -- 9,927
Mortgage notes receivable, net 14,452 -- 14,452
Deferred rent 10,064 -- 10,064
Prepaid financing and leasing costs, net 14,374 -- 14,374
Prepaid expenses and other assets 12,713 -- 12,713
----------- ----------- -----------
Total assets $ 2,053,735 $ 117,838 $ 2,171,573
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage loans payable $ 540,250 -- $ 540,250
Unsecured lines of credit 38,100 117,538 155,638
Accounts payable and accrued expenses 24,659 -- 24,659
Security deposits 9,871 -- 9,871
Dividends payable 25,708 -- 25,708
----------- ----------- -----------
Total liabilities 638,588 117,538 756,126
----------- ----------- -----------
Minority interests in Operating Partnership 70,355 300 70,655
Stockholders' equity:
Common stock 612 -- 612
Additional paid-in capital 1,344,180 -- 1,344,180
----------- ----------- -----------
Total stockholders' equity 1,344,792 -- 1,344,792
----------- ----------- -----------
Total liabilities and stockholders' equity $ 2,053,735 $ 117,838 $ 2,171,573
=========== =========== ===========
</TABLE>
<PAGE> 13
ARDEN REALTY, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------
ARDEN REALTY, ACQUIRED OTHER ARDEN REALTY, INC.
INC. PROPERTIES (B) ADJUSTMENTS PRO FORMA
------------- -------------- ----------- ------------------
<S> <C> <C> <C> <C>
Revenues $ 54,759 $ 3,702 $ 53 C $ 58,514
Property operating expenses 16,738 871 81 D 17,690
-------- -------- -------- --------
38,021 2,831 (28) 40,824
General and administrative 1,635 -- 1,635
Interest 8,612 -- 2,227 E 10,839
Depreciation and amortization 11,296 -- 762 F 12,058
Interest and other income (1,458) -- -- (1,458)
-------- -------- -------- --------
Income before minority interest 17,936 2,831 (3,017) 17,750
Minority interest (1,752) -- 544 G (1,208)
-------- -------- -------- --------
Net income $ 16,184 $ 2,831 $ (2,473) $ 16,542
======== ======== ======== ========
Net income per common share:
Basic $ .34 $ .35
======== ========
Diluted $ .34 $ .35
======== ========
Weighted average common shares:
Basic 47,617 47,617
======== ========
Diluted 47,834 47,834
======== ========
</TABLE>
<PAGE> 14
ARDEN REALTY, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------
ARDEN REALTY, ACQUIRED OTHER ARDEN REALTY, INC.
INC. PROPERTIES (B) ADJUSTMENTS PRO FORMA
------------- -------------- ----------- -------------------
<S> <C> <C> <C> <C>
Revenues $ 133,817 $ 15,749 567 C $ 150,133
Property operating expenses 44,332 4,117 325 D 48,774
--------- --------- --------- ---------
89,485 11,632 242 101,359
General and administrative 4,322 -- -- 4,322
Interest 19,511 -- 7,890 E 27,401
Loss on valuation of derivative 3,111 -- 3,111
Depreciation and amortization 20,260 -- 3,047 F 23,307
Interest and other income (1,630) -- -- (1,630)
--------- --------- --------- ---------
Income before minority interest 43,911 11,632 (10,695) 44,848
Minority interest (4,281) -- (106) G (4,387)
--------- --------- --------- ---------
Net income $ 39,630 $ 11,632 $ (10,801) $ 40,461
========= ========= ========= =========
Net income per common share:
Basic $ 1.43 $ 1.46
========= =========
Diluted $ 1.41 $ 1.44
========= =========
Weighted average common shares:
Basic 27,794 27,794
========= =========
Diluted 28,039 28,039
========= =========
</TABLE>
<PAGE> 15
ARDEN REALITY, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS 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, 1998 are as follows:
A. Acquisition of the Second Quarter 1998 Acquired Properties, with $21,100
of cash, draws of $100,700 on the unsecured lines of credit and issuance of
10,412 operating partnership Units valued at approximately $300.
Purchase price and additional closing costs of the Second Quarter Acquired
Properties are as follows:
<TABLE>
<CAPTION>
SECOND QUARTER 1998 TOTAL ACQUISITION
ACQUIRED PROPERTIES COST
------------------- -----------------
<S> <C> <C>
11075 Santa Monica $ 4,950
Continental Grand 47,550
Calabasas Tech Center 46,120
Oceangate Tower 23,480
-----------
Total $ 122,100
===========
</TABLE>
<PAGE> 16
2. ADJUSTMENTS TO THE PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The pro forma adjustments reflected in the Pro Forma Consolidated
Statements of Operation for the three months ended March 31, 1998 and the
year ended December 31, 1997 are set forth below:
B. Represents the actual revenue and certain expenses for the Acquired
Properties:
Acquired Properties for the three months ended March 31, 1998.
<TABLE>
<CAPTION>
HOWARD HUGHES 11075 CONTINENTAL CALABASAS OCEANGATE
CENTER SANTA MONICA GRAND TECH CENTER TOWER TOTAL
------------- ------------ ----------- ----------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 240 $ 154 $1,292 $1,307 $ 709 $3,702
Certain expenses 20 63 339 155 294 871
------ ------ ------ ------ ------ ------
Excess of revenue over
certain expenses $ 220 $ 91 $ 953 $1,152 $ 415 $2,831
====== ====== ====== ====== ====== ======
</TABLE>
Acquired Properties for the year ended December 31, 1997.
<TABLE>
<CAPTION>
HOWARD HUGHES 11075 CONTINENTAL CALABASAS OCEANGATE
CENTER SANTA MONICA GRAND TECH CENTER TOWER TOTAL
------------- ------------ ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 1,102 $ 634 $ 6,049 $ 4,777 $ 3,187 $15,749
Certain expenses 90 243 1,645 741 1,398 4,117
------- ------- ------- ------- ------- -------
Excess of revenue over
certain expenses $ 1,012 $ 391 $ 4,404 $ 4,036 $ 1,789 $11,632
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE> 17
C. Increase in rental revenue to reflect the Acquired Properties
straightline rental revenue calculated as though the properties were
purchased on January 1, 1998, and 1997, respectively.
D. Increase in property operating expenses related to additional payroll
costs associated with the operations of the Acquired Properties.
E. Increase in interest expense related to borrowings associated with
the Acquired Properties.
F. Increase in depreciation expense for the Acquired Properties utilizing
a 40 year useful life for buildings and a 10 year useful life for
improvements.
G. To reflect adjustment for minority interest of 6.8% for the three
months ended March 31, 1998 and 9.78% for the year ended December 31,
1997.
<PAGE> 18
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 hereunto duly authorized.
ARDEN REALTY, INC.
Date: July 28, 1998 By: /s/ DIANA M. LAING
------------------------------------
Diana M. Laing
Chief Financial Officer
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements and in the related Prospectuses (Form S-3 No. 333-44141, Form S-3 No.
333-40451 and Form S-8 dated October 9, 1997) of Arden Realty, Inc. of our
report dated April 16, 1998 with respect to the statement of revenue and certain
expenses of Continental Grand for the year ended December 31, 1997, and the
incorporation by reference therein of our report dated May 14, 1998 with respect
to the statement of revenue and certain expenses of Calabasas Tech Center for
the year ended December 31, 1997, both of which are included in the Form 8-K/A
of Arden Realty, Inc. dated July 28, 1998.
/s/ Ernst & Young LLP
Los Angeles, California
July 27, 1998
