ARDEN REALTY INC, 10-K, 2000-03-27

ARDEN REALTY INC
10-K, 2000-03-27
OPERATORS OF NONRESIDENTIAL BUILDINGS

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===============================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------
FORM 10-K
------------------------

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934.

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .

COMMISSION FILE NUMBER 1-12193

ARDEN REALTY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
MARYLAND 95-4578533
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER I.D. NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>

11601 WILSHIRE BOULEVARD FOURTH FLOOR
LOS ANGELES, CALIFORNIA 90025-1740
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 966-2600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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

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

The aggregate market value of the shares of common stock held by
non-affiliates was approximately $1.3 billion based on the closing price on the
New York Stock Exchange for such shares on March 17, 2000.

The number of the Registrant's shares of common stock outstanding was
63,316,424 as of March 17, 2000.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this report incorporates information by reference from the
definitive Proxy Statement for the 2000 Annual Meeting of Stockholders.

===============================================================================
<PAGE> 2

ARDEN REALTY, INC.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM PAGE
NO. NO.
- ---- ----
<S> <C> <C>
PART I
1. Business.................................................... 3
2. Properties.................................................. 7
3. Legal Proceedings........................................... 18
4. Submission of Matters to a Vote of Security Holders......... 19

PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 20
6. Selected Financial Data..................................... 21
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 23
7A. Quantitative and Qualitative Disclosure about Market Risk... 33
8. Financial Statements and Supplementary Data................. 41
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 41

PART III
10. Directors and Executive Officers of the Registrant.......... 41
11. Executive Compensation...................................... 41
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 41
13. Certain Relationships and Related Transactions.............. 41

PART IV
14. Exhibits, Financial Statements and Reports on Form 8-K...... 42
</TABLE>

2
<PAGE> 3

PART I

ITEM 1. BUSINESS

(A) GENERAL

The terms "Arden Realty", "us", "we" and "our" as used in this report refer
to Arden Realty, Inc. We were incorporated in Maryland in May 1996 and formed to
continue and expand the real estate business of Arden Realty Group, Inc. and a
group of affiliated entities, collectively referred to as the Arden
Predecessors. We completed our initial public offering in October 1996.
Commencing with our taxable year ended December 31, 1996, we have operated and
qualified as a real estate investment trust, or REIT, for federal income tax
purposes.

We are a self-administered and self-managed REIT, that owns, manages,
leases, develops, renovates and acquires commercial properties located in
Southern California. We are the sole general partner of Arden Realty Limited
Partnership, or the Operating Partnership and, as of December 31, 1999, owned
96.7% of the Operating Partnership's common partnership units. We conduct
substantially all of our operations through the Operating Partnership and its
subsidiaries.

(B) INDUSTRY SEGMENTS

We are currently involved in only one industry segment, namely real estate.
All of the financial information contained in this report relates to this
industry segment.

We are a full-service real estate organization managed by 11 senior
executive officers who have an average of 16 years of experience in the real
estate industry. We perform all property management, accounting, finance and
acquisition activities and a majority of our leasing transactions with our own
staff of approximately 280 employees.

We are Southern California's largest publicly traded office landlord as
measured by total net rentable square feet owned, as of December 31, 1999. Since
our formation in 1996, we have acquired 118 properties containing approximately
14.5 million net rentable square feet for a total purchase price of
approximately $1.9 billion. As of December 31, 1999, our portfolio consisted of
142 primarily office properties containing approximately 18.5 million net
rentable square feet and three properties with approximately 700,000 net
rentable square feet under development. As of December 31, 1999, our properties
were approximately 95.1% leased, excluding three existing properties under
renovation.

Portfolio Management

We perform all portfolio management activities, including management of all
lease negotiations, tenant build-outs, property renovations, capital
expenditures and on-site property management for our portfolio. We directly
manage these activities from approximately 45 management offices located
throughout our portfolio. The activities of these management offices are
supervised by five regional offices with oversight by our corporate office to
ensure consistency of the application of our operating policies and procedures.
Each regional office is strategically located within the Southern California
submarkets where our properties are located and is co-managed by a regional
property manager and a regional leasing manager who are responsible for
supervising the day-to-day activities of our management offices. Each regional
office is staffed with leasing, property management, building engineering,
construction, accounting and information systems specialists. By maintaining a
regionally focused organizational structure headed by seasoned managers, we are
able to quickly respond to our tenants' needs and market opportunities.

We currently lease approximately 70% of our properties using our in-house
staff. We employ outside brokers who are monitored by our leasing managers for
the remainder of our properties. We believe that our in-house leasing program
will continue to generate cost savings and revenue increases by reducing
third-party leasing commissions and allowing us to closely monitor our asking
rents and leasing terms.

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

Business Strategies

Our primary business strategy is to actively manage our portfolio to
achieve gains in occupancy and rental rates, to maximize income from ancillary
operations and services and to reduce operating expenses. When market conditions
permit, we may also develop or acquire properties in submarkets where we can use
our local market expertise and extensive real estate experience.

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

- using integrated decision making to provide pro-active solutions to the
space needs of users in the markets where we have extensive real estate
and technical expertise;

- emphasizing quality service, tenant satisfaction and retention;

- employing intensive property marketing and leasing programs; and

- implementing cost control management techniques and systems that
capitalize on economies of scale and concentration arising from the size
and geographic focus of our portfolio.

We believe the implementation of these operating practices has been
instrumental in the increased occupancy and improved operating results of our
existing portfolio.

Integrated Decision Making

Our management, leasing, development, renovation, acquisition and finance
teams coordinate their activities to enhance responsiveness to market
opportunities and to provide pro-active solutions to the space needs of users in
the submarkets where we have extensive real estate and technical expertise. This
integrated approach permits us to analyze the specific requirements of existing
and prospective tenants and the economic terms and costs for each transaction on
a timely and efficient basis. We are therefore able to commit to leasing,
development or acquisition terms quickly, which facilitates an efficient
completion of tenant space build-out, minimal downtime after lease expirations
and the timely completion of development and acquisition transactions.

Quality Service and Tenant Satisfaction

We strive to provide quality service through our multidisciplinary
operating approach resulting in timely responses to our tenants' needs. Our
seasoned on-site teams interact and resolve most issues relating to tenant
satisfaction and day-to-day operations. For portfolio-wide operational and
administrative functions, our corporate office provides support to all regional
offices and provides immediate response for critical operational issues. This
customer service approach has contributed to an average tenant retention rate of
approximately 75% since our formation.

Aggressive Leasing

The concentration of many of our properties within particular office
submarkets and our relationships with a broad array of tenants and brokers
enable us to pursue aggressive leasing strategies, to effectively monitor the
office space requirements of existing and prospective tenants and to offer
tenants a variety of space alternatives across our portfolio. In 1999, we signed
approximately 990 leases for approximately 4 million net rentable square feet,
including approximately 716,000 square feet of net absorption.

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Cost Control and Operating Efficiencies

The size and geographic focus of our portfolio permits us to enhance
portfolio value by lowering operating costs. We seek to capitalize on the
economies of scale and concentration which result from the geographic focus of
our portfolio, the ownership and management of multiple properties within
particular submarkets and the maintenance of a centralized purchasing and
accounting system for cost control at each of our properties.

Growth Strategies

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

- the continued strength of the Southern California economy, particularly
in the submarkets where our properties are located; and

- the limited construction of new office properties in the Southern
California region due to substantial building construction limitations
and a minimum of developable land in many key submarkets.

Internal Growth

We believe that opportunities exist to increase cash flow from our existing
portfolio and that these opportunities will be enhanced as the Southern
California commercial real estate market continues to improve. We achieve
internal growth by:

- maintaining or improving current occupancy throughout our portfolio by
active management and aggressive leasing;

- leasing space and renewing leases as they expire at increasing rents due
to the increased demand for commercial office space in Southern
California;

- controlling operating expenses through active cost control management and
systems;

- realizing economies of scale and concentration due to the size and
geographic focus of our portfolio; and

- sourcing new and innovative revenue streams while providing high quality
services to our tenants.

Maintaining or Improving Current Occupancy

We believe that we have been successful in attracting, expanding and
retaining a diverse tenant base by actively managing our properties with an
emphasis on tenant satisfaction and retention. Our in-house leasing teams,
working with outside leasing brokers, continuously monitor each market to
identify strong prospective tenants who are in need of new or additional space.
We also strive to be responsive to the needs of existing tenants through our
on-site professional management staff and by providing them with alternative
space within our portfolio to accommodate their changing space requirements. Our
success in maintaining and improving occupancy rates is demonstrated, in part,
by the number of existing tenants that have renewed or re-leased their space,
leased additional space to support their expansion need, or moved to other space
within our portfolio.

Leasing Space and Renewing Leases as they Expire at Increasing Rents

We believe that as the commercial real estate market in Southern California
continues to gain strength, there will be a continued increase in demand for
office space and a decline in vacancy rates, which are expected to result over
time in increasing market rents. We believe we will have significant
opportunities to increase cash flow during periods of increasing market rents by
renewing or re-leasing space as leases expire at higher rents.

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Cost Control Management and Systems

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

- lighting retrofits;

- replacement of inefficient heating, ventilation and air conditioning
systems;

- computer-driven energy management systems that monitor and react to the
climatic requirements of individual properties;

- automated security systems that allow us to provide security services to
our tenants at a lower cost;

- enhancement of billing systems, which enable us to more efficiently
recover operating expenses from our tenants; and

- on-going preventive maintenance programs to operate our building systems
efficiently, thereby reducing operating costs.

Capitalizing on Economies of Scale and Concentration

In order to capitalize on economies of scale and concentration arising from
the size and geographic focus of our portfolio, our property managers and
building engineers are often responsible for several properties, which spreads
administrative and maintenance costs over those properties and reduces per
square foot expenses. In addition, we believe that parking operations building
services and supplies contracted or purchased in bulk on a portfolio-wide basis
will facilitate further benefits from these economies of scale and
concentration.

Sourcing Additional Revenue while Providing High Quality Services to Tenants

By implementing the next generation of technology in our properties, we
believe we will be able to further increase occupancy, tenant retention and
rents in the future. In 1998, we entered into an agreement with a national
technology/access management firm that has successfully marketed our rooftop
space to telecommunications providers as antennae sites resulting in additional
revenue and providing additional voice and data technology options to our
tenants. During 1999, we completed an agreement with a premium broadband
internet access and applications services provider to deploy its
building-centric, fiber optic network in a majority of our portfolio. In
addition to high speed Internet services, this network will provide our tenants
with a wide range of next generation business applications and e-commerce tools,
including video and audio conferencing, e-mail and unified messaging.

External Growth

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

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

- low vacancy rates;

- opportunities for rising rents due to employment growth and population
movements;

- a minimal amount of developable land; and

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- significant barriers to entry because of constraints on new development,
including challenging entitlement processes, strictly enforced height and
density restrictions and governmental requirements resulting in
significant additional construction costs.

Employees

As of December 31, 1999, we had approximately 280 full-time employees that
perform all of our property management, accounting, finance and acquisition
activities and a majority of our leasing transactions.

(D) FOREIGN OPERATIONS

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

ITEM 2. PROPERTIES

Existing Portfolio

As of December 31, 1999, our portfolio consisted of 142 primarily office
properties, containing approximately 18.5 million net rentable square feet, that
individually range from approximately 12,000 - 600,000 net rentable square feet.
Our portfolio consists of primarily suburban office properties located in Los
Angeles, Orange, San Diego, Ventura, Riverside, San Bernardino and Kern
Counties. We believe that our properties are located within desirable and
established business communities and are well maintained. Our properties offer
an array of amenities including security, parking, conference facilities,
on-site management, food services and health clubs.

Following is a summary of our property portfolio as of December 31, 1999:

<TABLE>
<CAPTION>
NUMBER OF PROPERTIES APPROXIMATE NET
---------------------------------------- RENTABLE SQUARE FEET
INDUSTRIAL --------------------------------------------
AND INDUSTRIAL % OF
LOCATION OFFICE RETAIL TOTAL % OF TOTAL OFFICE AND RETAIL TOTAL TOTAL
-------- ------ ---------- ----- ---------- ---------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Los Angeles County:
West................................ 28 1 29 20.4% 4,683,615 36,959 4,720,574 25.5%
North............................... 31 -- 31 21.8 2,767,592 -- 2,767,592 15.0
South............................... 16 -- 16 11.3 2,201,823 -- 2,201,823 11.9
Central............................. 3 -- 3 2.1 608,789 -- 608,789 3.3
Orange County......................... 21 -- 21 14.8 3,317,302 -- 3,317,302 17.9
San Diego County...................... 21 -- 21 14.8 2,486,777 -- 2,486,777 13.5
Ventura County........................ 4 -- 4 2.8 561,841 -- 561,841 3.0
Riverside/San Bernardino Counties..... 8 4 12 8.5 553,896 414,674 968,570 5.2
Kern County........................... 2 -- 2 1.4 216,522 -- 216,522 1.2
--- -- --- ----- ---------- ------- ---------- -----
Subtotal...................... 134 5 139 97.9% 17,398,157 451,633 17,849,790 96.5%
Renovation properties................. 3 -- 3 2.1% 642,178 -- 642,178 3.5%
--- -- --- ----- ---------- ------- ---------- -----
Total......................... 137 5 142 100.0% 18,040,335 451,633 18,491,968 100.0%
=== == === ===== ========== ======= ========== =====
</TABLE>

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<TABLE>
<CAPTION>

PERCENT OCCUPIED PERCENT LEASED
AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
--------------------------- ---------------------------
INDUSTRIAL INDUSTRIAL
AND AND
LOCATION OFFICE RETAIL TOTAL OFFICE RETAIL TOTAL
-------- ------ ---------- ----- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Los Angeles County:
West........................... 93.6% 100.0% 93.7% 94.7% 100.0% 94.8%
North.......................... 93.6 -- 93.6 94.0 -- 94.0
South.......................... 91.1 -- 91.1 94.6 -- 94.6
Central........................ 91.8 -- 91.8 96.1 -- 96.1
Orange County.................... 96.2 -- 96.2 96.4 -- 96.4
San Diego County................. 95.8 -- 95.8 97.6 -- 97.6
Ventura County................... 97.6 -- 97.6 97.6 -- 97.6
Riverside/San Bernardino
Counties....................... 80.2 94.1 86.1 80.2 94.1 86.1
Kern County...................... 99.1 -- 99.1 99.1 -- 99.1
---- ----- ---- ---- ----- ----
Subtotal/Weighted
Average................ 93.8% 94.6% 93.8% 95.1% 94.6% 95.1%
Renovation Properties............ 22.0% -- 22.0% 28.4% -- 28.4%
---- ----- ---- ---- ----- ----
Total/Weighted Average... 91.3% 94.6% 91.3% 92.7% 94.6% 92.7%
==== ===== ==== ==== ===== ====

<CAPTION>
ANNUALIZED BASE RENT
PER LEASED SQUARE FOOT(1)
----------------------------------------
FULL
INDUSTRIAL SERVICE
AND GROSS
LOCATION OFFICE RETAIL TOTAL LEASES(2)
-------- ------ ---------- ------ ---------
<S> <C> <C> <C> <C>
Los Angeles County:
West........................... $22.67 $24.60 $22.69 $22.67
North.......................... 19.50 -- 19.50 21.04
South.......................... 17.34 -- 17.34 18.90
Central........................ 19.74 -- 19.74 19.74
Orange County.................... 16.01 -- 16.01 18.54
San Diego County................. 15.74 -- 15.74 18.51
Ventura County................... 17.16 -- 17.16 17.16
Riverside/San Bernardino
Counties....................... 14.19 8.42 11.49 17.23
Kern County...................... 21.82 -- 21.82 --
------ ------ ------ ------
Subtotal/Weighted
Average................ $18.67 $ 9.82 $18.45 $20.40
Renovation Properties............ $21.69 -- $21.69 $21.69
------ ------ ------ ------
Total/Weighted Average... $18.70 $ 9.82 $18.48 $20.42
====== ====== ====== ======
</TABLE>

- ---------------
(1) Based on monthly contractual base rent under existing leases as of December
31, 1999, multiplied by 12 and divided by leased net rentable square feet;
for those leases where rent has not yet commenced or which are in a free
rent period, the first month in which rent is to be received is used to
determine annualized base rent.

(2) Excludes 48 properties and 4,722,281 net rentable square feet under triple
net and modified gross leases.

Development Properties

In addition to the properties listed above, we currently have three
properties under development containing approximately 700,000 net rentable
square feet. We estimate the total costs of developing these three properties
will be approximately $177.7 million of which $34.3 million had been incurred as
of December 31, 1999. Total estimated costs include purchase and closing costs
and anticipated construction costs, tenant improvements, leasing commissions and
carrying costs during development. One of the properties, 6060 Center Drive, is
an approximately 241,000 net rentable square foot multi-tenant office building.
The second property is an approximately 159,000 square foot build-to-suit office
building being developed for Univision Communications, Inc. The third property,
6080 Center Drive, is an approximately 300,000 net rentable square foot
multi-tenant building.

These properties are located in the Howard Hughes Center, a 70-acre
commercial development located two miles north of Los Angeles International
Airport, immediately adjacent to the San Diego Freeway (I-405), with on- and
off-ramps that directly serve the site. We have entitlements to construct
approximately 600,000 net rentable square feet of additional office space at the
Howard Hughes Center.

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The following table summarizes information about our properties under
development. It does not include information about 6080 Center Drive because we
have not formally begun construction.

<TABLE>
<CAPTION>
NET
RENTABLE PERCENT ESTIMATED ESTIMATED
SQUARE COSTS INCURRED ESTIMATED LEASED AT CONSTRUCTION STABILIZATION
PROPERTY FEET TO DATE TOTAL COST(1) 12/31/99 COMPLETION DATE DATE(2)
-------- -------- -------------- -------------- --------- --------------- -------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Howard Hughes Center
Acquisition Cost........... -- $15,133(3) $ 15,133
Master Plan(4)............. -- 13,458 15,000
6060 Center Drive.......... 240,724 30,895 56,000 20% 2nd Qtr 2000 4th Qtr 2001
Univision building(5)...... 158,473 3,438 51,700 100% 3rd Qtr 2001 3rd Qtr 2001
------- ------- --------
Total development
properties............. 399,197 $62,924 $137,833
======= ======= ========
</TABLE>

- ---------------
(1) Estimated total cost includes purchase and closing costs and anticipated
construction costs, tenant improvements, leasing commissions and carrying
costs during development.

(2) Estimated calendar quarter when property is anticipated to be at least 85%
leased.

(3) We acquired the undeveloped commercial property portions of the Howard
Hughes Center for $28.5 million. In August 1999, subject to a sales
agreement entered into upon our initial acquisition, we sold approximately
5.4 acres for $7.5 million to a third party who is expected to develop a
250,000 square foot retail and entertainment complex. This amount also
excludes acquisition costs of approximately $4.3 million allocated to 6060
Center Drive, currently under construction and approximately $1.6 million
allocated to the Univision building (see note 5 below).

(4) Master Plan costs include the costs of road and bridge construction and
other Howard Hughes Center infrastructure and master planning costs. We have
entitlements to construct an additional 900,000 net rentable square feet of
office space at the Howard Hughes Center, including the 6080 Center Drive
property described above.

(5) In December 1999, we signed an agreement with Univision Communications, Inc.
for development of an approximately 159,000 net rentable square foot
build-to-suit office building at the Howard Hughes Center scheduled to be
completed in the third quarter of 2001.

Acquisitions

We acquired four properties totaling approximately 524,000 net rentable
square feet during 1999 for a total cost of approximately $89.8 million.

<TABLE>
<CAPTION>
APPROXIMATE TOTAL
NET ACQUISITION
RENTABLE MONTH OF COST
PROPERTY NAME LOCATION SQUARE FEET ACQUISITION (IN THOUSANDS)(1)
------------- -------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Hillside Corporate Center.... Westlake 59,876 February 1999 $ 9,600
Westlake Gardens II.......... Westlake 48,874 April 1999 7,300
Howard Hughes Tower.......... Los Angeles 313,833 May 1999 53,000
2001 Wilshire Boulevard...... Santa Monica 101,125 September 1999 19,900
------- -------
523,708 $89,800
======= =======
</TABLE>

- ---------------
(1) Total acquisition cost includes purchase and closing costs.

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<PAGE> 10

The following table presents specific information regarding our 142
properties as of December 31, 1999:
<TABLE>
<CAPTION>

YEAR(S) APPROXIMATE
BUILT/ NET RENTABLE
PROPERTY NAME SUBMARKET LOCATION RENOVATED SQUARE FEET
------------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C>
OFFICE
LOS ANGELES COUNTY
Los Angeles West
9665 Wilshire........................ Beverly Hills/Century City Beverly Hills 1972/92-93 158,684
Beverly Atrium....................... Beverly Hills/Century City Beverly Hills 1989 59,650
8383 Wilshire........................ Beverly Hills/Century City Beverly Hills 1971/93 417,463
120 South Spalding................... Beverly Hills/Century City Beverly Hills 1984 60,656
9100 Wilshire Blvd................... Beverly Hills/Century City Beverly Hills 1971/90 326,227
Century Park Center.................. Beverly Hills/Century City Los Angeles 1972/94 243,404
10350 Santa Monica................... Beverly Hills/Century City Los Angeles 1979 42,292
10351 Santa Monica................... Beverly Hills/Century City Los Angeles 1984 96,251
Westwood Terrace..................... Westwood/West Los Angeles Los Angeles 1988 135,943
1950 Sawtelle........................ Westwood/West Los Angeles Los Angeles 1988/95 103,106
10780 Santa Monica................... Westwood/West Los Angeles Los Angeles 1984 92,486
Wilshire Pacific Plaza............... Westwood/West Los Angeles Los Angeles 1976/87 100,122
World Savings Center(2).............. Westwood/West Los Angeles Los Angeles 1983 469,115
11075 Santa Monica................... Westwood/West Los Angeles Los Angeles 1983 35,696
2730 Wilshire(3)..................... Westwood/West Los Angeles Santa Monica 1985 55,080
2800 28th Street..................... Westwood/West Los Angeles Santa Monica 1979 103,506
1919 Santa Monica.................... Westwood/West Los Angeles Santa Monica 1991 43,796
2001 Wilshire........................ Westwood/West Los Angeles Santa Monica 1980 101,125
400 Corporate Pointe................. Marina Area/Culver City/LAX Culver City 1987 164,598
600 Corporate Pointe................. Marina Area/Culver City/LAX Culver City 1989 273,339
Bristol Plaza........................ Marina Area/Culver City/LAX Culver City 1982 84,014
5200 West Century.................... Marina Area/Culver City/LAX Culver City 1982/98-99 310,910
Skyview Center....................... Marina Area/Culver City/LAX Los Angeles 1981/87/95 391,675
Northpoint........................... Marina Area/Culver City/LAX Los Angeles 1991 104,235
Howard Hughes Tower.................. Marina Area/Culver City/LAX Los Angeles 1987 313,833
6100 Wilshire........................ Park Mile/West Hollywood Los Angeles 1986 202,704
145 South Fairfax.................... Park Mile/West Hollywood Los Angeles 1984 53,994
Beverly Sunset Medical Plaza......... Park Mile/West Hollywood Los Angeles 1963/92-95 139,711
----------
Subtotal/Weighted Average --
Los Angeles West............ 4,683,615

<CAPTION>
ANNUALIZED
PERCENTAGE OF BASE RENT
TOTAL PER LEASED
PORTFOLIO NET ANNUALIZED NET RENTABLE
RENTABLE PERCENT BASE RENT NUMBER OF SQUARE
PROPERTY NAME SQUARE FEET LEASED ($000S) LEASES FEET(1)
------------- ------------- ------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
OFFICE
LOS ANGELES COUNTY
Los Angeles West
9665 Wilshire........................ 0.9% 98.6% $ 4,708 22 $30.09
Beverly Atrium....................... 0.3 90.0 1,359 11 25.32
8383 Wilshire........................ 2.3 92.7 8,216 131 21.23
120 South Spalding................... 0.3 100.0 2,105 17 34.70
9100 Wilshire Blvd................... 1.8 91.4 6,816 76 22.86
Century Park Center.................. 1.3 97.0 5,221 114 22.25
10350 Santa Monica................... 0.2 96.7 812 17 19.86
10351 Santa Monica................... 0.5 95.1 1,829 17 19.98
Westwood Terrace..................... 0.7 100.0 3,276 29 24.10
1950 Sawtelle........................ 0.6 100.0 2,098 36 20.35
10780 Santa Monica................... 0.5 97.7 1,865 33 20.64
Wilshire Pacific Plaza............... 0.5 95.5 2,272 38 23.76
World Savings Center(2).............. 2.5 98.4 13,922 57 30.16
11075 Santa Monica................... 0.2 100.0 718 7 20.11
2730 Wilshire(3)..................... 0.3 98.2 1,221 31 22.58
2800 28th Street..................... 0.6 100.0 2,331 44 22.52
1919 Santa Monica.................... 0.2 92.3 1,012 4 25.03
2001 Wilshire........................ 0.5 98.9 2,372 21 23.72
400 Corporate Pointe................. 0.9 99.7 3,384 20 20.62
600 Corporate Pointe................. 1.5 97.6 5,720 24 21.44
Bristol Plaza........................ 0.5 100.0 1,527 29 18.18
5200 West Century.................... 1.7 98.3 4,936 41 16.15
Skyview Center....................... 2.1 83.1 5,156 52 15.84
Northpoint........................... 0.6 96.9 2,359 9 23.36
Howard Hughes Tower.................. 1.7 90.4 6,440 32 22.70
6100 Wilshire........................ 1.1 97.8 4,387 54 22.13
145 South Fairfax.................... 0.3 98.5 1,062 12 19.96
Beverly Sunset Medical Plaza......... 0.7 76.0 3,330 59 31.36
----- ----- -------- ----- ------
Subtotal/Weighted Average --
Los Angeles West............ 25.3% 94.8% $100,454 1,037 $22.67
</TABLE>

10
<PAGE> 11
<TABLE>
<CAPTION>

YEAR(S) APPROXIMATE
BUILT/ NET RENTABLE
PROPERTY NAME SUBMARKET LOCATION RENOVATED SQUARE FEET
------------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Los Angeles North
Calabasas Commerce Center............ Simi/Conejo Valley Calabasas 1990 126,771
Calabasas Tech Center................ Simi/Conejo Valley Calabasas 1990 273,526
Thousand Oaks Plaza.................. Simi/Conejo Valley Thousand Oaks 1988 13,434
Rancho Plaza......................... Simi/Conejo Valley Thousand Oaks 1987 24,057
Pennsfield Plaza..................... Simi/Conejo Valley Thousand Oaks 1989 21,202
Conejo Business Center............... Simi/Conejo Valley Thousand Oaks 1991 69,017
Marin Corporate Center............... Simi/Conejo Valley Thousand Oaks 1986 51,360
Evergreen Plaza...................... Simi/Conejo Valley Thousand Oaks 1979/96 75,722
Hillside Corporate Center............ Simi/Conejo Valley Westlake 1998 59,876
5601 Lindero Canyon.................. Simi/Conejo Valley Westlake 1989 105,830
Renaissance Court.................... Simi/Conejo Valley Westlake 1981/92 61,245
Westlake Gardens I................... Simi/Conejo Valley Westlake 1998 49,639
Westlake Gardens II.................. Simi/Conejo Valley Westlake 1999 48,874
6800 Owensmouth(2)................... West San Fernando Valley Canoga Park 1986 80,014
Woodland Hills Financial Center...... West San Fernando Valley Woodland Hills 1972/95 224,955
Clarendon Crest...................... West San Fernando Valley Woodland Hills 1990 43,063
Lyons Plaza.......................... Santa Clarita Valley Santa Clarita 1990 61,203
16000 Ventura........................ Central San Fernando Valley Encino 1980/96 174,841
15250 Ventura........................ Central San Fernando Valley Sherman Oaks 1970/90-91 110,641
Noble Professional Center............ Central San Fernando Valley Sherman Oaks 1985/93 51,828
Sunset Pointe Plaza.................. Valencia Newhall 1988 58,105
303 Glenoaks Blvd.................... East San Fernando Valley/Tri-Cities Burbank 1983/96 175,289
601 South Glenoaks................... East San Fernando Valley/Tri-Cities Burbank 1990 72,524
Burbank Executive Plaza.............. East San Fernando Valley/Tri-Cities Burbank 1983 60,395
California Federal Building.......... East San Fernando Valley/Tri-Cities Burbank 1978 81,243
425 West Broadway.................... East San Fernando Valley/Tri-Cities Glendale 1984 71,589
Glendale Corporate Center............ East San Fernando Valley/Tri-Cities Glendale 1985 108,209
70 South Lake........................ East San Fernando Valley/Tri-Cities Pasadena 1982/94 100,133
150 East Colorado.................... East San Fernando Valley/Tri-Cities Pasadena 1979/97 61,168
299 North Euclid..................... East San Fernando Valley/Tri-Cities Pasadena 1983 73,522
5161 Lankershim...................... East San Fernando Valley/Tri-Cities North Hollywood 1985/97 178,317
----------
Subtotal/Weighted Average --
Los Angeles North........... 2,767,592

<CAPTION>
ANNUALIZED
PERCENTAGE OF BASE RENT
TOTAL PER LEASED
PORTFOLIO NET ANNUALIZED NET RENTABLE
RENTABLE PERCENT BASE RENT NUMBER OF SQUARE
PROPERTY NAME SQUARE FEET LEASED ($000S) LEASES FEET(1)
------------- ------------- ------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Los Angeles North
Calabasas Commerce Center............ 0.7% 100.0% $ 2,093 13 $16.51
Calabasas Tech Center................ 1.5 99.9 3,763 12 13.77
Thousand Oaks Plaza.................. 0.1 100.0 218 6 16.21
Rancho Plaza......................... 0.1 89.9 349 18 16.13
Pennsfield Plaza..................... 0.1 91.9 336 11 17.22
Conejo Business Center............... 0.4 96.5 1,245 29 18.69
Marin Corporate Center............... 0.3 98.2 1,017 31 20.17
Evergreen Plaza...................... 0.4 98.2 1,353 39 18.20
Hillside Corporate Center............ 0.3 100.0 1,369 9 22.86
5601 Lindero Canyon.................. 0.6 100.0 1,270 2 12.00
Renaissance Court.................... 0.3 97.8 1,184 17 19.76
Westlake Gardens I................... 0.3 89.8 1,111 16 24.93
Westlake Gardens II.................. 0.3 100.0 1,026 4 21.00
6800 Owensmouth(2)................... 0.4 75.6 1,135 14 18.76
Woodland Hills Financial Center...... 1.2 93.2 4,621 69 22.04
Clarendon Crest...................... 0.2 93.4 749 11 18.62
Lyons Plaza.......................... 0.3 89.0 1,259 23 23.11
16000 Ventura........................ 1.0 95.9 3,390 46 20.22
15250 Ventura........................ 0.6 96.9 2,102 47 19.61
Noble Professional Center............ 0.3 99.9 1,074 20 20.74
Sunset Pointe Plaza.................. 0.3 99.9 1,301 30 22.41
303 Glenoaks Blvd.................... 1.0 81.6 3,037 23 21.23
601 South Glenoaks................... 0.4 100.0 1,435 16 19.79
Burbank Executive Plaza.............. 0.3 73.2 991 13 22.41
California Federal Building.......... 0.4 100.0 1,780 11 21.86
425 West Broadway.................... 0.4 76.2 1,136 8 20.82
Glendale Corporate Center............ 0.5 94.9 2,043 24 19.89
70 South Lake........................ 0.6 100.0 2,250 19 22.47
150 East Colorado.................... 0.3 100.0 1,184 21 19.35
299 North Euclid..................... 0.4 100.0 1,473 4 20.03
5161 Lankershim...................... 1.0 86.6 3,441 8 22.28
----- ----- -------- ----- ------
Subtotal/Weighted Average --
Los Angeles North........... 15.0% 94.0% $ 50,735 614 $19.50
</TABLE>

11
<PAGE> 12
<TABLE>
<CAPTION>

YEAR(S) APPROXIMATE
BUILT/ NET RENTABLE
PROPERTY NAME SUBMARKET LOCATION RENOVATED SQUARE FEET
------------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Los Angeles South
4811 Airport Plaza(2)................ Long Beach Long Beach 1987/95 121,610
4900/10 Airport Plaza(2)............. Long Beach Long Beach 1987/95 150,403
5000 East Spring(2).................. Long Beach Long Beach 1989/95 163,358
100 West Broadway.................... Long Beach Long Beach 1987/96 191,727
1501 Hughes Way...................... Long Beach Long Beach 1983/97 77,060
3901 Via Oro......................... Long Beach Long Beach 1986/97 53,195
Oceangate Tower...................... Long Beach Long Beach 1971/93-94 210,907
Norwalk.............................. Long Beach Norwalk 1978/94 122,175
91 Freeway Business Center........... Mid-Cities Artesia 1986/97 93,277
Continental Grand.................... El Segundo El Segundo 1986 235,926
Grand Avenue Plaza................... El Segundo El Segundo 1979,80 81,448
South Bay Centre..................... Torrance Gardena 1984 202,830
Harbor Corporate Center.............. Torrance Gardena 1985 63,925
Pacific Gateway II................... Torrance Torrance 1982/90 223,731
Mariner Court........................ Torrance Torrance 1989 105,436
South Bay Technology Center.......... Torrance Torrance 1984 104,815
----------
Subtotal/Weighted Average --
Los Angeles South........... 2,201,823
Los Angeles Central
Los Angeles Corporate Center......... San Gabriel Valley Monterey Park 1984/86 389,293
Whittier Financial Center............ San Gabriel Valley Whittier 1967/82 135,415
Gateway Center....................... San Gabriel Valley Diamond Bar 1988 84,081
----------
Subtotal/Weighted Average --
Los Angeles Central......... 608,789

<CAPTION>
ANNUALIZED
PERCENTAGE OF BASE RENT
TOTAL PER LEASED
PORTFOLIO NET ANNUALIZED NET RENTABLE
RENTABLE PERCENT BASE RENT NUMBER OF SQUARE
PROPERTY NAME SQUARE FEET LEASED ($000S) LEASES FEET(1)
------------- ------------- ------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Los Angeles South
4811 Airport Plaza(2)................ 0.7% 100.0% $ 1,051 1 $ 8.64
4900/10 Airport Plaza(2)............. 0.8 100.0 1,173 1 7.80
5000 East Spring(2).................. 0.9 95.4 3,215 30 20.63
100 West Broadway.................... 1.0 96.9 4,013 31 21.60
1501 Hughes Way...................... 0.4 99.1 1,250 5 16.37
3901 Via Oro......................... 0.3 96.8 841 4 16.34
Oceangate Tower...................... 1.1 91.0 3,190 44 16.62
Norwalk.............................. 0.7 95.9 1,950 7 16.64
91 Freeway Business Center........... 0.5 86.8 1,484 23 18.33
Continental Grand.................... 1.3 89.7 5,115 36 24.17
Grand Avenue Plaza................... 0.4 100.0 1,303 6 16.00
South Bay Centre..................... 1.1 96.0 3,427 42 17.60
Harbor Corporate Center.............. 0.3 80.4 747 17 14.54
Pacific Gateway II................... 1.2 97.5 4,221 41 19.35
Mariner Court........................ 0.6 97.5 1,782 38 17.33
South Bay Technology Center.......... 0.6 87.1 1,363 10 14.93
----- ----- -------- ----- ------
Subtotal/Weighted Average --
Los Angeles South........... 11.9% 94.6% $ 36,125 336 $17.34
Los Angeles Central
Los Angeles Corporate Center......... 2.1 95.4 7,071 39 19.04
Whittier Financial Center............ 0.7 95.7 2,788 38 21.51
Gateway Center....................... 0.5 99.7 1,685 17 20.10
----- ----- -------- ----- ------
Subtotal/Weighted Average --
Los Angeles Central......... 3.3% 96.1% $ 11,544 94 $19.74
</TABLE>

12
<PAGE> 13
<TABLE>
<CAPTION>

YEAR(S) APPROXIMATE
BUILT/ NET RENTABLE
PROPERTY NAME SUBMARKET LOCATION RENOVATED SQUARE FEET
------------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C>
ORANGE COUNTY
5832 Bolsa........................... West County Huntington Beach 1985 49,355
Huntington Beach Plaza I & II........ West County Huntington Beach 1984/96 52,186
5702 Bolsa........................... West County Huntington Beach 1987/97 27,731
5672 Bolsa........................... West County Huntington Beach 1987 11,968
5632 Bolsa........................... West County Huntington Beach 1987 21,568
Huntington Commerce Center........... West County Huntington Beach 1987 67,551
City Centre.......................... West County Fountain Valley 1982 302,519
Fountain Valley Plaza................ West County Fountain Valley 1982 107,252
3300 Irvine Avenue................... Greater Airport Area Newport Beach 1981/97 74,224
1821 East Dyer Boulevard............. Greater Airport Area Irvine 1980/88 115,061
Von Karman Corporate Center.......... Greater Airport Area Irvine 1981/84 451,477
South Coast Executive Plaza.......... Greater Airport Area Costa Mesa 1979/97 60,605
Anaheim City Centre(2)............... Tri-Freeway Area Anaheim 1986/91 175,391
Crown Cabot Financial................ South County Laguna Niguel 1989 172,900
625 The City......................... Tri-Freeway Area Orange 1985/97 139,806
One Venture.......................... South County Irvine 1990/97 43,324
Orange Financial Center.............. Central County Orange 1985/95 305,439
Centerpointe La Palma................ North County La Palma 1986,88,90 597,550
Lambert Office Plaza................. North County Brea 1986/97 32,807
Savi Tech Center..................... North County Yorba Linda 1989 341,446
Yorba Linda Business Park............ North County Yorba Linda 1988 167,142
----------
Subtotal/Weighted Average --
Orange County............... 3,317,302

<CAPTION>
ANNUALIZED
PERCENTAGE OF BASE RENT
TOTAL PER LEASED
PORTFOLIO NET ANNUALIZED NET RENTABLE
RENTABLE PERCENT BASE RENT NUMBER OF SQUARE
PROPERTY NAME SQUARE FEET LEASED ($000S) LEASES FEET(1)
------------- ------------- ------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
ORANGE COUNTY
5832 Bolsa........................... 0.3% 100.0% $ 720 1 $14.59
Huntington Beach Plaza I & II........ 0.3 95.9 729 16 14.57
5702 Bolsa........................... 0.1 100.0 199 2 7.19
5672 Bolsa........................... 0.1 100.0 89 1 7.44
5632 Bolsa........................... 0.1 100.0 168 1 7.80
Huntington Commerce Center........... 0.4 100.0 496 21 7.35
City Centre.......................... 1.6 99.7 4,726 29 15.67
Fountain Valley Plaza................ 0.6 99.9 1,794 4 16.74
3300 Irvine Avenue................... 0.4 97.8 1,461 30 20.13
1821 East Dyer Boulevard............. 0.6 89.2 1,148 3 11.19
Von Karman Corporate Center.......... 2.4 94.7 7,640 34 17.87
South Coast Executive Plaza.......... 0.3 100.0 981 26 16.19
Anaheim City Centre(2)............... 0.9 88.1 2,916 15 18.87
Crown Cabot Financial................ 0.9 99.9 4,123 38 23.87
625 The City......................... 0.8 92.4 2,414 29 18.69
One Venture.......................... 0.2 100.0 916 9 21.14
Orange Financial Center.............. 1.7 95.3 5,860 38 20.13
Centerpointe La Palma................ 3.2 95.8 10,018 84 17.50
Lambert Office Plaza................. 0.2 91.3 557 9 18.58
Savi Tech Center..................... 1.9 100.0 2,950 4 8.64
Yorba Linda Business Park............ 0.9 96.6 1,264 61 7.83
----- ----- -------- ----- ------
Subtotal/Weighted Average --
Orange County............... 17.9% 96.4% $ 51,169 455 $16.01
</TABLE>

13
<PAGE> 14
<TABLE>
<CAPTION>

YEAR(S) APPROXIMATE
BUILT/ NET RENTABLE
PROPERTY NAME SUBMARKET LOCATION RENOVATED SQUARE FEET
------------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C>
SAN DIEGO COUNTY
Imperial Bank Tower(2)............... Downtown San Diego 1982/96 540,413
Foremost Professional Plaza.......... I-15 Corridor San Diego 1992 60,534
Activity Business Center............. I-15 Corridor San Diego 1987 167,045
Bernardo Regency..................... I-15 Corridor San Diego 1986 47,916
Carlsbad Corporate Center............ North Coast Carlsbad 1996 125,000
10180 Scripps Ranch.................. I-15 Corridor San Diego 1978/96 43,560
Cymer Technology Center.............. I-15 Corridor Rancho 1986 155,612
Bernardino
10965-93 Via Frontera................ I-15 Corridor Rancho 1982/97 77,920
Bernardino
Poway Industrial..................... I-15 Corridor Poway 1991/96 112,000
Balboa Corporate Center.............. Mission Valley/Kearny Mesa San Diego 1990 69,890
Panorama Corporate Center............ Mission Valley/Kearny Mesa San Diego 1991 133,149
Ruffin Corporate Center.............. Mission Valley/Kearny Mesa San Diego 1990 45,059
Skypark Office Plaza................. Mission Valley/Kearny Mesa San Diego 1986 202,164
Governor Park Plaza.................. North City San Diego 1986 104,065
Westridge............................ North City San Diego 1984/96 48,955
5120 Shoreham........................ North City San Diego 1984 37,759
Sorrento Valley Science Park......... North City San Diego 1984 181,207
Torreyanna Science Park.............. North City La Jolla 1980/97 81,204
Waples Tech Center................... North City San Diego 1990 28,119
Genesee Executive Plaza.............. North City San Diego 1984 155,820
10251 Vista Sorrento................. North City San Diego 1981/95 69,386
----------
Subtotal/Weighted Average --
San Diego County............ 2,486,777

10965-93 Via Frontera................ 0.4 93.4 660 4 9.07

Poway Industrial..................... 0.6 100.0 605 1 5.40
Balboa Corporate Center.............. 0.4 100.0 765 1 10.94
Panorama Corporate Center............ 0.7 100.0 2,317 1 17.40
Ruffin Corporate Center.............. 0.2 100.0 427 1 9.48
Skypark Office Plaza................. 1.1 97.5 3,396 15 17.23
Governor Park Plaza.................. 0.6 100.0 1,944 21 18.68
Westridge............................ 0.3 82.8 508 3 12.54
5120 Shoreham........................ 0.3 100.0 658 1 17.43
Sorrento Valley Science Park......... 1.0 94.9 2,652 11 15.42
Torreyanna Science Park.............. 0.4 100.0 1,733 1 21.34
Waples Tech Center................... 0.2 100.0 294 3 10.46
Genesee Executive Plaza.............. 0.8 99.4 3,572 18 23.06
10251 Vista Sorrento................. 0.4 100.0 1,091 1 15.73
----- ----- -------- ----- ------
Subtotal/Weighted Average --
San Diego County............ 13.5% 97.6% $ 38,211 270 $15.74
</TABLE>

14
<PAGE> 15
<TABLE>
<CAPTION>

YEAR(S) APPROXIMATE
BUILT/ NET RENTABLE
PROPERTY NAME SUBMARKET LOCATION RENOVATED SQUARE FEET
------------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C>
VENTURA COUNTY
Center Promenade..................... West County Ventura 1982 174,837
1000 Town Center..................... West County Oxnard 1989 107,656
Solar Drive Business Park............ West County Oxnard 1982 125,132
Camarillo Business Center............ West County Camarillo 1984/1997 154,216
----------
Subtotal/Weighted Average --
Ventura County.............. 561,841
RIVERSIDE AND SAN BERNARDINO COUNTIES
Centrelake Plaza..................... Inland Empire West Ontario 1989 110,763
Tower Plaza I........................ Temecula Temecula 1988 72,350
Tower Plaza II....................... Temecula Temecula 1983 19,301
Tower Plaza II....................... Temecula Temecula 1983 12,483
Chicago Avenue Business Park......... Inland Empire East Riverside 1986 47,482
Hunter Business Park................. Inland Empire East Riverside 1990 106,782
Havengate Center..................... Inland Empire East Rancho Cucamonga 1985 80,557
HDS Plaza............................ Inland Empire East San Bernardino 1987 104,178
----------
Subtotal/Weighted Average --
Riverside and San Bernardino
Counties.................... 553,896
KERN COUNTY
Parkway Center....................... Bakersfield Bakersfield 1992/1995 61,333
California Twin Center............... Bakersfield Bakersfield 1983 155,189
----------
Subtotal/Weighted Average Kern
County...................... 216,522
----------
Total/Weighted Average --
Office (Excluding properties
under renovation)........... 17,398,157

<CAPTION>
ANNUALIZED
PERCENTAGE OF BASE RENT
TOTAL PER LEASED
PORTFOLIO NET ANNUALIZED NET RENTABLE
RENTABLE PERCENT BASE RENT NUMBER OF SQUARE
PROPERTY NAME SQUARE FEET LEASED ($000S) LEASES FEET(1)
------------- ------------- ------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
VENTURA COUNTY
Center Promenade..................... 0.9% 91.3% $ 2,551 57 $15.98
1000 Town Center..................... 0.6 100.0 2,236 11 20.77
Solar Drive Business Park............ 0.7 100.0 2,025 39 16.18
Camarillo Business Center............ 0.8 95.7 2,462 20 16.68
----- ----- -------- ----- ------
Subtotal/Weighted Average --
Ventura County.............. 3.0% 97.6% $ 9,274 127 $17.16
RIVERSIDE AND SAN BERNARDINO COUNTIES
Centrelake Plaza..................... 0.6% 62.2% $ 1,364 15 $19.80
Tower Plaza I........................ 0.4 94.2 1,102 19 16.17
Tower Plaza II....................... 0.1 100.0 243 23 12.60
Tower Plaza II....................... 0.1 100.0 160 22 12.82
Chicago Avenue Business Park......... 0.2 86.4 577 6 14.07
Hunter Business Park................. 0.6 90.7 592 15 6.11
Havengate Center..................... 0.4 62.0 776 9 15.54
HDS Plaza............................ 0.6 83.9 1,487 11 17.01
----- ----- -------- ----- ------
Subtotal/Weighted Average --
Riverside and San Bernardino
Counties.................... 3.0% 80.2% $ 6,301 120 $14.19
KERN COUNTY
Parkway Center....................... 0.4 94.3 $ 1,040 10 $17.99
California Twin Center............... 0.8 100.0 3,605 13 23.23
----- ----- -------- ----- ------
Subtotal/Weighted Average Kern
County...................... 1.2% 99.1% $ 4,645 23 $21.82
----- ----- -------- ----- ------
Total/Weighted Average --
Office (Excluding properties
under renovation)........... 94.1% 95.1% $308,458 3,076 $18.67
</TABLE>

15
<PAGE> 16
<TABLE>
<CAPTION>

YEAR(S) APPROXIMATE
BUILT/ NET RENTABLE
PROPERTY NAME SUBMARKET LOCATION RENOVATED SQUARE FEET
------------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C>
INDUSTRIAL
RIVERSIDE AND SAN BERNARDINO COUNTIES
Ontario Airport Commerce Center...... Inland Empire West Ontario 1987/97 213,127
Highlands I.......................... Temecula Temecula 1988 26,856
Highlands II......................... Temecula Temecula 1990 41,210
----------
Total/Weighted Average --
Industrial.................. 281,193
RETAIL
RIVERSIDE AND SAN BERNARDINO COUNTIES
Tower Plaza Retail................... Temecula Temecula 1970/97 133,481
Los Angeles West
Howard Hughes -- Spectrum............ Marina Area/Culver City/LAX Los Angeles 1993 36,959
----------
Total/Weighted Average --
Retail...................... 170,440
----------
PORTFOLIO TOTAL/WEIGHTED AVERAGE
(EXCLUDING RENOVATIONS)............. 17,849,790
RENOVATIONS
Westwood Center(4)................... Westwood/West Los Angeles Los Angeles 1965 313,000
535 Brand Boulevard.................. East San Fernando Valley/Tri-Cities Glendale 1973/92 109,187
Tourney Pointe....................... Santa Clarita Valley Valencia 1985/98 219,991
----------
Total/Weighted Average
Renovations................. 642,178
----------
PORTFOLIO TOTAL/WEIGHTED
AVERAGE..................... 18,491,968
==========

- ---------------
(1) Calculated as monthly contractual base rent under existing leases as of
December 31, 1999, multiplied by 12 and divided by leased net rentable
square feet; for those leases where rent has not yet commenced or which are
in a free rent period, the first month in which rent is to be received is
used to determine annualized base rent.

(2) We lease the land underlying these properties or their parking structures
pursuant to long term ground leases.

(3) Amounts for 2730 Wilshire exclude the 100%-occupied 12,740 square foot,
16-unit apartment complex we also own.

(4) We own a 97.5% interest in this property.

16
<PAGE> 17

Tenant Information

As of December 31, 1999, we had over 3,000 tenants, with no one tenant
representing more than 2.0% of the aggregate annualized base rent of our
properties, and only three tenants individually representing more than 1.0% of
our aggregate annualized base rent. Our properties are leased to local, national
and foreign companies engaged in a variety of businesses including financial
services, entertainment, health care services, accounting, law, computer
technology, education and publishing.

Our leases are typically structured for terms of three, five or ten years.
Leases typically contain provisions permitting tenants to renew expiring leases
at prevailing market rates. A majority of our leases are full service gross
leases under which tenants typically pay for all real property taxes and
operating expenses above those for an established base year or expense stop.
Tenants generally pay directly, without regard to a base year or expense stop,
for overtime use of heating and air conditioning and for on-site monthly
employee and visitor parking. We are generally responsible for structural
repairs.

The following table presents information as of December 31, 1999 derived
from the twenty largest tenants at our properties, based on the percentage of
aggregate portfolio annualized base rent:

<TABLE>
<CAPTION>
WEIGHTED PERCENTAGE OF PERCENTAGE OF
AVERAGE AGGREGATE AGGREGATE
REMAINING PORTFOLIO PORTFOLIO
NUMBER OF LEASE TERM LEASED ANNUALIZED
TENANT LEASES IN MONTHS SQUARE FEET BASE RENT(1)
------ --------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
State of California........................ 32 65 1.93% 1.94%
University of Phoenix...................... 14 53 1.27 1.20
Walt Disney Pictures & Television.......... 2 40 0.88 1.04
Sony (Consolidated Entities)............... 6 48 0.71 0.79
U.S. Government............................ 16 45 0.60 0.77
Atlantic Richfield......................... 2 80 0.74 0.76
GTE (Consolidated Entities)................ 5 36 0.87 0.74
Community Healthcare Alliance.............. 1 44 0.78 0.73
McDonnell Douglas Aerospace................ 1 70 1.59 0.70
State Compensation......................... 1 38 0.68 0.67
Salomon Smith Barney....................... 8 74 0.42 0.66
Omnicom Group.............................. 1 46 0.30 0.64
Maritz Marketing........................... 4 21 0.57 0.61
Ceridian Tax Service....................... 3 33 0.61 0.57
Wells Fargo Bank........................... 4 81 0.62 0.58
Aurora Biosciences Corp. .................. 1 105 0.47 0.55
Pacific Southwest Bank..................... 1 96 0.73 0.54
Cymer, Inc................................. 1 120 0.91 0.52
Latham & Watkins........................... 1 50 0.40 0.52
Earth Technology........................... 5 44 0.34 0.49
--- -- ----- -----
Total/Weighted Average(2)........ 109 61 15.42% 15.02%
=== == ===== =====
</TABLE>

- ---------------
(1) Annualized base rent is calculated as monthly contractual base rent under
existing leases as of December 31, 1999, multiplied by 12; for those leases
where rent has not yet commenced or which are in a free rent period, the
first month in which rent is to be received is used to determine annualized
base rent.

(2) The weighted average calculation is based on net rentable square footage
leased by each tenant.

17
<PAGE> 18

Lease Distribution

The following table presents information relating to the distribution of
the leases for our 142 properties, based on leased net rentable square feet, as
of December 31, 1999:

<TABLE>
<CAPTION>
AVERAGE
PERCENTAGE OF PERCENTAGE BASE RENT
SQUARE AGGREGATE ANNUALIZED OF AGGREGATE PER NET
NUMBER PERCENTAGE FOOTAGE PORTFOLIO BASE RENT PORTFOLIO RENTABLE
OF OF ALL OF LEASED OF LEASES(1) ANNUALIZED SQUARE FOOT
SQUARE FEET UNDER LEASE LEASES LEASES LEASES SQUARE FEET ($000S) BASE RENT OF LEASES
----------------------- ------ ---------- ---------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
2,500 or less..................... 1,690 52.81% 2,295,416 13.39% $ 47,448 14.04% $20.67
2,501 - 5,000..................... 696 21.75 2,420,624 14.12 51,023 15.09 21.08
5,001 - 7,500..................... 259 8.09 1,585,533 9.24 32,083 9.49 20.23
7,501 - 10,000.................... 177 5.53 1,538,300 8.97 29,834 8.83 19.39
10,001 - 20,000.................... 245 7.66 3,423,561 19.96 70,361 20.82 20.55
20,001 - 40,000.................... 80 2.50 2,198,801 12.82 43,380 12.83 19.73
40,001 and over.................... 53 1.66 3,686,709 21.50 63,896 18.90 17.33
----- ------ ---------- ------ -------- ------ ------
Total/Weighted Average..... 3,200 100.00% 17,148,944 100.00% $338,025 100.00% $19.71
===== ====== ========== ====== ======== ====== ======
</TABLE>

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

Lease Expirations

The following table presents a summary schedule of the total lease
expirations for our 142 properties for leases in place at December 31, 1999.
This table assumes that none of the tenants exercise renewal options or
termination rights, if any, at or prior to the scheduled expirations:

<TABLE>
<CAPTION>
AVERAGE
PERCENTAGE OF PERCENTAGE BASE RENT
SQUARE AGGREGATE ANNUALIZED OF AGGREGATE PER NET
NUMBER OF FOOTAGE OF PORTFOLIO BASE RENT OF PORTFOLIO RENTABLE
LEASES EXPIRING LEASED LEASES(1) ANNUALIZED SQUARE FOOT
YEAR OF LEASE EXPIRATION EXPIRING LEASES SQUARE FEET ($000S) BASE RENT OF LEASES
------------------------ --------- ---------- ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Month-to-Month............. 185 350,640 2.04% $ 6,386 1.89% $18.21
2000....................... 649 2,319,508 13.53 43,079 12.74 18.57
2001....................... 598 2,313,471 13.49 42,609 12.61 18.42
2002....................... 602 2,770,686 16.16 52,459 15.52 18.93
2003....................... 415 2,841,267 16.57 59,021 17.46 20.77
2004....................... 388 2,675,837 15.60 54,739 16.19 20.46
2005....................... 133 1,463,759 8.54 26,815 7.93 18.32
2006....................... 56 658,358 3.84 13,276 3.93 20.17
2007....................... 44 520,525 3.03 10,776 3.19 20.70
2008....................... 27 333,866 1.95 9,489 2.81 28.42
2009....................... 35 485,597 2.83 11,114 3.29 22.89
2010....................... 16 233,048 1.36 4,532 1.34 19.45
2011....................... 52 182,382 1.06 3,730 1.10 20.45
----- ---------- ------ -------- ------ ------
Total/Weighted
Average........ 3,200 17,148,944 100.00% $338,025 100.00% $19.71
===== ========== ====== ======== ====== ======
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

We are not presently subject to any material litigation nor, to our
knowledge, is any litigation threatened against us, other than routine
litigation arising in the ordinary course of business, some of which is expected
to

18
<PAGE> 19

be covered by liability insurance and all of which collectively is not expected
to have a material adverse effect on our cash flows, financial condition or
results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our stockholders during the fourth
quarter of the year ended December 31, 1999.

19
<PAGE> 20

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock began trading on the New York Stock Exchange, or NYSE, on
October 4, 1996 under the symbol "ARI." On March 17, 2000, the last reported
sales price per share of common stock on the NYSE was $20 15/16, and there were
approximately 185 registered holders of record of our 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 per share we declared
with respect to each period.

<TABLE>
<CAPTION>
DISTRIBUTIONS
HIGH LOW DECLARED
---- --- -------------
<S> <C> <C> <C>
1998
First Quarter.............................. 30 7/8 27 1/2 0.42
Second Quarter............................. 28 13/16 25 3/16 0.42
Third Quarter.............................. 26 3/4 19 15/16 0.42
Fourth Quarter............................. 23 5/8 20 1/8 0.42

1999
First Quarter.............................. 22 1/4 20 1/8 0.445
Second Quarter............................. 25 1/8 20 1/2 0.445
Third Quarter.............................. 23 1/4 20 3/8 0.445
Fourth Quarter........................... 21 1/8 17 3/8 0.445
</TABLE>

We pay quarterly distributions to common stockholders at the discretion of
our Board of Directors. Distribution amounts depend on our funds from
operations, financial condition and capital requirements, annual distribution
requirements under the REIT provisions of the Internal Revenue Code and such
other factors as the Board of Directors deems relevant.

Pursuant to the recommendations of our Board of Directors, a Merger
Committee of the Board of Directors comprised of three non-employee directors
and outside legal counsel, on April 28, 1999, we acquired Namiz, Inc. in a
tax-free, stock-for-stock merger in which we issued 775,196 shares of our common
stock to Namiz's stockholders. Prior to the acquisition, Namiz was wholly owned
by Richard S. Ziman, our Chairman of the Board and Chief Executive Officer, and
Victor J. Coleman, our President and Chief Operating Officer. At the time of the
acquisition, Namiz's sole assets were common OP Units of the Operating
Partnership. In the merger, each share of Namiz common stock then issued and
outstanding was converted into approximately 775.2 shares of our common stock,
with the exchange ratio calculated by dividing 775,196 (the number of common OP
Units owned by Namiz) by 1,000 (the number of shares of Namiz common stock
issued and outstanding immediately prior to the merger). As a result, Namiz's
stockholders converted their proportionate interest in the common OP Units held
by Namiz into an economically equivalent number of shares of our common stock.
The shares of our common stock were issued to Namiz's stockholders in reliance
upon an exemption from registration provided by Section 4(2) under the
Securities Act as a transaction by an issuer not involving a public offering.

On September 7, 1999, the Operating Partnership completed a $50 million
private placement of 8 5/8% Series B Cumulative Redeemable Preferred Operating
Partnership Units to an institutional investor. These Preferred OP Units are
callable by the Operating Partnership after five years and are exchangeable by
the holder after ten years into our 8 5/8% Series B Cumulative Redeemable
Preferred Stock, on a one-for-one basis. The Preferred OP Units have no stated
maturity or mandatory redemption and are subordinate to all debt. We used the
net proceeds from this private placement to repay a portion of our lines of
credit. The Preferred OP Units were issued in reliance upon an exemption from
registration provided by Section 4(2) under the Securities Act as a transaction
by an issuer not involving a public offering.

20
<PAGE> 21

ITEM 6. SELECTED FINANCIAL DATA

You should read the following consolidated financial and operating data for
Arden Realty and the following combined financial and operating data for the
Arden Predecessors together with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements included elsewhere in this Form 10-K. The properties held by the
Arden Predecessors were directly or indirectly contributed to us in the
formation transactions completed prior to our initial public offering of common
stock in October 1996.

<TABLE>
<CAPTION>
ARDEN REALTY, INC. ARDEN PREDECESSORS
------------------------------------------------ -------------------------------
FOR THE YEARS ENDED FOR THE PERIOD FOR THE PERIOD FOR THE YEAR
DECEMBER 31, OCTOBER 9, 1996 JANUARY 1, 1996 ENDED
------------------------------ TO DECEMBER 31, TO OCTOBER 8, DECEMBER 31,
1999 1998 1997 1996 1996 1995
-------- -------- -------- --------------- ---------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues........................ $340,675 $284,582 $135,447 $19,572 $40,465 $11,693
Property operating expenses..... 101,284 86,570 44,332 6,005 14,224 3,340
-------- -------- -------- ------- ------- -------
General and administrative
expense....................... 7,393 6,665 4,322 753 1,758 1,377
Depreciation and amortization... 69,837 51,822 20,260 3,108 5,264 1,898
-------- -------- -------- ------- ------- -------
162,161 139,525 66,533 9,706 19,219 5,078
Interest expense................ 60,239 43,403 19,511 1,280 24,521 5,537
Loss on valuation of
derivative.................... -- -- 3,111 -- -- --
-------- -------- -------- ------- ------- -------
Equity in net loss of
noncombined entities.......... -- -- -- -- 336 116
-------- -------- -------- ------- ------- -------
Income (loss) before minority
interests and extraordinary
items......................... 101,922 96,122 43,911 8,426 (5,638) (575)
Minority interests' share of
loss (income) of Arden
Predecessors.................. -- -- -- -- 721 (1)
Minority interests.............. (5,296) (5,447) (4,281) (993) -- --
-------- -------- -------- ------- ------- -------
Income (loss) before
extraordinary items........... 96,626 90,675 39,630 7,433 (4,917) (576)
Extraordinary (loss) gain on
early extinguishment of debt,
net of minority interests'
share......................... -- -- -- (13,105) 1,877 --
-------- -------- -------- ------- ------- -------
Net income (loss)............... $ 96,626 $ 90,675 $ 39,630 $(5,672) $(3,040) $ (576)
======== ======== ======== ======= ======= =======
Earnings per share:
Net income (loss) per common
share:
Income before extraordinary
item.......................... $ 1.53 $ 1.55 $ 1.43 $ .34
Extraordinary item -- loss on
early extinguishment of
debt.......................... -- -- -- (.60)
-------- -------- -------- -------
Net income (loss) per common
share:
Basic......................... $ 1.53 $ 1.55 $ 1.43 $ (.26)
======== ======== ======== =======
Diluted....................... $ 1.53 $ 1.54 $ 1.41 $ (.26)
======== ======== ======== =======
Weighted average common shares
outstanding:
Basic......................... 63,016 58,660 27,794 21,680
======== ======== ======== =======
Diluted....................... 63,072 58,814 28,039 21,680
======== ======== ======== =======
Cash dividends declared per
common share.................. $ 1.78 $ 1.68 $ 1.60 $ .36
======== ======== ======== =======
</TABLE>

21
<PAGE> 22

<TABLE>
<CAPTION>
ARDEN REALTY, INC. ARDEN PREDECESSORS
-------------------------------------------------- ------------------
DECEMBER 31, DECEMBER 31,
-------------------------------------------------- ------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- -------- ------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net investment in real estate...... $2,442,164 $2,239,598 $1,203,172 $529,568 $160,874
Total assets....................... 2,570,458 2,331,919 1,284,004 551,256 182,379
Total indebtedness................. 1,029,656 840,377 477,566 155,000 168,451
Other liabilities(1)............... 50,555 35,720 23,205 9,768 5,712
Minority interests................. 86,294 56,222 95,973 45,667 100
Total Stockholders' Equity/owners'
equity........................... 1,375,758 1,373,390 672,983 331,977 8,116
</TABLE>

- ---------------
(1) Excludes dividends payable.

ARDEN REALTY, INC.
AND
ARDEN PREDECESSORS

<TABLE>
<CAPTION>
ARDEN REALTY, INC. ARDEN PREDECESSORS
------------------------------------------------------- ---------------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE YEARS ENDED OCTOBER 9, JANUARY 1,
DECEMBER 31, 1996 TO 1996 TO FOR THE YEAR ENDED
---------------------------------- DECEMBER 31, OCTOBER 8, DECEMBER 31,
1999 1998 1997 1996 1996 1995
-------- ----------- --------- ------------------ ------------------ ------------------
(IN THOUSANDS, EXCEPT RATIO DATA AND NUMBER OF PROPERTIES)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from
Operations(1)......... $170,405 $ 147,369 $ 64,171 $ 11,534 $ (374) $ 1,323
Company's Share
Percentage............ 96.2% 95.3% 90.3% 88.2% N/A N/A
-------- ----------- --------- --------- --------- ---------
Company's Share of Funds
from Operations....... $163,930 $ 140,443 $ 57,946 $ 10,173 $ (374) $ 1,323
======== =========== ========= ========= ========= =========
EBITDA(2)............... $231,998 $ 191,347 $ 86,793 $ 12,814 $ 24,483 $ 6,976
Ratio of EBITDA to
interest expense(2)... 3.85 4.41 4.45 10.01 1.00 1.26
Ratio of EBITDA to fixed
charges(2)(3)......... 3.26 3.66 4.20 9.58 1.00 1.26
Ratio of earnings to
fixed charges(3)(4)... 2.20 2.56 2.86 6.52 0.80 0.89
Cash flows from
operating
activities............ 155,076 131,957 39,156 8,665 7,387 (8,819)
Cash flows from
investing
activities............ (268,296) (1,079,517) (659,670) (164,763) (119,083) (123,358)
Cash flows from
financing
activities............ 115,698 946,838 618,182 163,730 119,908 132,356
Number of Properties
owned at end of
period................ 142 138 72 33 22 17
Net rentable square feet
of Properties owned at
end of period......... 18,492 17,973 10,307 5,443 3,739 2,634
</TABLE>

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

22
<PAGE> 23

The White Paper on funds from operations approved by the Board of Governors
of NAREIT in October 1999 defines funds from operations as net income or
loss computed in accordance with GAAP, excluding gains or losses from
extraordinary items, as defined by GAAP, and gains and losses from sales of
depreciable operating property plus real estate-related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. We compute funds from operations in accordance with standards
established by the White Paper which may differ from the standards used by
other REITs and, accordingly, our funds from operations may not be
comparable to other REITs.

(2) As used in this Form 10-K, earnings before interest, taxes, depreciation and
amortization, or EBITDA, means revenue less property operating expenses and
general and administrative expenses. EBITDA does not represent cash
generated from operating activities in accordance with GAAP and should not
be considered as an alternative to operating income or net income as an
indicator of performance or as a substitute for cash flow from operating
activities determined in accordance with GAAP as a measure of our liquidity.
We have included information with respect to EBITDA because we understand
that this information may be used as one measure of operating performance.

(3) Fixed charges consist of interest costs, whether expensed or capitalized,
amortization of deferred financing costs, amortization of discounts or
premiums related to indebtedness and preferred unit distributions.

(4) The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings have been calculated by adding
fixed charges, excluding capitalized interest and preferred unit
distributions, to income or loss before extraordinary items.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Overview

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

We are a self-administered and self-managed real estate investment trust
that owns, manages, leases, develops, renovates and acquires commercial
properties located in Southern California. We are a full-service real estate
organization managed by 11 senior executive officers who have an average of 16
years of experience in the real estate industry. We perform all property
management, accounting, finance and acquisition activities and a majority of our
leasing transactions with our own staff of approximately 280 employees.

Our primary business strategy is to actively manage our portfolio to
achieve gains in occupancy and rental rates, maximize income from ancillary
operations and services and to reduce operating expenses. When market conditions
permit, we may also develop or acquire new properties in submarkets where we can
use our local market expertise and extensive real estate experience.

23
<PAGE> 24

Results Of Operations

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

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED DECEMBER 31,
1998
(IN THOUSANDS, EXCEPT NUMBER OF PROPERTIES AND PERCENTAGES)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------ PERCENT
1999 1998 CHANGE CHANGE
---------- ---------- ------- -------
<S> <C> <C> <C> <C>
REVENUE
Revenue from rental operations:
Rental........................................ $292,688 $250,467 $42,221 17%
Tenant reimbursements......................... 13,863 9,505 4,358 46
Parking, net of expense....................... 14,384 12,223 2,161 18
Other rental operations....................... 16,918 8,872 8,046 91
-------- -------- ------- ---
Total.................................... 337,853 281,067 56,786 20
Interest and other income..................... 2,822 3,515 (693) (20)
-------- -------- ------- ---
Total revenue............................ $340,675 $284,582 $56,093 20%
======== ======== ======= ===
EXPENSES
Property expenses:
Repairs and maintenance....................... $ 32,902 $ 27,141 $ 5,761 21%
Utilities..................................... 28,305 26,559 1,746 7
Real estate taxes............................. 23,167 19,433 3,734 19
Insurance..................................... 3,993 4,110 (117) (3)
Ground rent................................... 891 714 177 25
Marketing and other........................... 12,026 8,613 3,413 40
-------- -------- ------- ---
Total property expenses.................. 101,284 86,570 14,714 17
General and administrative.................... 7,393 6,665 728 11
Interest...................................... 60,239 43,403 16,836 39
Depreciation and amortization................. 69,837 51,822 18,015 35
-------- -------- ------- ---
Total expenses........................... $238,753 $188,460 $50,293 27%
======== ======== ======= ===
OTHER DATA:
Number of properties:
Acquired during period........................ 4 66
Owned at end of period........................ 142 138
Net rentable square feet:
Acquired during period........................ 524 7,664
Owned at end of period........................ 18,492 17,968
</TABLE>

The increase in revenue from rental operations and property expenses in
1999 is primarily from properties acquired during 1998 and 1999. The 1998
amounts do not include a full year of operations for the 66 properties we
acquired during 1998 or for the four properties we acquired during 1999.

24
<PAGE> 25

Following is a summary of the 1999 increase in revenue from rental
operations and property expenses that relates to the 70 properties that we
acquired during 1998 and 1999 and for the 72 properties we owned for all of 1998
and 1999 (in thousands, except number of properties).

<TABLE>
<CAPTION>
PROPERTIES
PROPERTIES OWNED FOR ALL OF
ACQUIRED DURING 1998 AND
TOTAL VARIANCE 1998 AND 1999 1999(1)
-------------- --------------- ----------------
<S> <C> <C> <C>
REVENUE FROM RENTAL OPERATIONS:
Rental................................ $42,221 $32,177 $10,044
Tenant reimbursements................. 4,358 3,551 807
Parking, net of expense............... 2,161 1,323 838
Other rental operations............... 8,046 2,400 5,646
------- ------- -------
$56,786 $39,451 $17,335
======= ======= =======
PROPERTY EXPENSES:
Repairs and maintenance............... $ 5,761 $ 3,708 $ 2,053
Utilities............................. 1,746 1,904 (158)
Real estate taxes..................... 3,734 2,033 1,701
Insurance............................. (117) 190 (307)
Ground rent........................... 177 1 176
Marketing and other................... 3,413 1,938 1,475
------- ------- -------
$14,714 $ 9,774 $ 4,940
======= ======= =======
OTHER DATA:
Number of properties.................. 70 72
Net rentable square feet.............. 8,188 10,304
</TABLE>

- ---------------
(1) See analysis of Properties Owned for all of 1998 and 1999.

Interest and other income decreased by approximately $700,000 in 1999 as
compared to 1998, primarily due to lower interest income earned on amortizing
mortgage notes receivable acquired in September 1997.

General and administrative expenses were approximately $7.4 million, or
2.2% of total revenue, in 1999 as compared to $6.7 million, or 2.3% of total
revenue, in 1998. General and administrative expenses as a percentage of total
revenue decreased in 1999 compared to 1998 primarily due to benefits achieved
from economies of scale and concentration over a larger property portfolio.

Interest expense increased approximately $16.8 million in 1999 as compared
to 1998. This increase was due to higher outstanding debt balances in 1999
primarily to fund property acquisitions and tenant improvement build-outs, which
was partially offset by slightly lower effective interest rates in 1999.

Depreciation and amortization expense increased by approximately $18.0
million in 1999, primarily due to the 70 properties we acquired in 1998 and
1999.

25
<PAGE> 26

PROPERTIES OWNED FOR ALL OF 1998 AND 1999
(IN THOUSANDS, EXCEPT NUMBER OF PROPERTIES AND PERCENTAGES)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------- DOLLAR PERCENT
1999 1998 CHANGE CHANGE
-------- -------- ------- -------
<S> <C> <C> <C> <C>
GAAP BASIS:
Revenue from rental operations................... $210,312 $192,977 $17,335 9%
Property expenses................................ 65,270 60,330 4,940 8
-------- -------- ------- --
$145,042 $132,647 $12,395 9%
======== ======== ======= ==
CASH BASIS(1):
Revenue from rental operations................... $207,357 $189,181 $18,176 10%
Property expenses................................ 65,270 60,330 4,940 8
-------- -------- ------- --
$142,087 $128,851 $13,236 10%
======== ======== ======= ==
Number of properties............................... 72 72
Average occupancy.................................. 89.4% 85.4%
Net rentable square feet........................... 10,304 10,304
Percentage of total portfolio...................... 55.7% 57.3%
</TABLE>

- ---------------
(1) Excludes straight-line rent adjustments.

Revenue from rental operations for the 72 properties we owned for all of
1999 and 1998 computed on a GAAP basis increased by approximately $17.3 million
in 1999 compared to 1998. This increase was primarily due to increases in rental
rates and a four percentage point increase in average occupancy in 1999 for this
pool of properties representing approximately 10.3 million net rentable square
feet. This increase in occupancy not only contributed to higher rental revenue
but also resulted in higher tenant expense reimbursements, parking income and
miscellaneous tenant charges. Miscellaneous tenant charges include revenue from
after-hour utility billings, signage, satellite income and lease termination
settlements. Lease termination settlements totaled approximately $9.7 million in
1999 compared to $4.1 million in 1998 for these properties.

Excluding only the straight-line rent adjustments for these properties,
revenue from rental operations, computed on a cash basis, increased by
approximately $18.2 million for the reasons described above.

Property operating expenses for these properties increased by approximately
$4.9 million in 1999 compared to 1998, primarily due to higher repairs,
maintenance and marketing and overhead expenses. These increases were primarily
related to the four percentage point increase in average occupancy in 1999.

26
<PAGE> 27

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31,
1997
(IN THOUSANDS, EXCEPT NUMBER OF PROPERTIES AND PERCENTAGES)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------ DOLLAR PERCENT
1998 1997 CHANGE CHANGE
---------- ---------- -------- -------
<S> <C> <C> <C> <C>
REVENUE
Revenue from rental operations:
Rental....................................... $250,467 $118,085 $132,382 112%
Tenant reimbursements........................ 9,505 5,945 3,560 60
Parking, net of expense...................... 12,223 7,397 4,826 65
Other rental operations...................... 8,872 2,390 6,482 271
-------- -------- -------- ----
Total................................... 281,067 133,817 147,250 110
Interest and other income.................... 3,515 1,630 1,885 116
-------- -------- -------- ----
Total revenue........................... $284,582 $135,447 $149,135 110%
======== ======== ======== ====
EXPENSES
Property expenses:
Repairs and maintenance...................... $ 27,141 $ 15,154 $ 11,987 79%
Utilities.................................... 26,559 14,321 12,238 85
Real estate taxes............................ 19,433 8,003 11,430 143
Insurance.................................... 4,110 2,125 1,985 93
Ground rent.................................. 714 314 400 127
Marketing and other.......................... 8,613 4,415 4,198 95
-------- -------- -------- ----
Total property expenses................. 86,570 44,332 42,238 95
General and administrative................... 6,665 4,322 2,343 54
Interest..................................... 43,403 19,511 23,892 122
Loss on valuation of derivative.............. -- 3,111 (3,111) (100)
Depreciation and amortization................ 51,822 20,260 31,562 156
-------- -------- -------- ----
Total expenses.......................... $188,460 $ 91,536 $ 96,924 106%
======== ======== ======== ====
OTHER DATA:
Number of properties:
Acquired during period....................... 66 38
Owned at end of period....................... 138 72
Net rentable square feet:
Acquired during period....................... 7,664 4,864
Owned at end of period....................... 17,968 10,304
</TABLE>

The increase in revenue from rental operations and property expenses in
1998 is primarily from properties acquired during 1997 and 1998. The 1997
amounts do not include a full year of operations for the 38 properties we
acquired during 1997 or for the 66 properties we acquired during 1998.

27
<PAGE> 28

Following is a summary of the 1998 increase in revenue from rental
operations and property expenses that relate to the 104 properties that we
acquired during 1997 and 1998 and for the 34 properties we owned for all of 1997
and 1998 (in thousands, except number of properties).

<TABLE>
<CAPTION>
PROPERTIES
PROPERTIES OWNED FOR ALL OF
ACQUIRED DURING 1997 AND
TOTAL VARIANCE 1997 AND 1998 1998(1)
-------------- --------------- ----------------
<S> <C> <C> <C>
REVENUE FROM RENTAL OPERATIONS:
Rental................................ $132,382 $131,760 $ 622
Tenant reimbursements................. 3,560 4,931 (1,371)
Parking, net of expense............... 4,826 4,811 15
Other rental operations............... 6,482 4,683 1,799
-------- -------- -------
$147,250 $146,185 $ 1,065
======== ======== =======
PROPERTY EXPENSES:
Repairs and maintenance............... $ 11,987 $ 13,117 $(1,130)
Utilities............................. 12,238 12,587 (349)
Real estate taxes..................... 11,430 11,061 369
Insurance............................. 1,985 2,126 (141)
Ground rent........................... 400 374 26
Marketing and other................... 4,198 4,901 (703)
-------- -------- -------
$ 42,238 $ 44,166 $(1,928)
======== ======== =======
OTHER DATA:
Number of properties.................. 104 34
Net rentable square feet.............. 12,528 5,440
</TABLE>

- ---------------
(1) See analysis of Properties Owned for all of 1997 and 1998.

Interest and other income increased by approximately $1.9 million in 1998
as compared to 1997, primarily due to higher interest income earned on mortgage
notes receivable acquired in September 1997 and on cash deposits required by
some of our mortgage loans.

General and administrative expenses were approximately $6.7 million, or
2.3% of total revenue, in 1998 as compared to $4.3 million, or 3.2% of total
revenue, in 1997. General and administrative expenses as a percentage of total
revenue decreased in 1998 compared to 1997 primarily due to benefits achieved
from economies of scale and concentration over a larger property portfolio.

Interest expense increased approximately $23.9 million in 1998 as compared
to 1997. This increase was due to higher outstanding debt balances in 1998
primarily to fund property acquisitions, which was partially offset by slightly
lower effective interest rates in 1998.

In September 1997, we recorded a loss of approximately $3.1 million related
to the retirement of agreements to convert some floating rate debt liabilities
to fixed rate liabilities. The underlying variable rate liabilities were repaid
in full with proceeds from an equity offering in July 1997.

Depreciation and amortization expense increased by approximately $31.6
million in 1998, primarily due to the 104 properties we acquired in 1997 and
1998.

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<PAGE> 29

PROPERTIES OWNED FOR ALL OF 1997 AND 1998
(IN THOUSANDS, EXCEPT NUMBER OF PROPERTIES AND PERCENTAGES)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------- DOLLAR PERCENT
1998 1997 CHANGE CHANGE
-------- -------- ------- -------
<S> <C> <C> <C> <C>
GAAP BASIS:
Revenue from rental operations................... $101,505 $100,440 $ 1,065 1%
Property expenses................................ 31,421 33,349 (1,928) (6)
-------- -------- ------- --
$ 70,084 $ 67,091 $ 2,993 4%
======== ======== ======= ==
CASH BASIS(1):
Revenue from rental operations................... $100,554 $ 98,701 $ 1,853 2%
Property expenses................................ 31,421 33,349 (1,928) (6)
-------- -------- ------- --
$ 69,133 $ 65,352 $ 3,781 6%
======== ======== ======= ==
Number of properties............................... 34 34
Average occupancy.................................. 87.5% 85.7%
Net rentable square feet........................... 5,440 5,440
Percentage of total portfolio...................... 30.3% 52.8%
</TABLE>

- ---------------
(1) Excludes straight-line rent adjustments.

Revenue from rental operations for the 34 properties we owned for all of
1998 and 1997 computed on a GAAP basis increased by approximately $1.1 million
in 1998 compared to 1997. This increase was primarily due to increases in rental
rates, a two percentage point increase in average occupancy in 1998 and higher
miscellaneous tenant charges for this pool of properties representing
approximately 5.4 million net rentable square feet. Miscellaneous tenant charges
include revenue from after-hour utility billings, signage, satellite income and
lease termination settlements. Lease termination settlements totaled
approximately $2.0 million in 1998 compared to $316,000 in 1997 for these
properties. These increases were partially offset by lower tenant expense
reimbursements in 1998, primarily due to resetting base years for leases that
were retenanted in 1998 and the reversing effect of straight-line rent
adjustments on specific properties in 1998.

Excluding only the straight-line rent adjustments for these properties,
revenue from rental operations, computed on a cash basis, increased by
approximately $1.9 million for the reasons described above.

Property operating expenses for these properties decreased by approximately
$1.9 million in 1998 compared to 1997, primarily due to lower repairs,
maintenance and marketing and overhead expenses achieved primarily from
economies of scale and concentration over a larger property portfolio.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Cash provided by operating activities increased by $23.1 million to $155.1
million for the year ended December 31, 1999, as compared to $132.0 million for
the year ended December 31, 1998, primarily due to operating results from the 70
properties acquired in 1998 and 1999.

Cash used in investing activities decreased by $811.2 million to $268.3
million in 1999 compared to $1.1 billion in 1998, primarily due to a reduction
in property acquisitions in 1999.

Cash provided by financing activities decreased by $831.1 million to $115.7
million, as compared to $946.8 million in 1998. This decrease was primarily due
to the timing of equity issuances. During 1998, we had net proceeds of
approximately $706.6 million from equity issuances as compared to $49.0 million
in net proceeds from equity issuances in 1999. Cash provided by financing
activities for the year ended December 31, 1999 consisted primarily of net
proceeds from mortgage loans, unsecured lines of credit and the issuance by the
Operating Partnership of two million 8 5/8% Series B Cumulative Redeemable
Preferred Units, partially offset by distributions to stockholders and minority
interests.

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<PAGE> 30

Capital Commitments

As of December 31, 1999, we had approximately $23.6 million outstanding in
capital commitments related to tenant improvements, development, renovation
costs and property-related capital expenditures.

Available Borrowings, Cash Balances And Capital Resources

We have a $300 million unsecured line of credit from a group of banks led
by Wells Fargo. This line of credit bears interest at a rate ranging between
LIBOR plus 1.2% and LIBOR plus 1.45%, depending on our leverage ratio. The
agreement governing this line of credit provides for the rate to be lowered to
between LIBOR plus 0.9% and LIBOR plus 1.15%, depending on our unsecured debt
rating. Under specified circumstances, we have the option to convert the
interest rate to the prime rate plus 0.5%. This line of credit has a commitment
fee ranging from 0.125% to 0.25% on the unused balance. As of December 31, 1999,
the effective interest rate on this line of credit was 7.52%, the aggregate
outstanding balance on this line of credit was $280.9 million, and $19.1 million
was available for additional borrowing. This line of credit matures on June 1,
2000. Proceeds from this line of credit have been used, among other things, to
fund acquisitions, provide funds for tenant improvements, capital expenditures
and provide for working capital.

We also have an unsecured line of credit with a total commitment of $10
million from City National Bank. This line of credit accrues interest at the
City National Bank Prime Rate less 0.875% and is scheduled to mature on August
1, 2000. As of December 31, 1999, the effective interest rate on this line of
credit was 7.625%, there was an outstanding balance of $8.0 million, and $2.0
million was available for additional borrowing. Proceeds from this line of
credit have been used, among other things, to provide funds for tenant
improvements and capital expenditures and provide for working capital and other
purposes.

On January 20, 1999, we increased our prepayable term loan with an
affiliate of Lehman Brothers from $81.4 million to $111.4 million. This loan was
secured by seven of our properties, bore interest at LIBOR plus 2.25% per year
and required monthly payments of interest only. As discussed below, we
refinanced this loan on May 5, 1999.

On April 5, 1999, we closed a $115 million loan with Mass Mutual Life
Insurance Company that is secured by twelve of our properties, has a 10-year
term, bears interest at a fixed rate of 6.94%, requires monthly payments of
principal and interest and is amortized over a 25-year period. Proceeds from
this loan were used to repay $76.4 million of our prepayable term loan with an
affiliate of Lehman Brothers and to repay a portion of our lines of credit.

On April 30, 1999 we closed a $22.5 million loan with an affiliate of
Lehman Brothers that is secured by three of our properties, has a 10-year term,
bears interest at a fixed rate of 7.54%, requires monthly payments of principal
and interest and is amortized over a 30-year period. Proceeds from this loan
were used to repay a portion of our lines of credit.

On May 5, 1999, we refinanced the remaining $35 million outstanding under
our loan with an affiliate of Lehman Brothers with a promissory note for $62.5
million that is secured by three of our properties, bears interest at LIBOR plus
2.25% per year, requires monthly payments of interest only and matures on
November 1, 2000. This loan had an effective interest rate of 8.07% at December
31, 1999. The remaining proceeds from this loan were used to repay a portion of
our lines of credit.

On July 23, 1999, we entered into a construction loan with a total
commitment of $50 million related to our development of the approximately
241,000 net rentable square foot 6060 Center Drive office building in the Howard
Hughes Center. This loan is secured by specific property and construction
improvements, bears interest at LIBOR plus 2.0%, requires monthly payments of
interest only, and matures on December 30, 2000, with two one-year extension
options. If we meet construction completion and leasing benchmarks, the interest
rate on the construction loan may be reduced to LIBOR plus 1.75%, and then to
LIBOR plus 1.5%. As of December 31, 1999, the effective interest rate of this
loan was 8.23%, there was an outstanding principal balance of $22.0 million and
$28.0 million was available for additional borrowing.

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<PAGE> 31

On July 27, 1999, we closed a $58 million prepayable term loan with an
affiliate of Lehman Brothers. This loan is secured by six of our properties and
has the same terms as the loan that was increased on May 5, 1999, as described
above. Proceeds from this loan were used to repay a portion of our lines of
credit and to fund specific capital expenditures.

On September 7, 1999, the Operating Partnership completed a $50 million
private placement of two million 8 5/8% Series B Cumulative Redeemable Preferred
Units to an institutional investor. These preferred units are callable by us
after five years and are exchangeable after 10 years by the holder into our
8 5/8% Series B Cumulative Redeemable Preferred Stock on a one-for-one basis.
The preferred units have no stated maturity or mandatory redemption and are
subordinated to all debt. We used the net proceeds from this private placement
to repay a portion of our lines of credit.

On January 25, 2000, we expanded one of our two prepayable term loans with
an affiliate of Lehman Brothers totaling $120.5 million by $25 million,
resulting in a combined outstanding balance of $145.5 million for both loans.
The two loans are secured by nine of our properties, bear interest at LIBOR plus
2.25% per year, require monthly payments of interest only and mature on November
1, 2000. These loans had an effective interest rate of 8.07% at December 31,
1999. Proceeds from this loan expansion were used, among other things, to
provide funds for tenant improvements, capital expenditures and working capital.

The following is a summary of scheduled principal payments for our mortgage
loans as of December 31, 1999 (in thousands):

<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
2000.............................................. $145,299
2001.............................................. 3,004
2002.............................................. 8,236
2003.............................................. 16,838
2004.............................................. 178,292
Thereafter........................................ 389,137
--------
Total................................... $740,806
========
</TABLE>

The following is other information related to our indebtedness as of
December 31, 1999 (in thousands, except percentage and interest rate data):

Unsecured and Secured Debt Analysis

<TABLE>
<CAPTION>
PERCENT
OF TOTAL WEIGHTED AVERAGE
BALANCE DEBT INTEREST RATE(1)
---------- ---------- ----------------
<S> <C> <C> <C>
Unsecured debt................................... $ 288,850 28% 7.85%(2)
Secured debt..................................... 740,806 72% 7.60%
---------- --- ----
Total/Weighted average................. $1,029,656 100% 7.67%(2)
========== === ====
</TABLE>

Floating and Fixed Rate Debt Analysis

<TABLE>
<CAPTION>
PERCENT
OF TOTAL WEIGHTED AVERAGE
BALANCE DEBT INTEREST RATE(1)
---------- ---------- ----------------
<S> <C> <C> <C>
Floating rate.................................... $ 431,362 42% 8.07%(2)
Fixed rate....................................... 598,294 58% 7.38%
---------- --- ----
Total/Weighted average................. $1,029,656 100% 7.67%(2)
========== === ====
</TABLE>

- ---------------
(1) Includes amortization of prepaid financing costs.

(2) Based on contractual rates effective at December 31, 1999 that expire
through February 29, 2000. Assuming market LIBOR rates at December 31, 1999,
the unsecured debt and floating rate debt weighted average interest rates
would have been 7.46% and 7.75%, respectively, while the total debt weighted
average interest rate would have been 7.54%.

31
<PAGE> 32

As of December 31, 1999, we had approximately $25.6 million in cash and
cash equivalents, including $18.5 million in restricted cash, representing $13.7
million in interest-bearing cash deposits required by some of our mortgage loans
payable. In addition, we had $4.8 million in cash impound accounts for real
estate taxes and insurance as required by several of our mortgage loans payable.

As of December 31, 1999, we had $21.1 million available under our lines of
credit.

On March 17, 2000, the Operating Partnership issued $250 million of senior
unsecured notes in two tranches, with $200 million at an interest rate of 8.875%
due in March 2005 and $50 million at an interest rate of 9.150% due in March
2010. These notes will be the Operating Partnership's senior unsecured
obligations and pay interest semi-annually on March 1, and September 1, of each
year. Net proceeds from this offering were used to repay two prepayable term
loans to an affiliate of Lehman Brothers described above totaling $145.5
million, a $5.0 million mortgage loan and approximately $96.1 million under our
unsecured lines of credit. These senior unsecured notes were issued in a private
placement in reliance upon an exemption from registration provided by Section
144(a) under the Securities Act. As part of issuing these notes, the Operating
Partnership has agreed to file a registration statement with the Securities and
Exchange Commission within 90 days after the notes are issued, enabling the
holders of the notes to exchange the privately placed notes for publicly traded
notes with identical terms other than those pertaining to transfer restrictions
and liquidated damages.

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

We expect to meet long-term liquidity and capital requirements, such as
scheduled debt principal repayments, renovation costs, property acquisitions and
other non-recurring capital expenditures, through long-term secured and
unsecured indebtedness and the issuance of additional equity or equity-related
securities.

Funds From Operations

The following table reflects the calculation of our funds from operations
for the years ended December 31, 1999, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Funds from Operations(1):
Net Income........................................ $ 96,626 $ 90,675 $39,630
Depreciation and amortization..................... 69,837 51,822 20,260
Minority interest................................. 5,296 4,872(2) 4,281
Distributions on Preferred Operating Partnership
Units.......................................... (1,354) -- --
-------- -------- -------
Funds from Operations............................... 170,405 147,369 64,171
Company's share percentage........................ 96.2% 95.3% 90.3%
-------- -------- -------
Company's share of Funds from Operations............ $163,930 $140,443 $57,946
======== ======== =======
</TABLE>

- ---------------
(1) We consider funds from operations, as defined by NAREIT to be a useful
financial measure of our operating performance. We believe that funds from
operations provides investors with an additional basis to evaluate our
ability to service debt and to fund acquisitions and other capital
expenditures. Funds from operations should not be considered an alternative
to net income determined in accordance with GAAP, as an indicator of our
financial performance, as a substitute for cash flow from operating
activities

32
<PAGE> 33

determined in accordance with GAAP or as a measure of our liquidity. Funds
from operations also is not necessarily indicative of funds available to
fund our cash needs, including our ability to service our debt.

The White Paper on funds from operations approved by the Board of Governors
of NAREIT in October 1999 defines funds from operations as net income or
loss computed in accordance with GAAP, excluding gains or losses, from
extraordinary items, as defined by GAAP, and gains and losses from sales of
depreciable operating property plus real estate-related depreciation and
amortization and after adjustments for unconsolidated partnerships and
joint ventures. We compute funds from operations in accordance with
standards established by the White Paper which may differ from the
standards used by other REITs and, accordingly, our funds from operations
may not be comparable to other REITs.

(2) Excludes $575,000 in distributions made to the former minority partners in
the World Savings office property.

IMPACT OF YEAR 2000

In 1999, we completed our remediation and testing of systems with respect
to the Year 2000 date change. As a result of our planning and implementation
efforts, we experienced no significant disruptions in mission critical
information technology and non-information technology systems and believe those
systems successfully responded to the Year 2000 date change. We incurred costs
of approximately $500,000 during 1999 in connection with remediating our
systems. We are not aware of any material problems resulting from Year 2000
issues, either with our products, our internal systems or the products and
services of third parties. We will continue to monitor our mission critical
computer applications and those of our suppliers and vendors throughout the year
to ensure that any latent Year 2000 matters that may arise are addressed
promptly.

FORWARD-LOOKING STATEMENTS

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

Interest Rate Risk

In order to modify and manage the interest characteristics of our
outstanding debt and limit the effects of interest rates on our operations, we
may use a variety of financial instruments, including interest rate swaps, caps,
floors and other interest rate exchange contracts. The use of these types of
instruments to hedge our exposure to changes in interest rates carries
additional risks such as counter-party credit risk and legal enforceability of
hedging contracts. We do not enter into any transactions for speculative or
trading purposes.

Some of our future earnings, cash flows and fair values relating to
financial instruments are dependent upon prevailing market rates of interest,
such as LIBOR. Based on interest rates and outstanding balances as of December
31, 1999, a 1% increase in interest rates on our $431.4 million of floating rate
debt would decrease annual future earnings and cash flows by approximately $4.3
million and would not have an impact

33
<PAGE> 34

on the fair value of the floating rate debt. A 1% decrease in interest rates on
our $431.4 million of floating rate debt would increase annual future earnings
and cash flows by approximately $4.3 million and would not have an impact on the
fair value of the floating rate debt. A 1% increase or decrease in interest
rates on our secured notes receivable would not have a material impact on annual
future earnings, cash flows and the fair value of the secured notes receivable.

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

RISK FACTORS

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

REAL ESTATE INVESTMENT RISKS

An Inability To Retain Tenants Or Rent Space Upon Lease Expirations May
Adversely Affect Our Ability To Service Our Debt.

Over the next five years, 2,837 leases comprising 77.4% of our leased net
rentable square footage and 76.4% of our annualized base rents at December 31,
1999, will expire. If we are unable to promptly relet or renew leases for all or
a substantial portion of this space, or if the rent upon renewal or reletting
are significantly lower than expected, our cash flow and the amounts available
for distributions and to pay our debt obligations could be adversely affected.

Our Operating Performance And Property Values Will Be Affected By Changes In
The Economic Climate In Southern California.

All of our properties are located in Southern California. Our revenue and
the value of our properties may be affected by a number of factors, including
the Southern California economic climate and real estate market, which could
adversely affect the amounts available for distributions and to pay our debt
obligations.

Competition Affects Occupancy Levels And Rents Which Could Adversely Affect
Our Revenue.

Many office properties compete with our properties in attracting tenants to
lease space. Some of the competing properties may be newer, better located or
owned by parties better capitalized than we are. The number of competitive
commercial properties in a particular area could have a material adverse effect
on the rents we can charge and our ability to lease space in our existing
properties or at newly acquired or developed properties.

The Financial Condition And Solvency Of Our Tenants May Reduce Our Cash Flow.

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

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<PAGE> 35

Because Real Estate Investments Are Illiquid, We May Not Be Able To Sell
Properties When Appropriate.

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

Increases In Taxes And Regulatory Compliance Costs May Reduce Our Revenue.

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

We May Acquire Properties Through Partnerships Or Joint Ventures With Third
Parties That Could Result In Financial Dependency And Management Conflicts.

Although we currently do not have plans to do so, we may participate with
other entities in property ownership through joint ventures or partnerships in
the future. Partnership or joint venture investments may, under certain
circumstances, involve risks not otherwise present, including:

- our partners or co-venturers might become bankrupt;

- our partners or co-venturers might at any time have economic or other
business interests or goals which are inconsistent with our business
interests or goals; and

- our partners or co-venturers may be in a position to take action contrary
to our instructions or requests contrary to our policies or objectives.

We will, however, seek to maintain sufficient control of any partnerships
or joint ventures with which we may become involved to permit our business
objectives to be achieved.

We May Not Be Able To Integrate Or Finance Our Acquisitions And Renovation
Activities And Our Acquisitions And Renovations May Not Perform As Expected.

As we acquire additional properties, we will be subject to risks associated
with managing new properties, including lease-up and tenant retention. In
addition, our ability to manage our growth effectively will require us to
successfully integrate our new acquisitions into our existing management
structure. We cannot assure you that we will be able to succeed with that
integration or effectively manage additional properties or that newly acquired
properties will perform as expected. Changing market conditions, including
competition from other purchasers of suburban office properties, may diminish
our opportunities for attractive additional acquisitions.

We intend to expand and renovate our properties from time to time.
Expansion and renovation projects generally require expenditures of capital as
well as various government and other approvals, the receipt of which cannot be
assured. While our policies with respect to expansion and renovation activities
are intended to limit some of the risks otherwise associated with these
activities, we will nevertheless incur risks, including expenditures of funds
on, and devotion of our time to, projects that may not be completed.

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<PAGE> 36

We May Not Be Able To Integrate Or Finance Our Development Activities.

We also intend to review, from time to time, opportunities for developing
and constructing office buildings and other commercial properties in accordance
with our development and underwriting policies. Risks associated with our
development and construction activities may include:

- abandonment of development opportunities due to a lack of financing or
other reasons;

- construction costs of a property exceeding original estimates, possibly
making the property uneconomical;

- occupancy rates and rents at a newly completed property may not be
sufficient to make the property profitable;

- construction and lease-up may not be completed on schedule, resulting in
increased debt service expense and construction costs; and

- development activities would also be subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary zoning,
land-use, building, occupancy and other required governmental permits and
authorizations.

We May Not Be Able To Expand Into New Markets Successfully.

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

FINANCING RISKS

Our Significant Amount Of Debt Could Limit Our Operational Flexibility Or
Otherwise Adversely Affect Our Financial Condition.

We have a significant amount of debt. As of December 31, 1999, we had total
debt of approximately $1.0 billion, consisting of approximately $741 million in
secured debt and approximately $289 million of unsecured debt. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Our substantial indebtedness could:

- require us to dedicate a substantial portion of our cash flow to pay our
debt, thereby reducing the availability of our cash flow to fund
distributions, working capital, capital expenditures, acquisition and
development activity and other business purposes;

- make it more difficult for us to satisfy our debt obligations;

- limit our ability to refinance our debt and obtain additional debt
financing; and

- increase our vulnerability to general adverse economic and real estate
industry conditions and limit our flexibility in planning for, or
reacting to, changes in our business and the real estate industry.

We May Be Able To Incur Substantially More Debt Which Would Increase The Risks
Associated With Our Substantial Leverage.

Despite current indebtedness levels, we may still be able to incur
substantially more debt in the future. We may borrow up to a maximum of $310
million under our existing lines of credit. If new debt is added to our current
debt levels, the related risks could intensify and could increase the risk of
default on our indebtedness.

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<PAGE> 37

Scheduled Debt Payments And Rising Interest Rates Could Adversely Affect Our
Financial Condition.

We are subject to risks normally associated with debt financing. Cash flow
could be insufficient to meet required payments of principal and interest. We
may not be able to refinance existing indebtedness, which in virtually all cases
requires substantial principal payments at maturity, and, if we can, the terms
of the refinancing might not be as favorable as the terms of our existing
indebtedness. If principal payments due at maturity cannot be refinanced,
extended or paid with proceeds of other capital transactions, such as new equity
capital, our cash flow will not be sufficient in all years to repay all maturing
debt. In addition, at December 31, 1999, approximately 41.9% of our debt was
variable rate debt. If prevailing interest rates or other factors result in
higher interest rates, the increased interest expense would adversely affect our
cash flow and the amounts available to pay distributions and service our debt.
As a protection against rising interest rates, we may enter into agreements such
as interest rate swaps, caps, floors and other interest rate exchange contracts.
These agreements, however, increase our risks as to the other parties to the
agreements not performing or that the agreements could be unenforceable.

Many Of Our Properties Are Subject To Mortgage Financing Which Could Result In
Foreclosure If We Are Unable To Pay Or Refinance The Mortgages When Due.

We currently have outstanding five mortgage financings totaling $558.7
million that are secured by 67 of our properties. The properties in each of
these financings are fully cross-collateralized and cross-defaulted. To the
extent mortgages are cross-collateralized, lenders may seek to foreclose upon
properties that are not the primary collateral for their loans, which may, in
turn, result in acceleration of other debt secured by the properties. Six
additional properties are subject to single property mortgages. If we are unable
to meet our obligations under these mortgages, the properties subject to the
mortgages could be foreclosed upon, which would have a material adverse effect
on us and our ability to pay distributions and service our debt obligations.

TAX RISKS

Our Desire To Qualify As A REIT Restricts Our Ability To Accumulate Cash That
Might Be Used In Future Periods To Make Debt Payments Or To Fund Future
Growth.

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

Our Operating Partnership Intends To Qualify As A Partnership, But We Cannot
Guarantee That It Will Qualify.

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

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<PAGE> 38

We May Suffer Adverse Tax Consequences And Be Unable To Attract Capital If We
Fail To Qualify As A REIT.

We believe that since our taxable year ended December 31, 1996, we have
been organized and operated, and intend to continue to operate, so as to qualify
for taxation as a REIT under the Internal Revenue Code. Although we believe that
we have been and will continue to be organized and have operated and will
continue to operate so as to qualify for taxation as a REIT, we cannot assure
you that we have been or will continue to be organized or operated in a manner
so as to qualify or remain so qualified. For us to qualify as a REIT, we must
satisfy numerous requirements established under highly technical and complex
Internal Revenue Code provisions for which there are only limited judicial and
administrative interpretations and tests regarding various factual matters and
circumstances not entirely within Arden Realty's control. The complexity of
these provisions and of the applicable Treasury Regulations that have been
promulgated under the Internal Revenue Code is greater in the case of a REIT,
like us, that hold our assets through an investment in a partnership. No
assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to qualification as a REIT or the federal income tax consequences
of qualification. We are, however, not aware of any pending legislation that
would adversely affect our ability to operate as a REIT. Our qualification and
taxation as a REIT depends on our ability to meet, through actual annual
operating results, asset diversification, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Internal
Revenue Code, the results of which have not been and will not be reviewed by our
tax counsel.

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

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

OTHER RISKS

We Are Subject To Agreements And Policies That May Deter Change In Control
Offers That Might Be Attractive To Our Stockholders.

Certain provisions of our charter and bylaws as well as our stockholder
rights plan, which is described below, may delay, defer or prevent a third party
from making offers to acquire us or control over us. For example, such
provisions may:

Deter tender offers for our common stock, which offers may be attractive to
the stockholders.

Deter purchases of large blocks of common stock, thereby limiting the
opportunity for stockholders to receive a premium for their common stock over
then-prevailing market prices.

Our charter contains a provision designed to prevent a concentration of
ownership among our stockholders that would cause us to fail to qualify as a
REIT. Under the Internal Revenue Code, not more than 50% in value of our
outstanding shares of common stock may be owned, actually or constructively, by
five or fewer individuals, including specific kinds of entities, at any time
during the last half of our taxable year. In addition, if we, or an owner of 10%
or more of our Stock, actually or constructively owns 10% or more of a tenant of
ours, or a tenant of any partnership in which we are a partner, the rent
received by us from that tenant will not be qualifying income for purposes of
the REIT gross income tests. In order to protect us against the risk of losing
REIT status, the ownership limit included in our charter limits actual or
constructive ownership of our outstanding shares of common stock by any single
stockholder to 9.0%, by value or by number of shares, whichever is more
restrictive, of the then outstanding shares of common stock. Actual or
constructive

38
<PAGE> 39

ownership of shares of common stock in excess of the ownership limit will cause
the violative transfer or ownership to be void with respect to the transferee or
owner as to that number of shares in excess of the ownership limit and such
shares will be automatically transferred to a trust for the exclusive benefit of
one or more qualified charitable organizations. That transferee or owner will
have no right to vote such shares or be entitled to dividends or other
distributions with respect to such shares.

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

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

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

In August 1998, we declared a dividend distribution of one preferred share
purchase right on each outstanding share of our common stock. Subject to limited
exceptions, these rights will be exercisable if a person or group acquires 15%
or more of our common stock or announces a tender offer for 15% or more of our
common stock. Under certain circumstances, each right will entitle stockholders
to buy one one-hundredth of a share of our newly created Class A Junior
Participating Preferred Stock at an exercise price of $75. Our Board of
Directors will be entitled to redeem the rights at $.01 per right at any time
before a person has acquired 15% or more of the outstanding common stock. The
Rights Plan will expire in August 2008.

Each right entitles its holder to purchase, at the right's then-current
exercise price, a number of our common shares having a market value at that time
of twice the right's exercise price. Rights held by the person or group seeking
to acquire 15% or more of our common stock will become void and will not be
exercisable to purchase shares at the bargain purchase price. If we are acquired
in a merger or other business combination transaction which has not been
approved by our Board of Directors, each right will entitle its holder to
purchase, at the right's then-current exercise price, a number of the acquiring
company's common shares having a market value at that time of twice the right's
exercise price.

We May Change Policies Without Stockholder Approval.

Our investment, financing, borrowing and distribution policies and our
policies with respect to all other activities, including growth, debt,
capitalization and operations, will be determined by our management. Although we
have no present intention to do so, these policies could be amended or revised
at any time and from time to time at the discretion of our management and Board
of Directors without a vote of our stockholders. In addition, we may change
policies with respect to conflicts of interest provided that the changes are
consistent with applicable legal requirements. A change in these policies could
adversely affect our financial condition, results of operations and market price
of our common stock.

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<PAGE> 40

Losses In Excess Of Our Insurance Coverage Or Uninsured Losses Could Adversely
Affect Our Cash Flow.

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

An Earthquake Could Adversely Affect Our Business.

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

Our Properties May Be Subject To Environmental Liabilities.

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

Specific federal, state and local laws, regulations and ordinances govern
the removal, encapsulation or disturbance of asbestos-containing materials when
those materials are in poor condition or in the event of construction,
remodeling, renovation or demolition of a building. These laws may impose
liability for release of asbestos-containing material and may provide for third
parties to seek recovery from owners or operators of real properties for
personal injury associated with asbestos-containing materials. In connection
with the ownership and operation of our properties, we may be potentially liable
for those costs. Except for two properties, one of which is currently undergoing
abatement activities, we are not aware of any friable asbestos-containing
materials at any of our properties.

In the past few years, independent environmental consultants have conducted
or updated Phase I environmental assessments and other environmental
investigations as appropriate at our properties. These environmental site
assessments have included, among other things, a visual inspection of the
properties and the surrounding area and a review of relevant federal, state and
historical documents. Soil and groundwater samplings were performed where
warranted and remediation, if necessary, has or is being conducted.

The environmental site assessments of our properties identified several
properties that may be impacted by known or suspected regional contamination.
The environmental site assessments have not, however, revealed any environmental
liability that we believe would have a material adverse effect on our business,
40
<PAGE> 41

assets or results of operations taken as a whole, nor are we aware of any
material environmental liability. Nevertheless, it is possible that our
environmental site assessments do not reveal all environmental liabilities or
that there are material environmental liabilities of which we are unaware.
Moreover, we cannot assure you that future laws, ordinances or regulations will
not impose any material environmental liability or the current environmental
condition of our properties will not be affected by tenants, by the condition of
land or operations in the vicinity of our properties, such as the presence of
underground storage tanks, or by third parties unrelated to us.

We believe that our properties 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. We
have not been notified by any governmental authority, and are not otherwise
aware, of any material noncompliance, liability or claim relating to hazardous
or toxic substances or petroleum products in connection with any of our present
properties, other than as noted above.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

PART III

The information required by Part III is incorporated by reference from our
definitive proxy statement for our 2000 Annual Meeting of Stockholders.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information contained in the section captioned "Proposal I; Election of
Directors" of the Proxy Statement is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained in the section captioned "Principal and
Management Stockholders" of the definitive proxy statement is incorporated
herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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<PAGE> 42

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K

(a) FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARDEN REALTY, INC
Report of Independent Auditors............................ F-1
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... F-2
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997....................... F-3
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997........... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997....................... F-5
Notes to Financial Statements............................. F-6
</TABLE>

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

(b) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
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 Articles Supplementary of the Class A Junior Participating
Preferred Stock as filed as an exhibit to the current report
on Form 8-K, dated August 26, 1998, and incorporated herein
by reference.
3.3 Articles Supplementary of the 8 5/8 Series B Cumulative
Redeemable Preferred Stock dated September 7, 1999.
3.4 By-Laws of Registrant as filed as an exhibit to Registration
Statement on Form S-11 (No. 333-8163) and incorporated
herein by reference.
3.5 Certificate of Amendment of the Bylaws of Arden Realty, Inc.
dated July 14, 1998, filed as an exhibit to the Company's
quarterly report on Form 10-Q filed with the Commission on
August 14, 1998, and incorporated herein by reference.
4.1 Rights Agreement, dated as of August 14, 1998, between Arden
Realty, Inc. and the Bank of New York as filed as an exhibit
to the current report on Form 8-K, dated August 26, 1998,
and incorporated herein by reference.
10.1 Second Amended and Restated Agreement of Limited Partnership
of the Operating Partnership, dated September 7, 1999, filed
as an exhibit to the Company's quarterly report on Form 10-Q
filed with the Commission on November 15, 1999 and
incorporated herein by reference.
10.2 1996 Stock Option and Incentive Plan of Arden Realty, Inc.
and Arden Realty Limited Partnership as filed as an exhibit
to Registration Statement on Form S-11 (No. 333-8163) and
incorporated herein by reference.
10.2.1 Amendment Number 1 to the 1996 Stock Option and Incentive
Plan of Arden Realty, Inc. and Arden Realty Limited
Partnership as filed as an exhibit to the Company's Schedule
14A filed with the Commission on June 23, 1998 and
incorporated herein by reference.
10.3 Form of Officers and Directors Indemnification Agreement as
filed as an exhibit to Registration Statement on Form S-11
(No. 333-8163) and incorporated herein by reference.
</TABLE>

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<PAGE> 43

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.4 Loan Agreement dated June 8, 1998 by and between Arden
Realty Finance III, LLC, a Delaware limited liability
company and Lehman Brothers Realty Corporation, a Delaware
corporation filed as an exhibit to the Company's quarterly
report of Form 10-Q filed with the Commission on August 14,
1998 and incorporated herein by reference.
10.5 Mortgage Note, dated June 8, 1998 for $136,100,000 by and
between Arden Realty Finance III, L.L.C., a Delaware limited
liability company ("Maker"), and Lehman Brothers Realty
Corporation, a Delaware corporation. (Exhibit B. to Exhibit
10.4 above).
10.6 Tenant Estoppel Certificate (Exhibit C. to Exhibit 10.4
above).
10.7 Subordination, Non-Disturbance and Attornment Agreement
(Exhibit D. to Exhibit 10.4 above).
10.8 Deed of Trust, Assignment of Rents and Leases, Security
Agreement, and Fixture Filing dated as of June 8, 1998 made
by Arden Realty Finance III, L.L.C. as Grantor, to
Commonwealth Land Title Company as Trustee for the benefit
of Lehman Brothers Realty Corporation as Beneficiary, filed
as an exhibit to the Company's quarterly report on Form 10-Q
filed with the Commission on August 14, 1998 and
incorporated herein by reference.
10.9 Assignment of Leases and Rents dated June 8, 1998, by and
between Arden Realty Finance III, L.L.C., a Delaware limited
liability company and Lehman Brothers Realty Corporation, a
Delaware corporation, its successors and assigns filed as an
exhibit to the Company's quarterly report on Form 10-Q filed
with the Commission on August 14, 1998 and incorporated
herein by reference.
10.10 Collateral Assignment of Management Agreement and
Subordination Agreement dated as of June 8, 1998 among Arden
Realty Finance III, L.L.C., a Delaware limited liability
company ("Borrower"), Lehman Brothers Realty Corporation, a
Delaware corporation, ("Lender"), and Arden Realty Limited
Partnership, a Maryland limited partnership ("Manager"),
filed as an exhibit to the Company's quarterly report on
Form 10-Q filed with the Commission on August 14, 1998 and
incorporated herein by reference.
10.11 Security Agreement is entered into as of June 8, 1998 by and
between Arden Realty Finance III, L.L.C., a Delaware limited
liability company and Lehman Brothers Realty Corporation, a
Delaware corporation, filed as an exhibit to the Company's
quarterly report on Form 10-Q filed with the Commission on
August 14, 1998 and incorporated herein by reference.
10.12 Environmental Indemnity Agreement dated June 8, 1998 by
Arden Realty Finance III, L.L.C., a Delaware limited
liability company, in favor of Lehman Brothers Realty
Corporation, a Delaware corporation, filed as an exhibit to
the Company's quarterly report on Form 10-Q filed with the
Commission on August 14, 1998 and incorporated herein by
reference.
10.13 Letter agreement between Lehman Brothers Realty Corporation,
or an affiliate thereof ("Lender"), Arden Realty Finance
III, L.L.C. ("Borrower"), Arden Realty, Inc. (the "REIT")
and Arden Realty Limited Partnership (the "Operating
Partnership"), filed as an exhibit to the Company's
quarterly report on Form 10-Q filed with the Commission on
August 14, 1998 and incorporated herein by reference.
10.14 Loan Agreement by and between Arden Realty Finance IV, LLC,
a Delaware limited liability company and Lehman Brothers
Realty Corporation, a Delaware corporation, filed as an
exhibit to the Company's quarterly report on Form 10-Q filed
with the Commission on August 14, 1998 and incorporated
herein by reference.
10.15 Mortgage Note, dated June 8, 1998 for $100,600,000 by and
between Arden Realty Finance IV, L.L.C., a Delaware limited
liability company ("Maker"), and Lehman Brothers Realty
Corporation, a Delaware corporation (Exhibit B to Exhibit
10.14 above).
10.16 Tenant Estoppel Certificate (Exhibit C. to Exhibit 10.14
above).
10.17 Subordination, Non-Disturbance and Attornment Agreement
(Exhibit D. to Exhibit 10.14 above).
</TABLE>

43
<PAGE> 44

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.18 Deed of Trust, Assignment of Rents and Leases, Security
Agreement, and Fixture Filing dated as of June 8, 1998 made
by Arden Realty Finance IV, L.L.C. as Grantor, to
Commonwealth Land Title Company as Trustee for the benefit
of Lehman Brothers Realty Corporation as Beneficiary, filed
as an exhibit to the Company's quarterly report on Form 10-Q
filed with the Commission on August 14, 1998 and
incorporated herein by reference.
10.19 Assignment of Leases and Rents ("Assignment") dated June 8,
1998, by and between Arden Realty Finance IV, L.L.C., a
Delaware limited liability company ("Assignor"), and Lehman
Brothers Realty Corporation, a Delaware corporation, its
successors and assigns ("Assignee"), filed as an exhibit to
the Company's quarterly report on Form 10-Q filed with the
Commission on August 14, 1998 and incorporated herein by
reference.
10.20 Collateral Assignment of Management Agreement and
Subordination Agreement (the "Agreement") dated as of June
8, 1998 among Arden Realty Finance IV, L.L.C., a Delaware
limited liability company ("Borrower"), Lehman Brothers
Realty Corporation, a Delaware corporation, ("Lender"), and
Arden Realty Limited Partnership, a Maryland limited
partnership ("Manager"), filed as an exhibit to the
Company's quarterly report on Form 10-Q filed with the
Commission on August 14, 1998 and incorporated herein by
reference.
10.21 Security Agreement ("Security Agreement") is entered into as
of June 8, 1998 by and between Arden Realty Finance IV,
L.L.C., a Delaware limited liability company ("Debtor"), and
Lehman Brothers Realty Corporation, a Delaware corporation
("Secured Party"), filed as an exhibit to the Company's
quarterly report on Form 10-Q filed with the Commission on
August 14, 1998 and incorporated herein by reference.
10.22 Environmental Indemnity Agreement ("Agreement") dated June
8, 1998 by Arden Realty Finance IV, L.L.C., a Delaware
limited liability company ("Indemnitor"), in favor of Lehman
Brothers Realty Corporation, a Delaware corporation
("Lender"), filed as an exhibit to the Company's quarterly
report on Form 10-Q filed with the Commission on August 14,
1998 and incorporated herein by reference.
10.23 Letter agreement between Lehman Brothers Realty Corporation,
or an affiliate thereof ("Lender"), Arden Realty Finance IV,
L.L.C. ("Borrower"), Arden Realty, Inc. (the "REIT") and
Arden Realty Limited Partnership (the "Operating
Partnership"), filed as an exhibit to the Company's
quarterly report on Form 10-Q filed with the Commission on
August 14, 1998 and incorporated herein by reference.
10.24 Amended and Restated Employment Agreement dated August 4,
1998, between Arden Realty and Mr. Richard S. Ziman, filed
as an exhibit to the Company's quarterly report on Form
10-Q/A filed with the Commission on December 15, 1998 and
incorporated herein by reference.
10.25 Amended and Restated Employment Agreement dated August 4,
1998, between Arden Realty and Mr. Victor J. Coleman, filed
as an exhibit to the Company's quarterly report on Form
10-Q/A filed with the Commission on December 15, 1998 and
incorporated herein by reference.
10.26 Amended and Restated Employment Agreement dated August 4,
1998, between Arden Realty and Ms. Diana M. Laing, filed as
an exhibit to the Company's quarterly report on Form 10-Q/A
filed with the Commission on December 15, 1998 and
incorporated herein by reference.
10.27 Amended and Restated Employment Agreement dated August 4,
1998, between Arden Realty and Mr. Andrew Sobel, filed as an
exhibit to the Company's quarterly report on Form 10-Q/A
filed with the Commission on December 15, 1998 and
incorporated herein by reference.
10.28 Amended and Restated Employment Agreement dated August 4,
1998, between Arden Realty and Mr. Herbert Porter, filed as
an exhibit to the Company's quarterly report on Form 10-Q/A
filed with the Commission on December 15, 1998 and
incorporated herein by reference.
</TABLE>

44
<PAGE> 45

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.29 Amended and Restated Employment Agreement dated January 1,
1999, between Arden Realty and Mr. Robert Peddicord, filed
as a exhibit to the Company's quarterly report on Form 10-Q
filed with the Commission on May 14, 1999 and incorporated
herein by reference.
10.30 Promissory Note dated August 14, 1998, between Arden Realty
and Ms. Diana M. Laing, filed as an exhibit to the Company's
quarterly report on Form 10-Q/A filed with the Commission on
December 15, 1998 and incorporated herein by reference.
10.31 Promissory Note dated August 14, 1998, between Arden Realty
and Mr. Andrew J. Sobel, filed as an exhibit to the
Company's quarterly report on Form 10-Q/A filed with the
Commission on December 15, 1998 and incorporated herein by
reference.
10.32 Agreement dated August 14, 1998, between Arden Realty and
Ms. Diana M. Laing, filed as an exhibit to the Company's
quarterly report on Form 10-Q/A filed with the Commission on
December 15, 1998 and incorporated herein by reference.
10.33 Pledge Agreement dated August 14, 1998, between Arden Realty
and Mr. Andrew J. Sobel, filed as an exhibit to the
Company's quarterly report on Form 10-Q/A filed with the
Commission on December 15, 1998 and incorporated herein by
reference.
10.34 Restricted Stock Agreement dated August 14, 1998, between
Arden Realty and Ms. Diana M. Laing, filed as an exhibit to
the Company's quarterly report on Form 10-Q/A filed with the
Commission on December 15, 1998 and incorporated herein by
reference.
10.35 Restricted Stock Agreement dated August 14, 1998, between
Arden Realty and Mr. Andrew J. Sobel, filed as an exhibit to
the Company's quarterly report on Form 10-Q/A filed with the
Commission on December 15, 1998 and incorporated herein by
reference.
10.36 Miscellaneous Rights Agreement among the Company, the
Operating Partnership, NAMIZ, Inc. and Mr. Ziman as filed as
an exhibit to Registration Statement on Form S-11 (No.
333-8163) and incorporated herein by reference.
10.37 Credit Facility documentation consisting of First Amended
and Restated Revolving Credit Agreement by and among the
Operating Partnership and Chase Manhattan Bank, Lehman
Brothers Realty Corporation and Wells Fargo Bank as filed as
an exhibit to Registration Statement of Form S-11 (No.
333-30059) and incorporated herein by reference.
10.38 Mortgage Financing documentation consisting of Loan
Agreement by and between the Company's special purpose
financing subsidiary and Lehman Brothers Realty Corporation
(the Loan Agreement includes the Mortgage Note, Deed of
Trust, and form of Tenant Estoppel Certificate and Agreement
as exhibits) as filed as an exhibit to Registration
Statement of Form S-11 (No. 333-30059) and incorporated
herein by reference.
10.39 Promissory Note, dated as of March 30, 1999, between
Massachusetts Mutual Life Insurance Company and Arden Realty
Finance V, L.L.C. filed as an exhibit to the Company's
current report Form 8-K filed with the Commission on April
20, 1999 and incorporated herein by reference.
10.40 Deed of Trust and Security Agreement, dated as of March 30,
1999, with Arden Realty Finance V, L.L.C. as the Trustor and
Massachusetts Mutual Life Insurance Company as the
Beneficiary filed as an exhibit to the Company's current
report on Form 8-k filed with the Commission on April 20,
1999 and incorporated herein by reference.
10.41 Assignment of Leases and Rents, dated as of March 30, 1999,
between Massachusetts Mutual Life Insurance Company and
Arden Realty Finance V, L.L.C. filed as an exhibit to the
Company's current report on Form 8-k filed with the
Commission on April 20, 1999 and incorporated herein by
reference.
10.42 Subordination of Management Agreement, dated as of March 30,
1999, between Massachusetts Mutual Life Insurance Company
and Arden Realty Finance V. L.L.C. filed as an exhibit to
the Company's current report on Form 8-k filed with the
Commission on April 20, 1999 and incorporated herein by
reference.
</TABLE>

45
<PAGE> 46

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.43 Environmental Indemnification and Hold Harmless Agreement,
dated as of March 30, 1999, between Massachusetts Mutual
Life Insurance Company and Arden Realty Finance V, L.L.C.
filed as an exhibit to the Company's current report on Form
8-k filed with the Commission on April 20, 1999 and
incorporated herein by reference.
21.1 Subsidiary of Registrant as filed as an exhibit to
Registration Statement on Form S-11 (No. 333-8163) and
incorporated herein by reference.
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedule.
</TABLE>

None

46
<PAGE> 47

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 24, 2000.

ARDEN REALTY, INC.

By: /s/ RICHARD S. ZIMAN
------------------------------------
Richard S. Ziman
Chairman of the Board and
Chief Executive Officer

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

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>

/s/ RICHARD S. ZIMAN Chairman of the Board, March 24, 2000
- ------------------------------------------ Chief Executive Officer and Director
Richard S. Ziman

/s/ VICTOR J. COLEMAN President, Chief Operating March 24, 2000
- ------------------------------------------ Officer and Director
Victor J. Coleman

/s/ DIANA M. LAING Executive Vice President March 24, 2000
- ------------------------------------------ and Chief Financial Officer
Diana M. Laing

/s/ RICHARD S. DAVIS Senior Vice President March 24, 2000
- ------------------------------------------ and Chief Accounting Officer
Richard S. Davis

/s/ CARL D. COVITZ Director March 24, 2000
- ------------------------------------------
Carl D. Covitz

/s/ LARRY S. FLAX Director March 24, 2000
- ------------------------------------------
Larry S. Flax

/s/ PETER S. GOLD Director March 24, 2000
- ------------------------------------------
Peter S. Gold

/s/ STEVEN C. GOOD Director March 24, 2000
- ------------------------------------------
Steven C. Good

/s/ KENNETH B. ROATH Director March 24, 2000
- ------------------------------------------
Kenneth B. Roath
</TABLE>

47
<PAGE> 48

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Arden Realty, Inc.

We have audited the accompanying consolidated balance sheets of Arden
Realty, Inc. as of December 31, 1999 and 1998 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the management of Arden Realty, Inc. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Arden Realty,
Inc. at December 31, 1999 and 1998 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.

/s/ ERNST & YOUNG LLP

Los Angeles, California
January 31, 2000

F-1
<PAGE> 49

ARDEN REALTY, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Commercial properties:
Land...................................................... $ 467,157 $ 447,339
Buildings and improvements................................ 1,833,052 1,673,149
Tenant improvements....................................... 104,990 52,706
---------- ----------
2,405,199 2,173,194
Less: accumulated depreciation............................ (146,384) (84,312)
---------- ----------
2,258,815 2,088,882
Properties under development.............................. 183,349 150,716
---------- ----------
Net investment in real estate............................. 2,442,164 2,239,598
Cash and cash equivalents................................... 7,056 4,578
Restricted cash............................................. 18,513 12,409
Rent and other receivables, net of allowance of $2,390 and
$1,573 at December 31, 1999 and 1998, respectively........ 11,785 9,024
Mortgage notes receivable, net of discount of $2,014 and
$2,463 at December 31, 1999 and 1998, respectively........ 13,847 14,329
Deferred rent............................................... 23,932 17,004
Prepaid financing and leasing costs, net of accumulated
amortization of $17,044 and $7,425 at December 31, 1999
and 1998, respectively.................................... 50,148 31,230
Prepaid expenses and other assets........................... 3,013 3,747
---------- ----------
Total assets...................................... $2,570,458 $2,331,919
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage loans payable...................................... $ 740,806 $ 543,927
Unsecured lines of credit................................... 288,850 296,450
Accounts payable and accrued expenses....................... 34,482 21,787
Security deposits........................................... 16,073 13,933
Dividends payable........................................... 28,195 26,210
---------- ----------
Total liabilities................................. 1,108,406 902,307
---------- ----------
Minority interests.......................................... 86,294 56,222

STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 20,000,000 shares
authorized, none issued................................... -- --
Common stock, $.01 par value, 100,000,000 shares authorized,
63,358,977 and 62,407,737 issued and outstanding,
respectively.............................................. 633 624
Additional paid-in capital.................................. 1,377,292 1,374,813
Notes receivable from officers for purchase of common
stock..................................................... (2,167) (2,047)
---------- ----------
Total stockholders' equity........................ 1,375,758 1,373,390
---------- ----------
Total liabilities and stockholders' equity........ $2,570,458 $2,331,919
========== ==========
</TABLE>

See accompanying notes to financial statements.

F-2
<PAGE> 50

ARDEN REALTY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue.................................................... $337,853 $281,067 $133,817
Property operating expenses................................ 101,284 86,570 44,332
-------- -------- --------
236,569 194,497 89,485
General and administrative................................. 7,393 6,665 4,322
Interest................................................... 60,239 43,403 19,511
Depreciation and amortization.............................. 69,837 51,822 20,260
Interest and other income.................................. (2,822) (3,515) (1,630)
Loss on valuation of derivative............................ -- -- 3,111
-------- -------- --------
Income before minority interests........................... 101,922 96,122 43,911
Minority interests......................................... (5,296) (5,447) (4,281)
-------- -------- --------
Net income................................................. $ 96,626 $ 90,675 $ 39,630
======== ======== ========
Net income per common share:
Basic.................................................... $ 1.53 $ 1.55 $ 1.43
======== ======== ========
Diluted.................................................. $ 1.53 $ 1.54 $ 1.41
======== ======== ========
Weighted average number of common shares:
Basic.................................................... 63,016 58,660 27,794
======== ======== ========
Diluted.................................................. 63,072 58,814 28,039
======== ======== ========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE> 51

ARDEN REALTY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
RETAINED NOTES
COMMON STOCK ADDITIONAL EARNINGS RECEIVABLE TOTAL
-------------------- PAID IN (ACCUMULATED) FROM OFFICERS- STOCKHOLDERS'
SHARES AMOUNTS CAPITAL DEFICIT SHAREHOLDERS EQUITY
---------- ------- ---------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997...... 21,679,500 $217 $ 337,432 $ (5,672) $ -- $ 331,977
Common stock issued in
connection with the exercise
of options.................. 146,666 1 2,933 -- -- 2,934
Stock option compensation..... -- -- 92 -- -- 92
Sale of common stock, net of
offering costs of $18,588... 13,750,000 138 340,493 -- -- 340,631
OP units converted............ 220,538 2 3,425 -- -- 3,427
Net income.................... -- -- -- 39,630 -- 39,630
Dividends declared and
payable..................... -- -- (11,750) (33,958) -- (45,708)
---------- ---- ---------- -------- ------- ----------
Balance at December 31, 1997.... 35,796,704 358 672,625 -- -- 672,983
---------- ---- ---------- -------- ------- ----------
Sale of common stock, net of
offering costs of $38,076... 26,296,047 263 706,319 -- -- 706,582
OP units converted............ 229,880 2 3,897 -- -- 3,899
Warrants...................... -- -- 3,600 -- -- 3,600
Notes and interest receivable
from officers............... 85,106 1 1,999 (2,047) (47)
Net income.................... -- -- -- 90,675 -- 90,675
Dividends declared and
payable..................... -- -- (13,627) (90,675) -- (104,302)
---------- ---- ---------- -------- ------- ----------
Balance at December 31, 1998.... 62,407,737 624 1,374,813 -- (2,047) 1,373,390
---------- ---- ---------- -------- ------- ----------
OP units converted............ 951,240 9 19,233 -- -- 19,242
Preferred partnership units
issuance costs.............. -- -- (1,000) -- -- (1,000)
Interest on notes receivable
from officers............... -- -- -- -- (120) (120)
Net income.................... -- -- -- 96,626 -- 96,626
Dividends declared and
payable..................... -- -- (15,754) (96,626) -- (112,380)
---------- ---- ---------- -------- ------- ----------
Balance at December 31, 1999.... 63,358,977 $633 $1,377,292 $ -- $(2,167) $1,375,758
========== ==== ========== ======== ======= ==========
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE> 52

ARDEN REALTY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------
1999 1998 1997
--------- ----------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 96,626 $ 90,675 $ 39,630
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interests........................................ 5,296 5,447 4,281
Depreciation and amortization............................. 69,837 51,822 20,260
Amortization of loan costs and fees....................... 2,868 1,941 823
Changes in operating assets and liabilities:
Rents and other receivables............................. (2,279) 1,280 (22,340)
Deferred rent........................................... (6,928) (8,193) (2,742)
Prepaid financing and leasing costs..................... (25,893) (24,821) (10,796)
Prepaid expenses and other assets....................... 734 1,538 (3,497)
Accounts payable and accrued expenses................... 12,675 5,182 10,280
Security deposits....................................... 2,140 7,086 3,257
--------- ----------- ---------
Net cash provided by operating activities................... 155,076 131,957 39,156
--------- ----------- ---------
INVESTING ACTIVITIES:
Acquisitions and improvements to commercial properties...... (268,296) (1,099,517) (639,670)
Escrow deposit.............................................. -- 20,000 (20,000)
--------- ----------- ---------
Net cash used in investing activities....................... (268,296) (1,079,517) (659,670)
--------- ----------- ---------
FINANCING ACTIVITIES:
Proceeds from mortgage loans................................ 310,038 677,520 308,202
Repayment of mortgage loans................................. (113,259) (370,659) (175,036)
Proceeds from secured line of credit........................ -- -- 28,700
Repayment of secured line of credit......................... -- -- (28,700)
Proceeds from unsecured lines of credit..................... 209,661 413,350 443,500
Repayments of unsecured lines of credit..................... (217,261) (357,300) (254,100)
Increase in restricted cash................................. (6,104) (8,369) (4,040)
Proceeds from issuance of common stock, net of offering
costs..................................................... -- 706,582 343,565
Distributions to and contributions from minority interests,
net....................................................... (4,629) (22,017) (3,534)
Distributions to preferred operating partnership units
holder.................................................... (1,354) -- --
Dividends paid.............................................. (110,394) (92,269) (40,375)
Proceeds from issuance of preferred operating partnership
units..................................................... 50,000 -- --
Preferred operating partnership units issuance cost......... (1,000) -- --
--------- ----------- ---------
Net cash provided by financing activities................... 115,698 946,838 618,182
--------- ----------- ---------
Net increase (decrease) in cash and cash equivalents........ 2,478 (722) (2,332)
Cash and cash equivalents at beginning of period............ 4,578 5,300 7,632
--------- ----------- ---------
Cash and cash equivalents at end of period.................. $ 7,056 $ 4,578 $ 5,300
========= =========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest, net of amount
capitalized............................................... $ 58,365 $ 48,206 $ 19,191
========= =========== =========
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE> 53

ARDEN REALTY, INC.

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS

Description of Business

The terms "Arden Realty", "us", "we" and "our" as used in these financial
statements refer to Arden Realty, Inc. We are a self-administered and
self-managed real estate investment trust "REIT" that owns, manages, leases,
develops, renovates and acquires commercial properties located in Southern
California.

Organization and Formation of the Company

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

Since our formation in 1996, we have acquired 118 properties containing
approximately 14.5 million net rentable square feet for a total purchase price
of approximately $1.9 billion. As of December 31, 1999, our portfolio consisted
of 142 primarily suburban office properties containing approximately 18.5
million net rentable square feet and three properties with approximately 700,000
net rentable square feet under development. As of December 31, 1999, our
properties were approximately 95.1% leased, excluding three existing properties
under renovation.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

The minority interests at December 31, 1999 and December 31, 1998 consisted
of limited partnership interests in the Operating Partnership of approximately
3.3% and 4.7%, respectively, exclusive of ownership interests of our preferred
units holder.

Risks and Uncertainties

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

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

Segment Information

We view our operations as principally one segment and the financial
information disclosed herein represents all of the financial information related
to our principal operating segment.

Commercial Properties

Our properties are stated at cost. When indicators of impairment exist,
write-downs to estimated fair value would be recognized if a property's
estimated undiscounted future cash flows, before interest charges,

F-6
<PAGE> 54

are less than its book value. Based on our assessment, no write-downs to
estimated fair value were necessary as of December 31, 1999 and 1998,
respectively.

Repair and maintenance costs are charged to expenses as incurred and
significant replacements and betterments are capitalized.

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

Cash Equivalents

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

Restricted Cash

Restricted cash at December 31, 1999 and 1998 primarily consists of $13.7
million and $10 million, respectively, in cash deposits as required by certain
of our mortgage loans payable and $4.8 million and $2.4 million, respectively,
in impound accounts for real estate taxes and insurance, as required by certain
of our mortgage loans payable.

Prepaid Financing and Leasing Costs

Costs associated with leasing properties are capitalized and amortized to
expense on a straight-line basis over the related lease term. Costs associated
with obtaining long-term financing are capitalized and amortized to interest
expense over the term of the related loan.

Revenue Recognition

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

Income Taxes

We generally will not be subject to federal income taxes as long as we
continue to qualify as a REIT. A REIT will generally not be subject to federal
income taxation on that portion of income that qualifies as REIT taxable income
and to the extent that it distributes such taxable income to its stockholders
and complies with certain requirements. As a REIT, we are allowed to reduce
taxable income by all or a portion of distributions to stockholders and must
distribute at least 95% of our taxable income to qualify as a REIT. As dividends
have eliminated taxable income, and compliance with certain requirements have
been met, no Federal income tax provision has been reflected in the accompanying
consolidated financial statements. State income tax requirements are essentially
the equivalent of the Federal rules.

During 1999, 1998 and 1997, we declared dividends of $1.78, $1.68 and $1.60
per share, respectively. For federal income tax purposes $1.63, $1.53 and $1.45
per share was reported to shareholders as ordinary income for 1999, 1998 and
1997, respectively. A total of $0.445 per share of the fourth quarter 1999
dividend will be reported to shareholders in 2000.

Fair Value of Financial Instruments

Our disclosures of estimated fair value of financial instruments at
December 31, 1999 were determined using available market information and
appropriate valuation methodologies. Considerable judgment is

F-7
<PAGE> 55

necessary to interpret market data and develop estimated fair value. The use of
different market assumptions or estimation methodologies may have a material
effect on the estimated fair value amounts.

Our cash equivalents, mortgage notes receivable, accounts payable, the
lines of credit and other financial instruments are carried at amounts that
reasonably approximate their fair value amounts. The unrealized gain on our
mortgage notes payable at December 31, 1999 was approximately $20.4 million.
Estimated fair value is based on interest rates currently available for issuance
of debt with similar terms and remaining maturities.

Reclassifications

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

3. COMMERCIAL PROPERTIES

The following table sets forth certain information regarding our
acquisition of office properties for the year ended December 31, 1999.

<TABLE>
<CAPTION>
APPROXIMATE TOTAL
NET RENTABLE MONTH OF ACQUISITION
PROPERTY NAME LOCATION SQUARE FEET ACQUISITION COST
------------- -------- ------------ ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Hillside Corporate Center............ Westlake 59,876 February $ 9,600
Westlake Gardens II.................. Westlake 48,874 April 7,300
Howard Hughes Tower.................. Los Angeles 313,833 May 53,000
2001 Wilshire Boulevard.............. Santa Monica 101,125 September 19,900
------- -------
523,708 $89,800
======= =======
</TABLE>

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

Total interest incurred and the amount capitalized for the years ended
December 31, 1999, 1998 and 1997 were as follows (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Total interest incurred............................... $69,826 $52,323 $20,689
Interest capitalized.................................. (9,587) (8,920) (1,178)
------- ------- -------
Interest expensed..................................... $60,239 $43,403 $19,511
======= ======= =======
</TABLE>

Office space in our properties is generally leased to tenants under lease
terms that provide for the tenants to pay for increases in operating expenses in
excess of specified amounts.

Future minimum lease payments to be received under noncancelable operating
leases existing as of December 31, 1999, are as follows (in thousands):

<TABLE>
<S> <C>
2000...................................................... $278,668
2001...................................................... 241,222
2002...................................................... 200,375
2003...................................................... 152,055
2004...................................................... 97,517
Thereafter................................................ 159,542
</TABLE>

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

We lease the land underlying the office buildings or parking structures of
six of our buildings. Ground lease expense, including amounts netted against
parking revenues, was approximately $1.7 million, $2.0 mil-

F-8
<PAGE> 56

lion and $1.6 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Future minimum ground lease payments due under existing ground
leases are as follows (in thousands):

<TABLE>
<S> <C>
2000...................................................... $ 1,716
2001...................................................... 1,717
2002...................................................... 1,754
2003...................................................... 1,754
2004...................................................... 1,785
Thereafter................................................ 118,307
</TABLE>

4. MORTGAGE NOTES RECEIVABLE

In September 1997, we purchased two mortgage notes receivable, secured by a
single commercial office property, with an aggregate balance of approximately
$17.6 million, for approximately $14.4 million. The notes bear interest at the
Eleventh District Cost of Funds plus 3.25% per annum, require monthly payments
of principal, interest, and additional net cash flow from the office property
and mature on May 31, 2004. These notes had an effective interest rate of 7.9%
at December 31, 1999.

5. MORTGAGE LOANS PAYABLE AND UNSECURED LINES OF CREDIT

A summary of mortgage loans payable and unsecured lines of credit are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31, EFFECTIVE ANNUAL NUMBER OF MATURITY
MORTGAGE DEBT ----------------------- INTEREST RATE AT FIXED/FLOATING PROPERTIES MONTH/
FIXED TYPE OF DEBT 1999 1998 DECEMBER 31, 1999 DEBT SECURING LOAN YEAR
------------------ ------------ -------- ----------------- ------------------- ------------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE LOANS PAYABLE:
Fixed Rate
Mortgage Financing
I(1)................... $ 175,000 $175,000 7.52% Fixed 18 6/04
Mortgage Financing
III(2)................. 136,100 136,100 6.74 Fixed 22 4/08
Mortgage Financing
IV(2).................. 111,200 111,200 6.61 Fixed 12 4/08
Mortgage Financing
V(3)................... 114,016 -- 6.94 Fixed 12 4/09
Mortgage Financing
VI(3).................. 22,426 -- 7.54 Fixed 3 4/09
Westwood Center(3)....... 14,859 15,167 8.09 Fixed 1 5/03
Activity Business
Center(3).............. 8,003 8,142 8.85 Fixed 1 5/06
299 North Euclid(2)...... 5,000 5,000 7.00 Fixed 1 7/02
145 South Fairfax(3)..... 4,050 4,079 8.93 Fixed 1 1/27
Marin Corporate
Center(3).............. 3,168 3,257 9.00 Fixed 1 7/15
Conejo Business
Center(3).............. 3,114 3,203 8.75 Fixed (Note 4) 7/15
Conejo Business
Center(3).............. 1,358 1,401 7.88 Fixed (Note 4) 7/15
---------- --------
598,294 462,549
Floating Rate
Lehman Prepayable Term
Loan II and III(1)..... 120,475 -- 8.07 LIBOR + 2.25% 9 11/00
Construction Loan........ 22,037 -- 8.23 LIBOR + 2.0% (Note 5) 12/00
Lehman Prepayable Term
Loan I................. -- 81,378 -- LIBOR + .75% 7 --
---------- --------
740,806 543,927
UNSECURED LINES OF
CREDIT:
Wells Fargo Line of
Credit................. 280,850 296,450 7.52 LIBOR + 1.3% -- 6/00
City National Bank Line
of Credit.............. 8,000 -- 7.63 Prime Rate - 0.875% -- 8/00
---------- --------
288,850 296,450
---------- --------
Total Debt....... $1,029,656 $840,377
========== ========
</TABLE>

- ---------------
(1) Requires monthly payments of interest only, with outstanding principal
balance due upon maturity.

(2) Requires monthly payments of interest only for five years and monthly
payments of principal and interest thereafter.

(3) Requires monthly payments of principal and interest.

F-9
<PAGE> 57

(4) Both mortgage loans are secured by the Conejo Business Center property.

(5) This loan is secured by certain property and construction improvements
relating to the 6060 Center Drive office building in the Howard Hughes
Center.

Mortgage Loans Payable

On April 5, 1999, we closed a $115 million loan with Mass Mutual Life
Insurance Company (the "Mortgage Financing V"). Proceeds from this loan were
used to repay $76.4 million of our Lehman Prepayable Term Loan I and to repay a
portion of our unsecured lines of credit. On April 30, 1999 we closed a $22.5
million loan with Lehman Brothers, Limited Partnership (the "Mortgage Financing
VI"). Proceeds from this loan were used to repay a portion of our unsecured
lines of credit. On May 5, 1999, we refinanced the remaining $35 million
outstanding under the Lehman Prepayable Term Loan I with one secured note
payable totaling $62.5 million (the "Lehman Prepayable Term Loan II") to an
affiliate of Lehman Brothers. The remaining proceeds from this loan were used to
repay a portion of our unsecured lines of credit.

On July 23, 1999, we entered into a construction loan with a total
commitment of $50 million (the "Construction Loan") related to our development
of the approximately 241,000 net rentable square foot Center Drive office
building in the Howard Hughes Center. Subject to meeting certain construction
completion and leasing benchmarks, as defined, the interest rate on the
Construction Loan may be reduced to LIBOR plus 1.75%, then to LIBOR plus 1.5%.
As of December 31, 1999, there was $22.0 million outstanding on the Construction
Loan and $28 million was available for additional borrowing.

On July 27, 1999, we closed a $58 million loan with Lehman Brothers, Inc.
(the "Lehman Prepayable Term Loan III"). Proceeds from this loan were used to
repay a portion of our unsecured lines of credit and to fund certain capital
expenditures. In January 2000, we expanded this loan from $58 million to $83
million.

In connection with two of our mortgage loans payable to an affiliate of
Lehman Brothers, we entered into a treasury rate lock agreement, or the swap
agreement, with a notional amount of $100 million and locked in the United
States 10-year treasury rate at 6.174%. On April 16, 1998, we settled the swap
agreement for $4.5 million and are amortizing the cost of settling the swap
agreement over the term of the two related mortgage loans payable to an
affiliate of Lehman Brothers.

Following is a summary of scheduled principal payments for our mortgage
loans as of December 31, 1999 (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, AMOUNT
------------ --------
<S> <C>
2000...................................................... $145,299
2001...................................................... 3,004
2002...................................................... 8,236
2003...................................................... 16,838
2004...................................................... 178,292
Thereafter................................................ 389,137
--------
$740,806
========
</TABLE>

Unsecured Lines of Credit

As of December 31, 1999 and 1998, we had an unsecured line of credit in the
amount of $300 million with a group of banks led by Wells Fargo Bank. This line
of credit has an interest rate that ranges between LIBOR plus 1.2% and LIBOR
plus 1.45%, depending on our leverage ratio. The effective interest rate at
December 31, 1999 was 7.52%. The interest rate may be lowered to between LIBOR
plus 0.9% and LIBOR plus 1.15%, depending on our unsecured debt rating. Under
certain circumstances, we have the option to convert the interest rate to the
prime rate plus 0.5%. The outstanding principal balance of this line of credit
was $280.9 million and $296.4 million at December 31, 1999 and 1998,
respectively.

F-10
<PAGE> 58

This line of credit is subject to customary conditions to borrowing;
contains representations, 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
Wells Fargo line of credit documentation, and requirements to maintain a pool of
unencumbered properties that meet certain defined characteristics and are
approved by the group of banks led by Wells Fargo Bank. This line of credit also
contains restrictions on, among other things, indebtedness, investments,
distributions, liens and mergers. In addition, this line of credit has a
commitment fee ranging from 0.125% to 0.25% on the unused balance. This line of
credit matures on June 1, 2000. Proceeds from this line of credit have been
used, among other things, to provide funds for tenant improvements and capital
expenditures and provide for working capital and other purposes.

As of December 31, 1999 and 1998 we also had an unsecured line of credit in
the amount of $10 million with City National Bank.

In January 1997, we entered into interest rate floor and cap transactions
with a notional amount of $155.0 million to hedge our exposure to variable
interest rates. We entered into these agreements to convert floating rate
liabilities to fixed rate liabilities. In July 1997, we repaid all of our
outstanding floating rate debt at the time with proceeds from an equity offering
and in October 1997, the swap agreement was retired resulting in a loss on the
derivative of $3.1 million.

6. STOCKHOLDERS' EQUITY

On September 7, 1999, we completed a $50 million private placement of
8 5/8% Series B Cumulative Redeemable Preferred operating partnership units, or
Preferred Op Units, to an institutional investor. The Preferred OP Units are
callable by us after five years and are exchangeable after ten years by the
holder into our 8 5/8% Series B Cumulative Redeemable Preferred Stock, on a
one-for-one basis. The Preferred OP Units have no stated maturity or mandatory
redemption and are subordinate to all debt. We used the net proceeds from this
private placement to repay a portion of our lines of credit.

On January 12, 1998, we filed a form S-3 Registration Statement, or the
Registration Statement, with the Securities Exchange Commission to offer in one
or more series, shares of our $.01 par value common stock with an aggregate
public offering price of up to $1.0 billion. This Registration Statement was
declared effective on January 21, 1998.

During 1998, we completed four equity offerings under the Registration
Statement, as follows (in thousands):

<TABLE>
<CAPTION>
NUMBER GROSS FEES NET
DATE OF SHARES PROCEEDS AND COSTS PROCEEDS
------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Unit Trust(a)....................... 2/18/98 882 $ 24,970 $ 1,349 $ 23,621
Public Offering..................... 2/19/98 23,000 651,188 32,982 618,206
Unit Trust(a)....................... 2/23/98 1,304 37,000 1,945 35,055
Unit Trust(a)....................... 4/23/98 1,110 31,500 1,800 29,700
------ -------- ------- --------
26,296(b) $744,658 $38,076 $706,582
====== ======== ======= ========
</TABLE>

- ---------------
(a) Shares of common stock issued to the trustees of unrelated registered unit
investment trusts.

(b) Excludes 229,880 shares issued in connection with Operating Partnership Unit
conversions and 85,106 shares issued to officers for purchases of common
stock .

There were no equity offerings under the Registration Statement during
1999.

An Operating Partnership Unit, or 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. An OP Unit
may be redeemed for cash or, at our election, for shares of common stock on a
one-for-one basis.

F-11
<PAGE> 59

During 1998, we issued 300,255 common OP Units, valued at approximately
$8.2 million in connection with certain property acquisitions. During 1998, we
also redeemed 542,382 common OP Units at a cost of approximately $16.3 million
in cash based on the original issuance price of the related common OP Units.

A dividend was declared on December 1, 1999 to stockholders of record on
December 31, 1999 of $0.445 per common share, for the quarter ended December 31,
1999. This dividend was paid on January 27, 2000. Arden Realty declared
dividends of $1.78 per common share for the year ended December 31. 1999.

7. COMMITMENTS AND CONTINGENCIES

Capital Commitments

As of December 31, 1999, we had approximately $23.6 million outstanding in
capital commitments related to tenant improvements, renovation costs and general
property-related capital expenditures.

Litigation

We do not believe there is any litigation threatened against us 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 our consolidated financial
statements.

Concentration of Credit Risk

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

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

8. RELATED PARTY TRANSACTIONS

Promissory Notes Receivable from Officers

In August 1998, we issued 85,106 shares of common stock, related to the
issuance of 42,553 shares of common stock to each of two executive officers. In
consideration for the issuance of the common stock, the executive officers
executed promissory notes in the amount of $1 million each.

The promissory notes are recourse and secured by the shares of common stock
issued to the executive officers, bear interest at 6% per year with all accrued
interest and principal due on August 14, 2004. Provided that the executive
officers are still employed by us, the outstanding principal amount of the
promissory notes will be forgiven as follows; August 14, 2001, $100,000; August
14, 2002, $166,667; August 14, 2003, $200,000; and August 14, 2004, $200,000.
Additionally, provided that the executive officers are still employed by us, all
accrued and unpaid interest and the outstanding principal amount of the
promissory notes will be forgiven upon a change in control, as defined in the
promissory note, of us or upon the death or disability of the executive
officers. See Note 14.

F-12
<PAGE> 60

9. REVENUE FROM RENTAL OPERATIONS AND PROPERTY OPERATING EXPENSES

Revenue from rental operations and property operating expenses for the
years ended December 31, 1999, 1998 and 1997 are summarized as follows (in
thousands):

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUE FROM RENTAL OPERATIONS:
Rental........................................... $292,688 $250,467 $118,085
Tenant reimbursements............................ 13,863 9,505 5,945
Parking, net of expenses......................... 14,384 12,223 7,397
Other rental operations.......................... 16,918 8,872 2,390
-------- -------- --------
337,853 281,067 133,817
-------- -------- --------
PROPERTY OPERATING EXPENSES:
Repairs and maintenance.......................... 32,902 27,141 15,154
Utilities........................................ 28,305 26,559 14,321
Real estate taxes................................ 23,167 19,433 8,003
Insurance........................................ 3,993 4,110 2,125
Ground rent...................................... 891 714 314
Marketing and other.............................. 12,026 8,613 4,415
-------- -------- --------
101,284 86,570 44,332
-------- -------- --------
$236,569 $194,497 $ 89,485
======== ======== ========
</TABLE>

10. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net
income per share (in thousands, except per share amounts):

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net income............................................ $96,626 $90,675 $39,630
======= ======= =======
Weighted average shares -- basic...................... 63,016 58,660 27,794
Weighted average dilutive stock options............... 56 154 245
------- ------- -------
Weighted average shares -- diluted.................... 63,072 58,814 28,039
======= ======= =======
Basic net income per share............................ $ 1.53 $ 1.55 $ 1.43
======= ======= =======
Diluted net income per share.......................... $ 1.53 $ 1.54 $ 1.41
======= ======= =======
</TABLE>

11. STOCK OPTION PLAN

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

We established a stock option plan for the purpose of attracting and
retaining executive officers, directors and other key employees. As of December
31, 1999, 4,200,000 of our authorized shares of common stock have been reserved
for issuance under that plan.

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

F-13
<PAGE> 61

Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if Arden Realty 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 1999, 1998 and 1997, respectively: risk-free interest rate of
6.67%, 5.68%, and 5.81%; dividend yield of 5.79%, 7.25% and 5.2%; volatility
factor of the expected market price of Arden Realty's common stock of .245,
.268, and .194. The weighted average expected life of the options ranges between
eight and 10 years.

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

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. Our pro forma
information for the years ended December 31, 1999, 1998 and 1997 follows (in
thousands, except earnings per share information):

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Pro forma net income.................................. $92,490 $88,711 $38,711
======= ======= =======
Pro forma net income per share........................ $ 1.46 $ 1.51 $ 1.39
======= ======= =======
</TABLE>

A summary of Arden Realty's stock option activity, and related information
for the years ended December 31, 1999, 1998 and 1997 follows:

<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE
(000S) PRICE (000S) PRICE (000S) PRICE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
period........................ 3,140 $25.56 1,303 $25.27 930 $20.15
Granted......................... 760 19.67 1,847 26.03 556 32.09
Exercised....................... -- -- -- -- (147) 20.00
Forfeited....................... (10) 25.94 (10) 20.00 (36) 20.00
------ ------ ------ ------ ------ ------
Outstanding at end of year...... 3,890 $25.38 3,140 $25.56 1,303 $25.27
====== ====== ====== ====== ====== ======
Weighted-average fair value of
options granted............... $ 3.35 $ 3.27 $ 3.72
====== ====== ======
</TABLE>

Exercise prices for options outstanding as of December 31, 1999 ranged from
$19.13 to $32.25. The weighted average remaining contractual life of those
options is 8.4 years.

12. EMPLOYEE RETIREMENT SAVINGS PLAN

Effective June 12, 1997, we adopted a retirement savings plan pursuant to
Section 401(k) of the Internal Revenue Code whereby participants may contribute
a portion of their compensation to their respective retirement accounts in an
amount not to exceed the maximum allowed under the Code. The plan provides for
matching contributions by us, which amounted to approximately $385,000 in 1999,
$187,000 in 1998 and $71,000 in 1997. Plan participants are immediately vested
in their contributions and are vested equally over four years in matching
contributions by us.

13. YEAR 2000 -- UNAUDITED

F-14
<PAGE> 62

critical information technology and non-information technology systems and
believe those systems successfully responded to the Year 2000 date change. We
incurred costs of approximately $500,000 during 1999 in connection with
remediating our systems. We are not aware of any material problems resulting
from Year 2000 issues, either with our products, our internal systems or the
products and services of third parties. We will continue to monitor our mission
critical computer applications and those of our suppliers and vendors throughout
the year to ensure that any latent Year 2000 matters that may arise are
addressed promptly.

14. SUBSEQUENT EVENT -- UNAUDITED

Promissory Note Receivable From Officers

Andrew Sobel resigned as Executive Vice President and Director of Property
Operations effective February 18, 2000. At the time of his termination, Mr.
Sobel surrendered the common stock underlying his promissory note, discussed in
Note 8 above, and executed a new promissory note in the amount of $223,887,
representing the difference between the value of the common stock surrendered
and the unpaid principal and interest on his original promissory note. The new
promissory note bears interest at 6.56%, with all accrued interest and principal
due on February 18, 2002. In addition, effective with his termination, Arden
Realty and Mr. Sobel entered into a consulting and non-competition agreement for
a term of two years. Under this agreement, Mr. Sobel will receive compensation
of $6,000 per month, which will be applied against the unpaid interest and
principal on the new promissory note.

Debt Offering

Dividend Declaration

On March 17, 2000, we declared a first quarter dividend of $0.465 per share
to shareholders of record on March 31, 2000.

F-15
<PAGE> 63

15. QUARTERLY RESULTS

Following is a summary of our revenue and expenses for the years ended
December 31, 1999, 1998 and 1997. Revenue and expenses have fluctuated
significantly from quarter to quarter primarily due to property acquisitions
(unaudited).

<TABLE>
<CAPTION>
FOR THE QUARTER ENDED (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
--------------------------------------------------------------------------
MARCH 31, 1999 JUNE 30, 1999 SEPTEMBER 30, 1999 DECEMBER 31, 1999
-------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenue........................ $ 79,336 $ 82,712 $ 86,723 $ 89,082
Property operating expenses.... (23,510) (24,444) (26,744) (26,586)
General and administrative..... (1,496) (1,687) (1,832) (2,378)
Interest expense............... (13,183) (14,455) (16,047) (16,554)
Depreciation and
amortization................. (16,215) (17,173) (17,810) (18,639)
Interest and other income...... 670 671 751 730
Minority interests............. (1,211) (971) (1,120) (1,994)
-------- -------- -------- --------
Net Income..................... $ 24,391 $ 24,653 $ 23,921 $ 23,661
======== ======== ======== ========
Net income per share:
Basic........................ $ .39 $ .39 $ .38 $ .37
======== ======== ======== ========
Diluted...................... $ .39 $ .39 $ .38 $ .37
======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
FOR THE QUARTER ENDED (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
--------------------------------------------------------------------------
MARCH 31, 1998 JUNE 30, 1998 SEPTEMBER 30, 1998 DECEMBER 31, 1998
-------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenue........................ $ 54,759 $ 70,503 $ 76,738 $ 79,067
Property operating expenses.... (16,738) (21,543) (24,072) (24,217)
General and administrative..... (1,635) (1,388) (1,564) (2,078)
Interest expense............... (8,612) (10,539) (11,988) (12,264)
Depreciation and
amortization................. (11,296) (12,930) (12,954) (14,642)
Interest and other income...... 1,458 695 680 682
Minority interests............. (1,752) (1,183) (1,253) (1,259)
-------- -------- -------- --------
Net Income..................... $ 16,184 $ 23,615 $ 25,587 $ 25,289
======== ======== ======== ========
Net income per share:
Basic........................ $ .34 $ .38 $ .41 $ .41
======== ======== ======== ========
Diluted...................... $ .34 $ .38 $ .41 $ .40
======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
FOR THE QUARTER ENDED (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
--------------------------------------------------------------------------
MARCH 31, 1997 JUNE 30, 1997 SEPTEMBER 30, 1997 DECEMBER 31, 1997
-------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenue........................ $ 24,916 $ 29,704 $ 36,431 $ 42,766
Property operating expenses.... (7,894) (9,544) (11,737) (15,157)
General and administrative..... (918) (931) (979) (1,494)
Interest expense............... (3,024) (5,883) (4,816) (5,788)
Loss on valuation of
derivative................... -- -- (3,111) --
Depreciation and
amortization................. (3,562) (4,458) (5,241) (6,999)
Interest and other income...... 54 59 450 1,067
Minority interests............. (1,134) (1,090) (881) (1,176)
-------- -------- -------- --------
Net Income..................... $ 8,438 $ 7,857 $ 10,116 $ 13,219
======== ======== ======== ========
Net income per share:
Basic........................ $ .39 $ .36 $ .31 $ .37
======== ======== ======== ========
Diluted...................... $ .38 $ .36 $ .31 $ .37
======== ======== ======== ========
</TABLE>

F-16
<PAGE> 64

16. SCHEDULE OF COMMERCIAL PROPERTIES AND ACCUMULATED DEPRECIATION

DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SQUARE FOOT DATA)
<TABLE>
<CAPTION>
INITIAL COSTS BASIS STEP UP
------------------------ ---------------------- COSTS CAPITALIZED
SQUARE BUILDINGS AND BUILDINGS AND SUBSEQUENT TO
FOOTAGE LAND IMPROVEMENTS LAND IMPROVEMENTS ACQUISITION(2)
---------- -------- ------------- ------ ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Century Park Center........... 243,404 $ 7,189 $ 16,742 $ -- $ -- $ 7,604
Beverly Atrium................ 59,650 4,127 11,513 117 328 2,146
Woodland Hills Financial
Center....................... 224,955 6,566 14,754 365 880 4,788
Anaheim City Centre........... 175,391 515 11,199 94 2,075 3,069
425 West Broadway............. 71,589 1,500 4,436 305 918 815
1950 Sawtelle................. 103,106 1,988 7,263 -- -- 1,677
Bristol Plaza................. 84,014 1,820 3,380 257 485 1,827
16000 Ventura................. 174,841 1,700 17,189 185 1,929 2,856
5000 East Spring.............. 163,358 -- 11,658 -- 424 2,951
70 South Lake................. 100,133 1,360 9,097 -- -- 1,570
Westwood Terrace.............. 135,943 2,103 16,850 -- -- 1,719
5601 Lindero Canyon........... 105,830 2,577 6,067 -- -- 1,715
6100 Wilshire................. 202,704 1,200 19,902 -- -- 3,873
Calabasas Commerce Center..... 126,771 1,262 9,725 -- -- 1,247
Long Beach -- DF&G............ 272,013 -- 14,452 -- -- 287
Skyview Center................ 391,675 6,514 33,701 -- -- 4,021
400 Corporate Pointe.......... 164,598 3,382 17,527 75 390 1,755
5832 Bolsa.................... 49,355 690 3,526 15 80 524
9665 Wilshire................. 158,684 6,697 22,230 139 473 4,845
Imperial Bank Tower........... 540,413 3,722 35,184 64 625 9,216
100 West Broadway............. 191,727 4,570 15,255 -- -- 1,575
Norwalk....................... 122,175 4,508 5,532 -- -- 1,972
303 Glenoaks Blvd............. 175,289 6,500 18,132 -- -- 1,621
10351 Santa Monica............ 96,251 3,080 7,906 -- -- 825
2730 Wilshire................. 55,080 3,515 5,944 -- -- 1,046
Grand Avenue Plaza............ 81,448 620 2,832 -- -- 3,846
Burbank Executive Plaza....... 60,395 1,100 4,384 -- -- 1,788
California Federal Building... 81,243 1,500 5,981 -- -- 1,146
Center Promenade.............. 174,837 2,310 9,266 -- -- 1,643
Los Angeles Corporate
Center....................... 389,293 26,781 15,139 -- -- 3,869
5200 West Century............. 310,910 2,080 9,360 -- -- 16,464
Sumitomo Bank Building........ 110,641 2,560 10,257 -- -- 1,414
10350 Santa Monica............ 42,292 861 3,456 -- -- 436
10780 Santa Monica............ 92,486 2,625 7,997 -- -- 855
California Twin Center........ 155,189 4,680 14,877 -- -- 1,380
Whittier Financial Center..... 135,415 3,575 10,798 -- -- 2,017

<CAPTION>
TOTAL COSTS
------------------------
BUILDINGS AND ACCUMULATED YEAR BUILT/
LAND IMPROVEMENTS TOTAL DEPRECIATION(1) ENCUMBRANCES RENOVATED
-------- ------------- ---------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Century Park Center........... $ 7,189 $ 24,346 $ 31,535 $ 6,463 $ -- 1972
Beverly Atrium................ 4,244 13,987 18,231 2,808 5,268(3) 1989
Woodland Hills Financial
Center....................... 6,931 20,422 27,353 4,565 14,564(3) 1972/95
Anaheim City Centre........... 609 16,343 16,952 2,798 8,914(3) 1986
425 West Broadway............. 1,805 6,169 7,974 900 4,733(3) 1984
1950 Sawtelle................. 1,988 8,940 10,928 1,722 7,285(3) 1988/95
Bristol Plaza................. 2,077 5,692 7,769 912 4,082(3) 1982
16000 Ventura................. 1,885 21,974 23,859 3,343 10,828(3) 1980/96
5000 East Spring.............. -- 15,033 15,033 2,922 -- 1989/95
70 South Lake................. 1,360 10,667 12,027 1,340 6,677(3) 1982/94
Westwood Terrace.............. 2,103 18,569 20,672 2,142 -- 1988
5601 Lindero Canyon........... 2,577 7,782 10,359 1,415 6,225(3) 1989
6100 Wilshire................. 1,200 23,775 24,975 3,137 11,566(3) 1986
Calabasas Commerce Center..... 1,262 10,972 12,234 1,365 8,103(3) 1990
Long Beach -- DF&G............ -- 14,739 14,739 1,516 -- 1987/95
Skyview Center................ 6,514 37,722 44,236 4,651 27,604(3) 1981/87/95
400 Corporate Pointe.......... 3,457 19,672 23,129 2,046 15,583(3) 1987
5832 Bolsa.................... 705 4,130 4,835 390 2,675(3) 1985
9665 Wilshire................. 6,836 27,548 34,384 2,779 -- 1972/92/93
Imperial Bank Tower........... 3,786 45,025 48,811 5,144 -- 1982/96
100 West Broadway............. 4,570 16,830 21,400 1,723 15,120(3) 1987/96
Norwalk....................... 4,508 7,504 12,012 533 7,186(3) 1978
303 Glenoaks Blvd............. 6,500 19,753 26,253 1,811 13,104(3) 1983/96
10351 Santa Monica............ 3,080 8,731 11,811 771 5,541(3) 1984
2730 Wilshire................. 3,515 6,990 10,505 564 4,933(3) 1985
Grand Avenue Plaza............ 620 6,678 7,298 729 5,969(3) 1980
Burbank Executive Plaza....... 1,100 6,172 7,272 581 3,350(3) 1978/83
California Federal Building... 1,500 7,127 8,627 670 5,026(3) 1978/83
Center Promenade.............. 2,310 10,909 13,219 908 -- 1982
Los Angeles Corporate
Center....................... 26,781 19,008 45,789 1,442 21,043(3) 1986
5200 West Century............. 2,080 25,824 27,904 863 -- 1982
Sumitomo Bank Building........ 2,560 11,671 14,231 886 -- 1970/90-91
10350 Santa Monica............ 861 3,892 4,753 297 2,280(3) 1979
10780 Santa Monica............ 2,625 8,852 11,477 872 -- 1984
California Twin Center........ 4,680 16,257 20,937 1,730 -- 1983
Whittier Financial Center..... 3,575 12,815 16,390 1,173 11,561(4) 1967/82
</TABLE>

F-17
<PAGE> 65
<TABLE>
<CAPTION>
INITIAL COSTS BASIS STEP UP
------------------------ ---------------------- COSTS CAPITALIZED
SQUARE BUILDINGS AND BUILDINGS AND SUBSEQUENT TO
FOOTAGE LAND IMPROVEMENTS LAND IMPROVEMENTS ACQUISITION(2)
---------- -------- ------------- ------ ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
6800 Owensmouth............... 80,014 $ 1,725 $ 5,851 $ -- $ -- $ 561
Clarendon Crest............... 43,063 1,300 3,951 -- -- 235
Noble Professional Center..... 51,828 1,657 5,096 -- -- 338
South Bay Centre.............. 202,830 4,775 14,365 -- -- 1,536
8383 Wilshire................. 417,463 13,570 45,505 -- -- 6,683
Parkway Center................ 61,333 1,480 5,941 -- -- 411
Centerpointe La Palma......... 597,550 16,011 64,400 -- -- 2,717
299 North Euclid.............. 73,522 1,050 6,110 -- -- 4,878
2800 28th Street.............. 103,506 2,937 9,063 -- -- 1,566
Harbor Corporate Center....... 63,925 870 3,538 -- -- 505
1000 Town Center.............. 107,656 2,800 11,260 -- -- 365
Mariner Court................. 105,436 2,350 9,461 -- -- 688
Pacific Gateway II............ 223,731 6,287 19,191 -- -- 3,023
1821 East Dyer................ 115,061 1,808 5,474 -- -- 2,475
Crown Cabot Financial......... 172,900 7,056 21,360 -- -- 2,927
120 South Spalding............ 60,656 2,775 8,544 -- -- 4,179
South Bay Technology Center... 104,815 1,600 4,782 -- -- 842
Gateway Center................ 84,081 2,698 8,141 -- -- 461
Renaissance Court............. 61,245 1,580 5,477 -- -- 778
Foremost Professional Plaza... 60,534 2,049 6,196 -- -- 331
Northpoint.................... 104,235 1,800 20,272 -- -- 603
Thousand Oaks Plaza........... 13,434 444 1,343 -- -- 27
Rancho Plaza.................. 24,057 711 2,213 -- -- 54
Pennsfield Plaza.............. 21,202 800 2,383 -- -- 187
Conejo Business Center........ 69,017 2,489 7,359 -- -- 336
Marin Corporate Center........ 51,360 1,956 5,915 -- -- 262
Evergreen Plaza............... 75,722 2,489 6,911 -- -- 444
145 South Fairfax............. 53,994 1,825 5,551 -- -- 659
Bernardo Regency.............. 47,916 1,625 4,937 -- -- 281
City Centre................... 302,519 8,250 24,951 -- -- 1,281
Wilshire Pacific Plaza........ 100,122 3,750 11,317 -- -- 2,285
Glendale Corporate Center..... 108,209 2,750 12,734 -- -- 942
World Savings Center.......... 469,115 -- 110,382 -- -- 7,528
Beverly Sunset Medical
Plaza........................ 139,711 7,180 21,666 -- -- 4,230
Sunset Pointe Plaza........... 58,105 2,075 6,362 -- -- 419
Activity Business Center...... 167,045 3,650 11,303 -- -- 385
Westlake Gardens I............ 49,639 1,831 5,550 -- -- 1,920
9100 Wilshire Blvd............ 326,227 16,250 48,950 -- -- 3,603
1919 Santa Monica............. 43,796 2,580 7,772 -- -- 521
600 Corporate Pointe.......... 273,339 8,575 35,325 -- -- 2,426
150 East Colorado............. 61,168 1,988 5,841 -- -- 1,007
5161 Lankershim............... 178,317 5,016 25,568 -- -- 2,477

<CAPTION>
TOTAL COSTS
------------------------
BUILDINGS AND ACCUMULATED YEAR BUILT/
LAND IMPROVEMENTS TOTAL DEPRECIATION(1) ENCUMBRANCES RENOVATED
-------- ------------- ---------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
6800 Owensmouth............... $ 1,725 $ 6,412 $ 8,137 $ 530 $ -- 1986
Clarendon Crest............... 1,300 4,186 5,486 349 3,266(3) 1990
Noble Professional Center..... 1,657 5,434 7,091 461 3,580(3) 1985/93
South Bay Centre.............. 4,775 15,901 20,676 1,384 13,682(3) 1984
8383 Wilshire................. 13,570 52,188 65,758 3,958 -- 1971/93
Parkway Center................ 1,480 6,352 7,832 513 5,029(3) 1992/95
Centerpointe La Palma......... 16,011 67,117 83,128 5,236 35,140(3) 1986/88/90
299 North Euclid.............. 1,050 10,988 12,038 554 5,000 1983
2800 28th Street.............. 2,937 10,629 13,566 762 -- 1979
Harbor Corporate Center....... 870 4,043 4,913 265 -- 1985
1000 Town Center.............. 2,800 11,625 14,425 809 -- 1989
Mariner Court................. 2,350 10,149 12,499 736 7,337(3) 1989
Pacific Gateway II............ 6,287 22,214 28,501 1,251 13,302(4) 1982/90
1821 East Dyer................ 1,808 7,949 9,757 336 -- 1980/88
Crown Cabot Financial......... 7,056 24,287 31,343 1,755 -- 1989
120 South Spalding............ 2,775 12,723 15,498 485 8,749(3) 1984
South Bay Technology Center... 1,600 5,624 7,224 330 -- 1984
Gateway Center................ 2,698 8,602 11,300 580 5,532(3) 1988
Renaissance Court............. 1,580 6,255 7,835 327 -- 1981/92
Foremost Professional Plaza... 2,049 6,527 8,576 436 -- 1992
Northpoint.................... 1,800 20,875 22,675 1,366 -- 1991
Thousand Oaks Plaza........... 444 1,370 1,814 87 -- 1988
Rancho Plaza.................. 711 2,267 2,978 145 -- 1987
Pennsfield Plaza.............. 800 2,570 3,370 165 -- 1989
Conejo Business Center........ 2,489 7,695 10,184 493 4,472 1991
Marin Corporate Center........ 1,956 6,177 8,133 396 3,168 1986
Evergreen Plaza............... 2,489 7,355 9,844 471 -- 1979/96
145 South Fairfax............. 1,825 6,210 8,035 400 4,050 1984
Bernardo Regency.............. 1,625 5,218 6,843 332 -- 1986
City Centre................... 8,250 26,232 34,482 1,589 -- 1982
Wilshire Pacific Plaza........ 3,750 13,602 17,352 726 -- 1976/87
Glendale Corporate Center..... 2,750 13,676 16,426 776 -- 1985
World Savings Center.......... -- 117,910 117,910 6,504 -- 1983
Beverly Sunset Medical
Plaza........................ 7,180 25,896 33,076 1,038 -- 1963/92-95
Sunset Pointe Plaza........... 2,075 6,781 8,856 382 3,855(3) 1988
Activity Business Center...... 3,650 11,688 15,338 633 8,003 1987
Westlake Gardens I............ 1,831 7,470 9,301 388 4,527(4) 1998
9100 Wilshire Blvd............ 16,250 52,553 68,803 3,301 35,000(4) 1971/90
1919 Santa Monica............. 2,580 8,293 10,873 447 3,724(3) 1991
600 Corporate Pointe.......... 8,575 37,751 46,326 2,066 17,584(3) 1989
150 East Colorado............. 1,988 6,848 8,836 406 5,106(3) 1979/97
5161 Lankershim............... 5,016 28,045 33,061 1,765 13,573(3) 1985/97
</TABLE>

F-18
<PAGE> 66
<TABLE>
<CAPTION>
INITIAL COSTS BASIS STEP UP
------------------------ ---------------------- COSTS CAPITALIZED
SQUARE BUILDINGS AND BUILDINGS AND SUBSEQUENT TO
FOOTAGE LAND IMPROVEMENTS LAND IMPROVEMENTS ACQUISITION(2)
---------- -------- ------------- ------ ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
1501 Hughes Way............... 77,060 $ 1,348 $ 4,058 $ -- $ -- $ 1,126
3901 Via Oro.................. 53,195 692 2,081 -- -- 1,257
Huntington Beach Plaza I &
II........................... 52,186 1,109 3,317 -- -- 237
Fountain Valley Plaza......... 107,252 2,949 9,377 -- -- 905
3300 Irvine Avenue............ 74,224 2,215 6,697 -- -- 880
Von Karman Corporate Center... 451,477 11,513 34,783 -- -- 3,372
South Coast Executive Plaza... 60,605 1,570 4,731 -- -- 402
One Venture................... 43,324 1,137 3,492 -- -- 875
City Centre................... 139,806 4,792 14,470 -- -- 1,113
Orange Financial Center....... 305,439 10,379 34,415 -- -- 3,784
Lambert Office Plaza.......... 32,807 1,095 3,296 -- -- 363
Carlsbad Corporate Center..... 125,000 3,722 15,061 -- -- 2,028
Balboa Corporate Center....... 69,890 2,759 8,303 -- -- 97
Panorama Corporate Center..... 133,149 6,512 19,593 -- -- 233
Ruffin Corporate Center....... 45,059 1,766 5,315 -- -- 61
Skypark Office Plaza.......... 202,164 5,733 21,608 -- -- 843
Governor Office Plaza......... 104,065 3,382 10,177 -- -- 1,101
5120 Shoreham................. 37,759 1,224 4,073 -- -- 81
Sorrento Valley Science....... 181,207 6,841 21,067 -- -- 977
Torreyanna Science Park....... 81,204 5,035 15,148 -- -- 270
Waples Tech Center............ 28,119 1,010 3,027 -- -- 307
10251 Vista Sorrento.......... 69,386 1,839 7,202 -- -- 127
Camarillo Business Center..... 154,216 3,522 10,602 -- -- 1,451
Centrelake Plaza.............. 110,763 1,570 9,473 -- -- 1,605
Tower Plaza I................. 72,350 2,080 6,280 -- -- 727
Tower Plaza II................ 19,301 265 802 -- -- 100
Tower Plaza III............... 12,483 172 520 -- -- 86
Chicago Avenue Business
Park......................... 47,482 1,223 3,687 -- -- 208
Havengate Center.............. 80,557 1,913 5,759 -- -- 942
HDS Plaza..................... 104,178 2,604 7,838 -- -- 492
5702 Bolsa.................... 27,731 589 1,775 -- -- 33
5672 Bolsa.................... 11,968 254 767 -- -- 131
5632 Bolsa.................... 21,568 458 1,381 -- -- 25
Huntington Commerce Center.... 67,551 992 2,997 -- -- 177
Savi Tech Center.............. 341,446 8,280 24,911 -- -- 773
Yorba Linda Business Park..... 167,142 2,629 7,913 -- -- 216
Cymer Technology Center....... 155,612 5,446 16,387 -- -- 219
Poway Industrial.............. 112,000 1,876 5,646 -- -- 96
10180 Scripps Ranch........... 43,560 1,165 3,507 -- -- 95
10965-93 Via Frontera......... 77,920 1,792 5,391 -- -- 100
Westridge..................... 48,955 1,807 5,591 -- -- 350

<CAPTION>
TOTAL COSTS
------------------------
BUILDINGS AND ACCUMULATED YEAR BUILT/
LAND IMPROVEMENTS TOTAL DEPRECIATION(1) ENCUMBRANCES RENOVATED
-------- ------------- ---------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
1501 Hughes Way............... $ 1,348 $ 5,184 $ 6,532 $ 190 $ -- 1983/97
3901 Via Oro.................. 692 3,338 4,030 277 -- 1986/97
Huntington Beach Plaza I &
II........................... 1,109 3,554 4,663 188 1,950(3) 1984/96
Fountain Valley Plaza......... 2,949 10,282 13,231 639 4,833(3) 1982
3300 Irvine Avenue............ 2,215 7,577 9,792 417 3,244(3) 1981/97
Von Karman Corporate Center... 11,513 38,155 49,668 2,080 17,180(3) 1981/84
South Coast Executive Plaza... 1,570 5,133 6,703 221 2,262(3) 1979/97
One Venture................... 1,137 4,367 5,504 236 -- 1990/97
City Centre................... 4,792 15,583 20,375 869 7,055(3) 1985/97
Orange Financial Center....... 10,379 38,199 48,578 2,011 18,184(3) 1985/95
Lambert Office Plaza.......... 1,095 3,659 4,754 174 -- 1986/97
Carlsbad Corporate Center..... 3,722 17,089 20,811 1,539 9,327(3) 1996
Balboa Corporate Center....... 2,759 8,400 11,159 439 6,147(3) 1990
Panorama Corporate Center..... 6,512 19,826 26,338 1,038 13,191(3) 1991
Ruffin Corporate Center....... 1,766 5,376 7,142 281 3,668(3) 1990
Skypark Office Plaza.......... 5,733 22,451 28,184 1,196 1986
Governor Office Plaza......... 3,382 11,278 14,660 603 5,425(3) 1986
5120 Shoreham................. 1,224 4,154 5,378 335 3,197(3) 1984
Sorrento Valley Science....... 6,841 22,044 28,885 1,211 15,914(4) 1984
Torreyanna Science Park....... 5,035 15,418 20,453 802 9,500(3) 1980/97
Waples Tech Center............ 1,010 3,334 4,344 152 -- 1990
10251 Vista Sorrento.......... 1,839 7,329 9,168 381 3,882(3) 1981/95
Camarillo Business Center..... 3,522 12,053 15,575 658 8,923(3) 1984/97
Centrelake Plaza.............. 1,570 11,078 12,648 562 -- 1989
Tower Plaza I................. 2,080 7,007 9,087 352 -- 1988
Tower Plaza II................ 265 902 1,167 52 -- 1983
Tower Plaza III............... 172 606 778 35 -- 1983
Chicago Avenue Business
Park......................... 1,223 3,895 5,118 206 -- 1986
Havengate Center.............. 1,913 6,701 8,614 271 -- 1985
HDS Plaza..................... 2,604 8,330 10,934 427 -- 1987
5702 Bolsa.................... 589 1,808 2,397 95 941(3) 1987/97
5672 Bolsa.................... 254 898 1,152 49 330(3) 1987
5632 Bolsa.................... 458 1,406 1,864 73 845(3) 1987
Huntington Commerce Center.... 992 3,174 4,166 163 1,502(3) 1987
Savi Tech Center.............. 8,280 25,684 33,964 1,319 14,728(3) 1989
Yorba Linda Business Park..... 2,629 8,129 10,758 427 4,377(3) 1988
Cymer Technology Center....... 5,446 16,606 22,052 868 10,918(3) 1986
Poway Industrial.............. 1,876 5,742 7,618 299 3,233(3) 1991/96
10180 Scripps Ranch........... 1,165 3,602 4,767 186 1,997(3) 1978/96
10965-93 Via Frontera......... 1,792 5,491 7,283 286 2,841(3) 1982/97
Westridge..................... 1,807 5,941 7,748 345 2,972(3) 1984/96
</TABLE>

F-19
<PAGE> 67
<TABLE>
<CAPTION>
INITIAL COSTS BASIS STEP UP
------------------------ ---------------------- COSTS CAPITALIZED
SQUARE BUILDINGS AND BUILDINGS AND SUBSEQUENT TO
FOOTAGE LAND IMPROVEMENTS LAND IMPROVEMENTS ACQUISITION(2)
---------- -------- ------------- ------ ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Ontario Airport Commerce
Center....................... 213,127 $ 2,398 $ 7,194 $ -- $ -- $ 325
Highlands I................... 26,856 470 1,418 -- -- 109
Highlands II.................. 41,210 793 2,394 -- -- 80
Hunter Business Park.......... 106,782 1,148 3,439 -- -- 378
Tower Plaza Retail............ 133,481 4,531 13,660 -- -- 739
Howard Hughes -- Spectrum..... 36,959 2,500 7,500 -- -- 13
11075 Santa Monica............ 35,696 1,225 3,746 -- -- 675
Continental Grand............. 235,926 7,125 40,451 -- -- 1,591
Calabasas Tech Center......... 273,526 11,513 34,591 -- -- 1,543
Oceangate Tower............... 210,907 3,080 20,386 -- -- 1,019
Lyons Plaza................... 61,203 2,078 6,267 -- -- 265
Genesee Executive Plaza....... 155,820 6,750 20,178 -- -- 1,689
Solar Drive Business Park..... 125,132 4,250 12,770 -- -- 519
91 Freeway Business Center.... 93,277 2,900 9,179 -- -- 699
601 South Glenoaks............ 72,524 2,450 7,519 -- -- 221
Mini Suites................... -- -- -- -- -- 185
Hillside Corporate Center..... 59,876 2,213 7,336 -- -- 725
Westlake Gardens II........... 48,874 1,832 5,493 -- -- 908
Howard Hughes Tower........... 313,833 5,830 47,170 -- -- 1,703
2001 Wilshire Blvd............ 101,125 5,007 14,893 -- -- 82
---------- -------- ---------- ------ ------ --------
17,849,790 $465,541 $1,719,924 $1,616 $8,607 $209,511
========== ======== ========== ====== ====== ========

- ---------------
(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 $20.4 million.

(3) All of these Properties are collateral for Arden Realty's $558.7 million
Mortgage Financings. The encumbrance allocated to an individual property is
based on the related individual release price.

(4) All of these Properties are collateral for Arden Realty's $120.5 million
Lehman Prepayable Term Loan II and III. The encumbrance allocated to an
individual property is based on the related individual release price.

F-20
<PAGE> 68

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

<TABLE>
<CAPTION>
ARDEN REALTY, INC.
--------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
COMMERCIAL PROPERTIES:
Balance at beginning of period....................... $2,173,194 $1,239,032 $ 546,707
Improvements......................................... 100,031 76,488 23,642
Deletions............................................ (591) (44) (335)
Acquisition of properties............................ 89,800 1,007,347 669,018
Transfers from (to) properties under development..... 42,765 (149,629) --
---------- ---------- ----------
Balance at end of period............................. $2,405,199 $2,173,194 $1,239,032
========== ========== ==========
ACCUMULATED DEPRECIATION:
Balance at beginning of period....................... $ (84,312) $ (35,860) $ (17,139)
Depreciation for period.............................. (61,452) (48,938) (19,056)
Deletions............................................ 591 44 335
Transfers to (from) properties under development..... (1,211) 442 --
---------- ---------- ----------
Balance at end of period............................. $ (146,384) $ (84,312) $ (35,860)
========== ========== ==========
</TABLE>

F-21

<PAGE> 1
EXHIBIT 3.3

ARDEN REALTY, INC.

ARTICLES SUPPLEMENTARY

ESTABLISHING AND FIXING THE RIGHTS AND
PREFERENCES OF 8 5/8% SERIES B CUMULATIVE
REDEEMABLE PREFERRED STOCK

Arden Realty, Inc., a corporation organized and existing under the laws
of the State of Maryland (the "Corporation"), certifies to the State Department
of Assessments and Taxation of Maryland (the "Department") that:

FIRST: Pursuant to the authority expressly vested in the Board of
Directors of the Corporation (sometimes referred to herein as the "Board") by
Article VI of the Articles of Amendment and Restatement of the Corporation filed
with, and accepted for record by, the Department on October 4, 1996, as
supplemented, (the "Charter") and Section 2-105 of the Maryland General
Corporation Law (the "MGCL"), the Board of Directors of the Corporation, on
September 2, 1999, adopted resolutions authorizing the Corporation, among other
things, to issue up to a stated maximum number of shares of Preferred Stock of
the Corporation, having a stated maximum aggregate liquidation preference and
distribution rate and certain other stated terms applicable to the issuance
thereof, and appointing, pursuant to the MGCL and the powers contained in the
Bylaws of the Corporation, a committee (the "Committee") of the Board of
Directors comprised of Richard S. Ziman and Victor Coleman and delegating to the
Committee, to the fullest extent permitted by Maryland law and the Charter and
Bylaws of the Corporation, all powers of the Board of Directors with respect to
classifying, authorizing, approving, ratifying and/or confirming the terms of
the Preferred Stock to be issued, including, without limitation, the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to distributions and other qualifications and terms and
conditions of redemption, and determining the consideration per share to be
received in respect of the issuance and sale of each share of Preferred Stock to
be issued and sold, and the number of shares of Preferred Stock to be so
classified or reclassified and issued by the Corporation, subject to the
limitations set forth in the resolutions of the Board of Directors adopted on
September 2, 1999.

SECOND: Pursuant to the authority conferred upon the Committee as
aforesaid, the Committee has, on September 2, 1999, adopted resolutions
classifying and designating a separate class of Preferred Stock as the 8 5/8%
Series B Cumulative Redeemable Preferred Stock, with the preferences,
conversions and other rights, voting powers, restrictions, limitations as to
distributions and other qualifications and terms and conditions of redemption
and other terms and conditions of such 8 5/8% Series B Cumulative Redeemable
Preferred Stock (within the limitations set by the Board of Directors in the
resolutions adopted on September 2, 1999, and referred to in Article First of
these Articles Supplementary) and establishing 2,000,000 as the number of shares
to be so classified and designated, and authorizing the issuance of up to
2,000,000 shares of 8 5/8% Series B Cumulative Redeemable Preferred Stock.

THIRD: The separate class of Preferred Stock of the Corporation created
by the resolutions duly adopted by the Board of Directors of the Corporation and
by the Committee and

<PAGE> 2

referred to in Articles First and Second of these Articles Supplementary shall
have the designation, number of shares, preferences, conversion and other
rights, voting powers, restrictions, limitations as to distributions,
qualifications, terms and conditions of redemption and other terms and
conditions as follows (and which, upon any restatement of the Charter, may be
made a part of Article VI thereof, with any necessary or appropriate changes to
the numeration or lettering of the sections or subsections hereof):

(1) DESIGNATION AND NUMBER. A class of Preferred Stock, designated the
"8 5/8% Series B Cumulative Redeemable Preferred Stock" (the "Series B Preferred
Stock"), is hereby established. The number of shares of Series B Preferred Stock
shall be 2,000,000.

(2) RANK. The Series B Preferred Stock will rank, with respect to
distribution rights or rights upon voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, (a) senior to all classes or
series of Common Stock (as defined in the Charter) and to all equity securities
of the Corporation the terms of which provide that such equity securities shall
rank junior to such Series B Preferred Stock with respect to distribution rights
or rights upon voluntary or involuntary liquidation, dissolution or winding-up
of the Corporation, as the case may be; (b) on a parity with all equity
securities issued by the Corporation other than those referred to in clauses (a)
and (c); and (c) junior to all equity securities issued by the Corporation the
terms of which provide that such equity securities shall rank senior to the
Series B Preferred Stock with respect to distribution rights or rights upon
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, as the case may be. For the purpose of these terms of the Series B
Preferred Stock, the term "Parity Preferred Stock" shall be used to refer to any
class or series of equity securities of the Corporation now or hereafter
authorized, issued or outstanding expressly designated by the Corporation to
rank on parity with the Series B Preferred Stock with respect to distributions
and rights upon voluntary or involuntary liquidation, winding-up or dissolution
of the Corporation. The term "equity securities" does not include convertible
debt securities, until the same are converted into equity securities.

(3) DISTRIBUTIONS.

(a) Payment of Distributions. Subject to the rights of holders of Parity
Preferred Stock as to the payment of distributions and holders of equity
securities ranking senior to the Series B Preferred Stock as to payments of
distributions, holders of Series B Preferred Stock shall be entitled to receive,
if, when and as authorized by the Board, out of funds legally available for the
payment of distributions, cumulative preferential cash distributions at the rate
of 8 5/8% of the $25.00 liquidation preference per annum (equivalent to $2.16
per annum per share). Such distributions shall accumulate on a daily basis
computed on the basis of a 360-day year consisting of twelve 30-day months and
be cumulative, shall accrue from the original date of issuance and shall be
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year commencing on September 30, 1999 (each a "Distribution Payment
Date"). Distributions shall be payable to holders of record as they appear in
the share records of the Corporation at the close of business on the applicable
record date (each, a "Distribution Record Date"), which shall be the date
designated by the Board for the payment of distributions that is not more than
30 nor less than 10 days prior to the applicable payment date therefor. Any

2
<PAGE> 3

distribution payable on the Series B Preferred Stock for any partial
distribution period shall be prorated and computed on the basis of a 360-day
year consisting of twelve 30-day months and for any period shorter than a full
quarterly period for which distributions are computed, the amount of
distribution payable will be computed based on the ratio of the actual number of
days elapsed in such a period to ninety (90) days. If any date on which
distributions are to be made on the Series B Preferred Stock is not a Business
Day (as defined herein), then payment of the distribution to be made on such
date will be made on the next succeeding day that is a Business Day (and without
any interest or other payment in respect of any such delay) except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date. Notwithstanding any provision to the contrary
contained herein, each outstanding share of Series B Preferred Stock shall be
entitled to receive, and shall receive, a distribution with respect to any
Distribution Record Date equal to the distribution paid with respect to each
other share of Series B Preferred Stock which is outstanding on such date which
shall be equal to the greatest distribution per share payable on any such share
on such date. In addition, notwithstanding anything to the contrary set forth
herein, each share of Series B Preferred Stock shall also continue to accrue all
accrued and unpaid distributions up to the exchange date on any Series B
Preferred Unit (as defined in the Second Amended and Restated Agreement of
Limited Partnership of Arden Realty, L.P., dated as of September 7, 1999, as
amended and supplemented from time to time (the "Partnership Agreement"))
validly exchanged into such share of Series B Preferred Stock in accordance with
the provisions of the Partnership Agreement.

The term "Business Day" shall mean each day, other than a Saturday or
Sunday, which is not a day on which banking institutions in New York, New York
or Los Angeles, California are authorized or required by law, regulation or
executive order to close.

(b) Limitation on Distributions. No distribution on the Series B
Preferred Stock shall be authorized by the Board or be paid or set apart for
payment by the Corporation at such time as the terms and provisions of any
agreement of the Corporation, including any agreement relating to its
indebtedness, prohibits such authorization, payment or setting apart for payment
or provides that such authorization, payment or setting apart for payment would
constitute a breach thereof, or a default thereunder, or if such authorization
or payment or setting apart for payment shall be restricted or prohibited by
law.

(c) Distributions Cumulative. Notwithstanding anything to the contrary
contained herein, distributions on the Series B Preferred Stock will accrue
whether or not authorized, whether or not the terms and provisions set forth in
Section 3(b) hereof at any time prohibit the current payment of distributions,
whether or not the Corporation has earnings, whether or not restrictions exist
in respect thereof, whether or not there are funds legally available for the
payment thereof and whether or not such distributions are declared or
authorized. Accrued but unpaid distributions on the Series B Preferred Stock
will accumulate as of the Distribution Payment Date on which they first become
payable or on the date of redemption, as the case may be.

3
<PAGE> 4

(d) Priority as to Distribution. (i) If any Series B Preferred Stock is
outstanding, no distributions, except as described in the immediately following
sentence, will be declared or paid or set apart for payment on any other equity
securities of the Corporation of any other class or series ranking, as to
distributions or upon voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, junior to or on a parity with the Series B
Preferred Stock unless full cumulative distributions have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof irrevocably set apart in trust for such payment on the Series B
Preferred Stock for all prior distribution periods.

(ii) When distributions are not paid in full (or a sum sufficient for
such full payment is not so set apart) upon the Series B Preferred Stock and any
other equity securities ranking as to distributions on a parity with the Series
B Preferred Stock, all distributions declared upon the Series B Preferred Stock
and any other equity securities of the Corporation ranking on a parity with the
Series B Preferred Stock as to distributions and upon voluntary or involuntary
liquidation, dissolution or winding up of the Corporation shall be declared pro
rata so that the amount of distributions declared per share of Series B
Preferred Stock and each such other equity security shall in all cases bear to
each other the same ratio that accumulated distributions per share of Series B
Preferred Stock and such other equity security (which shall not include any
accumulation in respect of unpaid distributions for prior distribution periods
if such other equity securities do not have a cumulative distribution) bear to
each other. No interest, or sum of money in lieu of interest, shall be payable
in respect of any distribution payment or payments on Series B Preferred Stock
which may be in arrears.

(e) Except as provided in the immediately preceding paragraph, unless
full cumulative distributions on the Series B Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is irrevocably set apart in trust for payment for all prior
distribution periods, no distributions (other than in Common Stock or other
equity securities of the Corporation ranking junior to the Series B Preferred
Stock as to distributions and upon voluntary or involuntary liquidation,
dissolution and winding up of the Corporation) shall be declared or paid or set
aside for payment nor shall any other distribution be declared or made upon the
Common Stock or any other equity securities of the Corporation ranking as to
distributions or upon voluntary or involuntary liquidation, dissolution or
winding up of the Corporation junior to or on a parity with the Series B
Preferred Stock, nor shall any Common Stock or any other equity securities of
the Corporation ranking junior to or on a parity with the Series B Preferred
Stock as to distributions or upon voluntary or involuntary liquidation,
dissolution or winding up of the Corporation be redeemed, purchased or otherwise
acquired for any consideration (or any monies be paid to or made available for a
sinking fund for the redemption of any such securities) by the Corporation
(except by conversion into or exchange for other equity securities of the
Corporation ranking junior to the Series B Preferred Stock as to distributions
and upon voluntary and involuntary liquidation, dissolution and winding up of
the Corporation, and except pursuant to Section 7 of these Articles
Supplementary to ensure the Corporation's continued status as a real estate
investment trust (a "REIT") for Federal income tax purposes or comparable
Charter provisions with respect to other classes or series of the Corporation's
stock).

4
<PAGE> 5

(f) No Further Rights. Accumulated but unpaid distributions on the
Series B Preferred Stock will not bear interest and holders of Series B
Preferred Stock shall not be entitled to any distribution in excess of full
cumulative distributions as described above. Any distribution payment made on
the Series B Preferred Stock shall first be credited against the earliest
accumulated but unpaid distribution due with respect to such shares which
remains payable.

(g) Capital Gains Distributions. If, for any taxable year, the
Corporation elects to designate as a "capital gain distribution" (as defined in
Section 857 of the Internal Revenue Code of 1986, as amended (the "Code")), any
portion (the "Capital Gains Amount") of the distributions paid or made available
for the year to holders of every class or series of stock of the Corporation,
the portion of the Capital Gains Amount that shall be allocable to holders of
the Series B Preferred Stock shall be the amount that the total distributions
(as determined for Federal income tax purposes) paid or made available to the
holders of the Series B Preferred Stock for the year bears to the aggregate
amount of distributions (as determined for Federal income tax purposes) paid or
made available to the holders of all classes or series of stock of the
Corporation for such year.

(4) LIQUIDATION PREFERENCE.

(a) Payment of Liquidating Distributions. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, the
holders of Series B Preferred Stock then outstanding shall be entitled to
receive out of the assets of the Corporation legally available for distribution
to its stockholders remaining after payment or provision for payment of all
debts and liabilities of the Corporation, (i) a liquidation preference in cash
of $25.00 per share, and (ii) an amount equal to any accumulated or accrued and
unpaid distributions to the date of such payment, before any distribution of
assets is made to holders of Common Stock or any other equity securities of the
Corporation that rank junior to the Series B Preferred Stock as to liquidation
rights. If, upon any such voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation are insufficient to
make full payment to holders of Series B Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of equity securities of
the Corporation ranking on a parity with the Series B Preferred Stock as to
liquidation rights, then the holders of the Series B Preferred Stock and all
other such classes or series of equity securities shall share ratably in any
such distribution of assets in proportion to the full liquidating distributions
to which they would otherwise be respectively entitled.

(b) Notice. Written notice of any such liquidation, dissolution or
winding up of the Corporation, stating the payment date or dates when, and the
place or places where, the amounts distributable in such circumstances shall be
payable, shall be given by first class mail, postage pre-paid, not less than 30
nor more than 60 days prior to the payment date stated therein, to each record
holder of the Series B Preferred Stock at the respective addresses of such
holders as the same shall appear on the stock transfer records of the
Corporation.

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<PAGE> 6

(c) No Further Rights. After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Series B
Preferred Stock will have no right or claim to any of the remaining assets of
the Corporation.

(d) Consolidation, Merger or Certain Other Transactions. The
consolidation or merger of the Corporation with or into any other entity, a
merger of another entity with or into the Corporation, a statutory share
exchange by the Corporation or a sale, lease, transfer or conveyance of all or
substantially all of the property or business of the Corporation shall not be
deemed to constitute a liquidation, dissolution or winding up of the
Corporation.

(e) Permissible Distributions. In determining whether a distribution
(other than upon voluntary or involuntary liquidation, dissolution or winding up
of the Corporation) by distribution, redemption or other acquisition of shares
of stock of the Corporation or otherwise is permitted under the MGCL, no effect
shall be given to amounts that would be needed, if the Corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of holders of the Series B Preferred Stock whose preferential
rights upon dissolution are superior to those receiving the distribution.

(5) OPTIONAL REDEMPTION.

(a) Right of Optional Redemption. The Series B Preferred Stock is not
redeemable prior to September 7, 2004. To ensure that the Corporation remains a
qualified REIT for Federal income tax purposes, however, the Series B Preferred
Stock shall be subject to the provisions of Section 7 of these Articles
Supplementary. On and after September 7, 2004, the Corporation, at its option,
upon giving notice as provided below, may redeem the Series B Preferred Stock,
in whole or from time to time in part, for cash, at a redemption price of $25.00
per share, plus all accumulated and unpaid distributions on such Series B
Preferred Stock to the date fixed for redemption. If fewer than all of the
outstanding Series B Preferred Stock are to be redeemed, the shares to be
redeemed shall be selected pro rata (as nearly as practicable without creating
fractional shares).

(b) Limitation of Redemption. The redemption price of the Series B
Preferred Stock (other than any portion thereof consisting of accumulated and
unpaid distributions) is payable solely from the sale proceeds of other equity
securities of the Corporation, and not from any other source. For purposes of
the preceding sentence, "equity securities" means any equity securities
(including Common Stock and Preferred Stock (as defined in the Charter)),
depositary shares in respect of any of the foregoing, interests, participations
or other ownership interests (however designated) and any rights (other than
debt securities convertible into or exchangeable for equity securities) or
options to purchase any of the foregoing.

(c) Notwithstanding anything to the contrary contained herein, unless
full cumulative distributions on all Series B Preferred Stock shall have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past distribution periods and the
then current distribution period, no Series B Preferred Stock shall be redeemed
unless all outstanding Series B Preferred Stock are simultaneously redeemed;
provided, however, that the foregoing shall not prevent the purchase by the
Corporation of Series

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<PAGE> 7

B Preferred Stock pursuant to Section 7 of these Articles Supplementary or
otherwise in order to ensure that the Corporation remains qualified as a REIT
for Federal or state income tax purposes or the purchase or acquisition of
Series B Preferred Stock pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding Series B Preferred Stock. In addition,
unless full cumulative distributions on all outstanding Series B Preferred Stock
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof irrevocably set apart in trust for payment
for all prior distribution periods, the Corporation shall not purchase or
otherwise acquire directly or indirectly any Series B Preferred Stock or any
equity securities of the Corporation ranking junior to or on a parity with the
Series B Preferred Stock as to distributions or upon voluntary or involuntary
liquidation, dissolution or winding up of the Corporation (except by conversion
into or exchange for equity securities of the Corporation ranking junior to the
Series B Preferred Stock as to distributions and upon voluntary or involuntary
liquidation, dissolution or winding up of the Corporation and except pursuant to
Section 7 of these Articles Supplementary or comparable Charter provisions with
respect to other classes or series of the Corporation's stock).

(d) The holders of shares of Series B Preferred Stock at the close of
business on a Distribution Record Date will be entitled to receive the
distribution payable with respect to the shares of Series B Preferred Stock held
on the corresponding Distribution Payment Date notwithstanding the redemption
thereof between such Distribution Record Date and the corresponding Distribution
Payment Date or the Corporation's default in the payment of the distribution
due. Except as provided herein, the Corporation will make no payment or
allowance for unpaid distributions, whether or not in arrears, on Series B
Preferred Stock to be redeemed.

(e) The following provisions set forth the procedures for Redemption:

(i) Notice of redemption will be given by publication in a
newspaper of general circulation in the City of New York, such publication to be
made once a week for two successive weeks commencing not less than 30 nor more
than 60 days prior to the redemption date. A similar notice will be mailed by
the Corporation, postage prepaid, not less than 30 nor more than 60 days prior
to the redemption date, addressed to the respective holders of record of the
Series B Preferred Stock to be redeemed at their respective addresses as they
appear on the share records of the Corporation. No failure to give such notice
or any defect therein or in the mailing thereof shall affect the validity of the
proceedings for the redemption of any Series B Preferred Stock except as to the
holder to whom notice was defective or not given.

(ii) In addition to any information required by law or by the
applicable rules of any exchange upon which the Series B Preferred Stock may be
listed or admitted to trading, such notice shall state: (A) the redemption date;
(B) the redemption price; (C) the number of shares of Series B Preferred Stock
to be redeemed; (D) the place or places where the certificates evidencing shares
of Series B Preferred Stock are to be surrendered for payment of the redemption
price; and (E) that distributions on the shares of Series B Preferred Stock to
be redeemed will cease to accumulate on such redemption date. If fewer than all
of the shares of Series B Preferred Stock held by any holder are to be redeemed,
the notice mailed to such holder

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<PAGE> 8

shall also specify the number of shares of Series B Preferred Stock to be
redeemed from such holder.

(iii) On or after the redemption date, each holder of Series B
Preferred Stock to be redeemed shall present and surrender the certificates
representing such holder's Series B Preferred Stock to the Corporation at the
place designated in the notice of redemption and shall be entitled to the
redemption price and any accrued or accumulated and unpaid distributions payable
upon such redemption upon such surrender and thereupon the redemption price of
such shares (including all accumulated and unpaid distributions up to the
redemption date) shall be paid to or on the order of the person whose name
appears on such certificate representing Series B Preferred Stock as the owner
thereof and each surrendered certificate shall be canceled. If fewer than all
the shares represented by any such certificate representing Series B Preferred
Stock are to be redeemed, a new certificate shall be issued representing the
unredeemed shares.

(iv) If notice of redemption of any Series B Preferred Stock has
been given and if the funds necessary for such redemption have been irrevocably
set aside by the Corporation in trust for the benefit of the holders thereof,
then from and after the redemption date all distributions on such Series B
Preferred Stock shall cease to accumulate and any such Series B Preferred Stock
will no longer be deemed outstanding and all rights of the holders thereof will
terminate, except the right to receive the redemption price (including all
accrued or accumulated and unpaid distributions up to the redemption date) and
such shares shall not thereafter be transferred (except with the consent of the
Corporation) on the Corporation's stock transfer records. At its election, the
Corporation, prior to a redemption date, may irrevocably deposit the redemption
price (including accumulated and unpaid distributions to the redemption date) of
the Series B Preferred Stock so called for redemption in trust for the holders
thereof with a bank or trust company, in which case the redemption notice to
holders of the Series B Preferred Stock to be redeemed shall (A) state the date
of such deposit, (B) specify the office of such bank or trust company as the
place of payment of the redemption price and (C) require such holders to
surrender the certificates representing such shares at such place on or about
the date fixed in such redemption notice (which may not be later than the
redemption date) against payment of the redemption price (including all accrued
or accumulated and unpaid distributions to the redemption date). Any monies so
deposited which remain unclaimed by the holders of the Series B Preferred Stock
at the end of two years after the redemption date shall be returned by such bank
or trust company to the Corporation.

(f) Any Series B Preferred Stock that shall at any time have been
redeemed shall, after such redemption, have the status of authorized but
unissued Preferred Stock, without further designation as to series or class
until such shares are once more designated as part of a particular series or
class by the Board.

(6) VOTING RIGHTS.

(a) Holders of the Series B Preferred Stock will not have any voting
rights, except as set forth below.

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<PAGE> 9

(b) (i) Whenever distributions on any Series B Preferred Stock shall
remain unpaid for six or more quarterly periods (whether or not consecutive) (a
"Preferred Distribution Default"), the holders of such Series B Preferred Stock
(voting as a single class with all other equity securities of the Corporation
ranking on a parity with the Series B Preferred Stock as to distributions and
upon voluntary or involuntary liquidation, dissolution or winding up of the
Corporation upon which like voting rights have been conferred and are
exercisable ("Parity Preferred Stock")) will be entitled to vote for the
election of two additional directors of the Corporation (the "Preferred Stock
Directors"), who will be elected by a plurality of the votes cast in such
election for a one-year term and until their successors are duly elected and
shall qualify (or until such director's right to hold such office terminates as
provided herein, whichever occurs earlier, subject to such director's earlier
death, disqualification, resignation or removal), at a special meeting called by
the holders of at least 20% of the outstanding Series B Preferred Stock or the
holders of shares of any other class or series of Parity Preferred Stock with
respect to which distributions are so unpaid (unless such request is received
less than 90 days before the date fixed for the next annual or special meeting
of stockholders) or, if the request for a special meeting is received by the
Corporation less than 90 days before the date fixed for the next annual or
special meeting of stockholders, at the next annual or special meeting of
stockholders, and at each subsequent annual meeting until all distributions
accumulated on the Series B Preferred Stock for all past distribution periods
and the distribution for the then current distribution period shall have been
fully paid or declared and a sum sufficient for the payment thereof irrevocably
set aside in trust for payment in full.

(ii) At any time when the voting rights described in Section 6(b)(i)
above shall have vested, a proper officer of the Corporation shall call or cause
to be called, a special meeting of the holders of Series B Preferred Stock and
all the series of Parity Preferred Stock upon which like voting rights have been
conferred and are exercisable (collectively, the "Parity Securities") by mailing
or causing to be mailed to such holders a notice of such special meeting to be
held not less than ten and not more than 45 days after the date such notice is
given. The record date for determining holders of the Parity Securities entitled
to notice of and to vote at such special meeting will be the close of business
on the third business day preceding the day on which such notice is mailed. At
any such special meeting, all of the holders of the Parity Securities, by
plurality vote, voting together as a single class without regard to series will
be entitled to elect two directors on the basis of one vote per $25.00 of
liquidation preference to which such Parity Securities are entitled by their
terms (excluding amounts in respect of accumulated and unpaid distributions) and
not cumulatively. The holder or holders of one-third of the Parity Securities
the outstanding, present in person or by proxy, will constitute a quorum for the
election of the Preferred Stock Directors except as otherwise provided by law.
Notice of all meetings at which holders of the Series B Preferred Stock shall be
entitled to vote will be given to such holders at their addresses as they appear
in the transfer records. At any such meeting or adjournment thereof in the
absence of a quorum, subject to the provisions of any applicable law, a majority
of the holders of the Parity Securities present in person or by proxy shall have
the power to adjourn the meeting for the election of the Preferred Stock
Directors, without notice other than an announcement at the meeting, until a
quorum is present. If a Preferred Distribution Default shall terminate after the
notice of a special meeting has been given but before such special meeting has
been held, the Corporation shall, as soon as practicable after such termination,
mail or cause to

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<PAGE> 10

be mailed notice of such termination to holders of the Series B Preferred Stock
that would have been entitled to vote at such special meeting.

(c) If and when all accumulated distributions and the distribution for
the then current distribution period on the Series B Preferred Stock shall have
been paid in full or declared by the Corporation and irrevocably set aside in
trust for payment in full, the holders of Series B Preferred Stock shall be
divested of the voting rights set forth in Section 6(b) of these Articles
Supplementary (subject to revesting in the event of each and every Preferred
Distribution Default) and, if all accumulated distributions have been paid in
full or declared by the Corporation and irrevocably set aside in trust for
payment in full on all other classes or series of Parity Preferred Stock upon
which like voting rights have been conferred and are exercisable, the term of
office of each Preferred Stock Director so elected shall forthwith terminate.
Any Preferred Stock Director elected by the holders of Series B Preferred Stock
and any other such Parity Preferred Stock may be removed at any time with or
without cause by the vote of, and shall not be removed otherwise than by the
vote of, the holders of a majority of the outstanding Series B Preferred Stock
when they only have the voting rights set forth in Section 6(b) of these
Articles Supplementary, and by the majority vote of the Series B Preferred Stock
and all other classes or series of Parity Preferred Stock upon which like voting
rights have been conferred and are exercisable (voting as a single class) when
the Series B Preferred Stock and such Parity Preferred Stock is entitled to vote
thereon. So long as a Preferred Distribution Default shall continue, any vacancy
in the office of a Preferred Stock Director so elected may be filled by written
consent of the Preferred Stock Director so elected remaining in office or, if
none remains in office, by a vote of the holders of a majority of the
outstanding Series B Preferred Stock when they only have the voting rights set
forth in Section 6(b) of these Articles Supplementary, and by the majority vote
of the outstanding Series B Preferred Stock and other classes or series of
Parity Preferred Stock upon which like voting rights have been conferred and are
exercisable (voting as a single class) when the Series B Preferred Stock and
such Parity Preferred Stock is entitled to vote thereon.

(d) So long as any Series B Preferred Stock remains outstanding, the
Corporation shall not, without the affirmative vote of the holders of at least
two-thirds of the Series B Preferred Stock outstanding at the time (i) authorize
or create, or increase the authorized or issued amount of, any class or series
of shares ranking senior to the Series B Preferred Stock with respect to payment
of distributions or rights upon liquidation, dissolution or winding-up or
reclassify any authorized shares of the Corporation into any such shares, or
create, authorize or issue any obligations or security convertible into or
evidencing the right to purchase any such shares, (ii) designate or create, or
increase the authorized or issued amount of, any Parity Preferred Stock or
reclassify any authorized shares of the Corporation into any such shares, or
create, authorize or issue any obligations or security convertible into or
evidencing the right to purchase any such shares, but only to the extent such
Parity Preferred Stock is issued to an affiliate of the Corporation, or (iii)
either (A) consolidate, merge into or with, or convey, transfer or lease its
assets substantially as an entirety, to any corporation or other entity, or (B)
amend, alter or repeal the provisions of the Corporation's Charter (including
these Articles Supplementary) or Bylaws, whether by merger, consolidation or
otherwise, in each case that would materially and adversely affect the powers,
special rights, preferences, privileges or voting

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<PAGE> 11

power of the Series B Preferred Stock or the holders thereof; provided, however,
that with respect to the occurrence of any event set forth in (iii) above, so
long as (a) the Corporation is the surviving entity and the Series B Preferred
Stock remains outstanding with the terms thereof unchanged, or (b) the
resulting, surviving or transferee entity is a corporation, a business trust or
like entity organized under the laws of any state and substitutes for the Series
B Preferred Stock other preferred stock or preferred shares having substantially
the same terms and same rights as the Series B Preferred Stock, including with
respect to distributions, voting rights and rights upon liquidation, dissolution
or winding-up, then the occurrence of any such event shall not be deemed to
materially and adversely affect such rights, privileges or voting powers of the
holders of the Series B Preferred Stock and provided further that any increase
in the amount of authorized Preferred Stock or the creation or issuance of any
other class or series of Preferred Stock, or any increase in an amount of
authorized shares of each class or series, in each case ranking either (a)
junior to the Series B Preferred Stock with respect to payment of distributions
and the distribution of assets upon liquidation, dissolution or winding-up, or
(b) on a parity with the Series B Preferred Stock with respect to payment of
distributions and the distribution of assets upon liquidation, dissolution or
winding-up to the extent such Preferred Stock is not issued to an affiliate of
the Corporation, shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers.

(e) The foregoing voting provisions shall not apply if, at or prior to
the time when the act with respect to which such vote would otherwise be
required shall be effected, all outstanding Series B Preferred Stock shall have
been redeemed or called for redemption upon proper notice and sufficient funds
shall have been irrevocably deposited in trust to effect such redemption.

(7) RESTRICTIONS ON OWNERSHIP AND TRANSFER TO PRESERVE TAX BENEFIT.

(a) Definitions. For the purposes of Section 7 of Article Third of these
Articles Supplementary, the following terms shall have the following meanings:

"Beneficial Ownership" shall mean ownership of Series B
Preferred Stock by a Person who is or would be treated as an
owner of such Series B Preferred Stock either actually or
constructively through the application of Section 544 of the
Code, as modified by Section 856(h)(1)(B) of the Code. The terms
"Beneficial Owner," "Beneficially Owns" and "Beneficially Owned"
shall have the correlative meanings.

"Charitable Beneficiary" shall mean one or more
beneficiaries of a Trust, as determined pursuant to Section
7(c)(vi) of these Articles Supplementary, each of which shall be
an organization described in Sections 170(b)(1)(A), 170(c)(2) and
501(c)(3) of the Code.

"Code" shall mean the Internal Revenue Code of 1986, as
amended. All section references to the Code shall include any
successor provisions thereof as may be adopted from time to time.

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<PAGE> 12

"Constructive Ownership" shall mean ownership of Series B
Preferred Stock by a Person who is or would be treated as an
owner of such Series B Preferred Stock either actually or
constructively through the application of Section 318 of the
Code, as modified by Section 856(d)(5) of the Code. The terms
"Constructive Owner," "Constructively Owns" and "Constructively
Owned" shall have the correlative meanings.

"IRS" means the United States Internal Revenue Service.

"Market Price" shall mean the last reported sales price
reported on the New York Stock Exchange of the Series B Preferred
Stock on the trading day immediately preceding the relevant date,
or if the Series B Preferred Stock is not then traded on the New
York Stock Exchange, the last reported sales price of the Series
B Preferred Stock on the trading day immediately preceding the
relevant date as reported on any exchange or quotation system
over which the Series B Preferred Stock may be traded, or if the
Series B Preferred Stock is not then traded over any exchange or
quotation system, then the market price of the Series B Preferred
Stock on the relevant date as determined in good faith by the
Board of Directors of the Corporation.

"MGCL" shall mean the Maryland General Corporation Law, as
amended from time to time, and any successor statute hereafter
enacted.

"Operating Partnership" shall mean Arden Realty, L.P., a
Maryland limited partnership.

"Ownership Limit" shall mean 9.8% (by value) of the
outstanding shares of capital stock of the Corporation.

"Partnership Agreement" shall mean the Second Amended and
Restated Agreement of Limited Partnership of Arden Realty, L.P.,
dated as of September 7, 1999, as such agreement may be amended
from time to time.

"Person" shall mean an individual, corporation,
partnership, limited liability company, estate, trust (including
a trust qualified under Section 401(a) or 501(c)(17) of the
Code), a portion of a trust permanently set aside for or to be
used exclusively for the purposes described in Section 642(c) of
the Code, association, private foundation within the meaning of
Section 509(a) of the Code, joint stock company or other entity;
but does not include an underwriter acting in a capacity as such
in a public offering of shares of Series B Preferred Stock
provided that the ownership of such shares of Series B Preferred
Stock by such underwriter would not result in the Corporation
being "closely held" within the meaning of Section 856(h) of the
Code, or otherwise result in the Corporation failing to qualify
as a REIT.

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"Purported Beneficial Transferee" shall mean, with respect
to any purported Transfer (or other event) which results in a
transfer to a Trust, as provided in Section 7(b)(ii) of these
Articles Supplementary, the Purported Record Transferee, unless
the Purported Record Transferee would have acquired or owned
shares of Series B Preferred Stock for another Person who is the
beneficial transferee or owner of such shares, in which case the
Purported Beneficial Transferee shall be such Person.

"Purported Record Transferee" shall mean, with respect to
any purported Transfer (or other event) which results in a
transfer to a Trust, as provided in Section 7(b)(ii) of these
Articles Supplementary, the record holder of the Series B
Preferred Stock if such Transfer had been valid under Section
7(b)(i) of these Articles Supplementary.

"REIT" shall mean a real estate investment trust under
Sections 856 through 860 of the Code and, for purposes of
taxation of the Corporation under applicable state law,
comparable provisions of the law of such state.

"Restriction Termination Date" shall mean the first day
after the date hereof on which the Board of Directors of the
Corporation determines that it is no longer in the best interests
of the Corporation to attempt to, or continue to, qualify as a
REIT.

"Transfer" shall mean any sale, transfer, gift,
assignment, devise or other disposition of Series B Preferred
Stock, including (i) the granting of any option or entering into
any agreement for the sale, transfer or other disposition of
Series B Preferred Stock or (ii) the sale, transfer, assignment
or other disposition of any securities (or rights convertible
into or exchangeable for Series B Preferred Stock), whether
voluntary or involuntary, whether such transfer has occurred of
record or beneficially or Beneficially or Constructively
(including but not limited to transfers of interests in other
entities which result in changes in Beneficial or Constructive
Ownership of Series B Preferred Stock), and whether such transfer
has occurred by operation of law or otherwise.

"Trust" shall mean each of the trusts provided for in
Section 7(c) of these Articles Supplementary.

"Trustee" shall mean any Person unaffiliated with the
Corporation, or a Purported Beneficial Transferee, or a Purported
Record Transferee, that is appointed by the Corporation to serve
as trustee of a Trust.

(b) Restriction on Ownership and Transfers.

(i) Prior to the Restriction Termination Date:

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<PAGE> 14

(A) except as provided in Section 7(i) of these Articles
Supplementary, no Person shall Beneficially Own Series B Preferred Stock which,
taking into account any other capital stock of the Corporation Beneficially
Owned by such Person, would cause such ownership to exceed the Ownership Limit;

(B) except as provided in Section 7(i) of these Articles
Supplementary, no Person shall Constructively Own Series B Preferred Stock
which, taking into account any other capital stock of the Corporation
Constructively Owned by such Person, would cause such ownership to exceed the
Ownership Limit;

(C) no Person shall Beneficially or Constructively Own
Series B Preferred Stock which, taking into account any other capital stock of
the Corporation Beneficially or Constructively Owned by such Person, would
result in the Corporation being "closely held" within the meaning of Section
856(h) of the Code, or otherwise failing to qualify as a REIT (including but not
limited to Beneficial or Constructive Ownership that would result in the
Corporation owning (actually or Constructively) an interest in a tenant that is
described in Section 856(d)(2)(B) of the Code if the income derived by the
Corporation (either directly or indirectly through one or more partnerships or
limited liability companies) from such tenant would cause the Corporation to
fail to satisfy any of the gross income requirements of Section 856(c) of the
Code or comparable provisions of state law).

(ii) If, prior to the Restriction Termination Date, any Transfer
or other event occurs that, if effective, would result in any Person
Beneficially or Constructively Owning Series B Preferred Stock in violation of
Section 7(b)(i) of these Articles Supplementary, (1) then that number of shares
of Series B Preferred Stock that otherwise would cause such Person to violate
Section 7(b)(i) of these Articles Supplementary (rounded up to the nearest whole
share) shall be automatically transferred to a Trust for the benefit of a
Charitable Beneficiary, as described in Section 7(c), effective as of the close
of business on the business day prior to the date of such Transfer or other
event, and such Purported Beneficial Transferee shall thereafter have no rights
in such shares or (2) if, for any reason, the transfer to the Trust described in
clause (1) of this sentence is not automatically effective as provided therein
to prevent any Person from Beneficially or Constructively Owning Series B
Preferred Stock in violation of Section 7(b)(i) of these Articles Supplementary,
then the Transfer of that number of shares of Series B Preferred Stock that
otherwise would cause any Person to violate Section 7(b)(i) shall be void ab
initio, and the Purported Beneficial Transferee shall have no rights in such
shares.

(iii) Subject to Section 7(n) of these Articles Supplementary and
notwithstanding any other provisions contained herein, prior to the Restriction
Termination Date, any Transfer of Series B Preferred Stock that, if effective,
would result in the capital stock of the Corporation being beneficially owned by
less than 100 Persons (determined without reference to any rules of attribution)
shall be void ab initio, and the intended transferee shall acquire no rights in
such Series B Preferred Stock.

It is expressly intended that the restrictions on ownership and
Transfer described in this Section 7(b) shall apply to the exchange rights
provided in Section 16 of the Partnership Agreement. Notwithstanding any of the
provisions of the Partnership Agreement to the contrary,

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<PAGE> 15

a partner of the Operating Partnership shall not be entitled to effect an
exchange of an interest in the Operating Partnership for Series B Preferred
Stock if the actual or beneficial or Beneficial or Constructive Ownership of
Series B Preferred Stock would be prohibited under the provisions of this
Section 7.

(i) Upon any purported Transfer or other event described in
Section 7(b)(ii) of these Articles Supplementary, such Series B Preferred Stock
shall be deemed to have been transferred to the Trustee in his capacity as
trustee of a Trust for the exclusive benefit of one or more Charitable
Beneficiaries. Such transfer to the Trustee shall be deemed to be effective as
of the close of business on the business day prior to the purported Transfer or
other event that results in a transfer to the Trust pursuant to Section
7(b)(ii). The Trustee shall be appointed by the Corporation and shall be a
Person unaffiliated with the Corporation, any Purported Beneficial Transferee,
or any Purported Record Transferee. Each Charitable Beneficiary shall be
designated by the Corporation as provided in Section 7(c)(vi) of these Articles
Supplementary.

(ii) Series B Preferred Stock held by the Trustee shall be issued
and outstanding Series B Preferred Stock of the Corporation. The Purported
Beneficial Transferee or Purported Record Transferee shall have no rights in the
shares of Series B Preferred Stock held by the Trustee. The Purported Beneficial
Transferee or Purported Record Transferee shall not benefit economically from
ownership of any shares held in trust by the Trustee, shall have no rights to
distributions and shall not possess any rights to vote or other rights
attributable to the shares of Series B Preferred Stock held in the Trust.

(iii) The Trustee shall have all voting rights and rights to
distributions with respect to Series B Preferred Stock held in the Trust, which
rights shall be exercised for the exclusive benefit of the Charitable
Beneficiary. Any distribution paid prior to the discovery by the Corporation
that shares of Series B Preferred Stock have been transferred to the Trustee
shall be paid to the Trustee upon demand, and any distribution declared but
unpaid shall be paid when due to the Trustee with respect to such Series B
Preferred Stock. Any distributions so paid over to the Trustee shall be held in
trust for the Charitable Beneficiary.

The Purported Record Transferee and Purported Beneficial
Transferee shall have no voting rights with respect to the Series B Preferred
Stock held in the Trust and, subject to Maryland law, effective as of the date
the Series B Preferred Stock has been transferred to the Trustee, the Trustee
shall have the authority (at the Trustee's sole discretion) (i) to rescind as
void any vote cast by a Purported Record Transferee with respect to such Series
B Preferred Stock prior to the discovery by the Corporation that the Series B
Preferred Stock has been transferred to the Trustee and (ii) to recast such vote
in accordance with the desires of the Trustee acting for the benefit of the
Charitable Beneficiary; provided, however, that if the Corporation has already
taken irreversible corporate action, then the Trustee shall not have the
authority to rescind and recast such vote. Notwithstanding any other provision
of these Articles Supplementary to the contrary, until the Corporation has
received notification that the Series B Preferred Stock has been transferred
into a Trust, the Corporation shall be entitled to rely on its share transfer
and other stockholder records for purposes of preparing lists of stockholders

15
<PAGE> 16

entitled to vote at meetings, determining the validity and authority of proxies
and otherwise conducting votes of stockholders.

(iv) Within 20 days of receiving notice from the Corporation that
shares of Series B Preferred Stock have been transferred to the Trust, the
Trustee of the Trust shall sell the shares of Series B Preferred Stock held in
the Trust to a Person, designated by the Trustee, whose ownership of the shares
of Series B Preferred Stock will not violate the ownership limitations set forth
in Section 7(b)(i). Upon such sale, the interest of the Charitable Beneficiary
in the shares of Series B Preferred Stock sold shall terminate and the Trustee
shall distribute the net proceeds of the sale to the Purported Record Transferee
and to the Charitable Beneficiary as provided in this Section 7(c)(iv). The
Purported Record Transferee shall receive the lesser of (1) the price paid by
the Purported Record Transferee for the shares of Series B Preferred Stock in
the transaction that resulted in such transfer to the Trust (or, if the event
which resulted in the transfer to the Trust did not involve a purchase of such
shares of Series B Preferred Stock at Market Price, the Market Price of such
shares of Series B Preferred Stock on the day of the event which resulted in the
transfer of such shares of Series B Preferred Stock to the Trust) and (2) the
price per share received by the Trustee (net of any commissions and other
expenses of sale) from the sale or other disposition of the shares of Series B
Preferred Stock held in the Trust. Any net sales proceeds in excess of the
amount payable to the Purported Record Transferee shall be immediately paid to
the Charitable Beneficiary together with any distributions or other
distributions thereon. If, prior to the discovery by the Corporation that shares
of such Series B Preferred Stock have been transferred to the Trustee, such
shares of Series B Preferred Stock are sold by a Purported Record Transferee
then (i) such shares of Series B Preferred Stock shall be deemed to have been
sold on behalf of the Trust and (ii) to the extent that the Purported Record
Transferee received an amount for such shares of Series B Preferred Stock that
exceeds the amount that such Purported Record Transferee was entitled to receive
pursuant to this Section 7(c)(iv), such excess shall be paid to the Trustee upon
demand.

(v) Series B Preferred Stock transferred to the Trustee shall be
deemed to have been offered for sale to the Corporation, or its designee, at a
price per share equal to the lesser of (i) the price paid by the Purported
Record Transferee for the shares of Series B Preferred Stock in the transaction
that resulted in such transfer to the Trust (or, if the event which resulted in
the transfer to the Trust did not involve a purchase of such shares of Series B
Preferred Stock at Market Price, the Market Price of such shares of Series B
Preferred Stock on the day of the event which resulted in the transfer of such
shares of Series B Preferred Stock to the Trust) and (ii) the Market Price on
the date the Corporation, or its designee, accepts such offer. The Corporation
shall have the right to accept such offer until the Trustee has sold the shares
of Series B Preferred Stock held in the Trust pursuant to Section 7(c)(iv). Upon
such a sale to the Corporation, the interest of the Charitable Beneficiary in
the shares of Series B Preferred Stock sold shall terminate and the Trustee
shall distribute the net proceeds of the sale to the Purported Record Transferee
and any distributions or other distributions held by the Trustee with respect to
such Series B Preferred Stock shall thereupon be paid to the Charitable
Beneficiary.

(vi) By written notice to the Trustee, the Corporation shall
designate one or more nonprofit organizations to be the Charitable Beneficiary
of the interest in the Trust such

16
<PAGE> 17

that the Series B Preferred Stock held in the Trust would not violate the
restrictions set forth in Section 7(b)(i) in the hands of such Charitable
Beneficiary.

(d) Remedies For Breach. If the Board of Directors or a committee
thereof or other designees if permitted by the MGCL shall at any time determine
in good faith that a Transfer or other event has taken place in violation of
Section 7(b) of these Articles Supplementary or that a Person intends to
acquire, has attempted to acquire or may acquire beneficial ownership
(determined without reference to any rules of attribution), Beneficial Ownership
or Constructive Ownership of any shares of Series B Preferred Stock of the
Corporation in violation of Section 7(b) of these Articles Supplementary, the
Board of Directors or a committee thereof or other designees if permitted by the
MGCL shall take such action as it deems advisable to refuse to give effect or to
prevent such Transfer, including, but not limited to, causing the Corporation to
redeem shares of Series B Preferred Stock, refusing to give effect to such
Transfer on the books of the Corporation or instituting proceedings to enjoin
such Transfer; provided, however, that any Transfers (or, in the case of events
other than a Transfer, ownership or Constructive Ownership or Beneficial
Ownership) in violation of Section 7(b)(i) of these Articles Supplementary,
shall automatically result in the transfer to a Trust as described in Section
7(b)(ii) and any Transfer in violation of Section 7(b)(iii) shall automatically
be void ab initio irrespective of any action (or non-action) by the Board of
Directors.

(e) Notice of Restricted Transfer. Any Person who acquires or attempts
to acquire shares of Series B Preferred Stock in violation of Section 7(b) of
these Articles Supplementary, or any Person who is a Purported Beneficial
Transferee such that an automatic transfer to a Trust results under Section
7(b)(ii) of these Articles Supplementary, shall immediately give written notice
to the Corporation of such event and shall provide to the Corporation such other
information as the Corporation may request in order to determine the effect, if
any, of such Transfer or attempted Transfer on the Corporation's status as a
REIT.

(f) Owners Required To Provide Information. Prior to the Restriction
Termination Date each Person who is a beneficial owner or Beneficial Owner or
Constructive Owner of Series B Preferred Stock and each Person (including the
shareholder of record) who is holding Series B Preferred Stock for a beneficial
owner or Beneficial Owner or Constructive Owner shall provide to the Corporation
such information that the Corporation may request, in good faith, in order to
determine the Corporation's status as a REIT.

(g) Remedies Not Limited. Nothing contained in these Articles
Supplementary (but subject to Section 7(n) of these Articles Supplementary)
shall limit the authority of the Board of Directors to take such other action as
it deems necessary or advisable to protect the Corporation and the interests of
its shareholders by preservation of the Corporation's status as a REIT.

(h) Ambiguity. In the case of an ambiguity in the application of any of
the provisions of this Section 7 of these Articles Supplementary, including any
definition contained in Section 7(a), the Board of Directors shall have the
power to determine the application of the provisions of this Section 7 with
respect to any situation based on the facts known to it (subject, however, to
the provisions of Section 7(n) of these Articles Supplementary). In the event
Section 7 requires an action by the Board of Directors and these Articles
Supplementary fail to provide specific

17
<PAGE> 18

guidance with respect to such action, the Board of Directors shall have the
power to determine the action to be taken so long as such action is not contrary
to the provisions of Section 7. Absent a decision to the contrary by the Board
of Directors (which the Board may make in its sole and absolute discretion), if
a Person would have (but for the remedies set forth in Section 7(b)) acquired
Beneficial or Constructive Ownership of Series B Preferred Stock in violation of
Section 7(b)(i), such remedies (as applicable) shall apply first to the shares
of Series B Preferred Stock which, but for such remedies, would have been
actually owned by such Person, and second to shares of Series B Preferred Stock
which, but for such remedies, would have been Beneficially Owned or
Constructively Owned (but not actually owned) by such Person, pro rata among the
Persons who actually own such shares of Series B Preferred Stock based upon the
relative number of the shares of Series B Preferred Stock held by each such
Person.

(i) Exceptions.

(i) Subject to Section 7(b)(i)(C), the Board of Directors, in its
sole discretion, may exempt a Person from the limitation on a Person
Beneficially Owning shares of Series B Preferred Stock in violation of Section
7(b)(i)(A) if the Board of Directors obtains any representations and
undertakings from such Person as are reasonably necessary in the opinion of the
Board of Directors to ascertain that no individual's Beneficial Ownership of
such shares of Series B Preferred Stock will violate Section 7(b)(i)(A) or that
any such violation will not cause the Corporation to fail to qualify as a REIT
under the Code, and that any violation of any representations or undertakings
(or other action which is contrary to the restrictions contained in Section 7(b)
of these Articles Supplementary) or attempted violation will result in such
Series B Preferred Stock being transferred to a Trust in accordance with Section
7(b)(ii) of these Articles Supplementary.

(ii) Subject to Section 7(b)(i)(C), the Board of Directors, in
its sole discretion, may exempt a Person from the limitation on a Person
Constructively Owning Series B Preferred Stock in violation of Section
7(b)(i)(B), if the Corporation obtains such representations and undertakings
from such Person as are reasonably necessary in the opinion of the Board of
Directors to ascertain that such Person does not and will not own, actually or
Constructively, an interest in a tenant of the Corporation (or a tenant of any
entity owned in whole or in part by the Corporation) that would cause the
Corporation to own, actually or Constructively, more than a 9.8% interest (as
set forth in Section 856(d)(2)(B) of the Code) in such tenant and that any
violation or attempted violation will result in such Series B Preferred Stock
being transferred to a Trust in accordance with Section 7(b)(ii) of these
Articles Supplementary. Notwithstanding the foregoing, the inability of a Person
to make the certification described in this Section 7(i)(ii) shall not prevent
the Board of Directors, in its sole discretion, from exempting such Person from
the limitation on a Person Constructively Owning Series B Preferred Stock in
violation of Section 7(b)(i)(B) if the Board of Directors determines that the
resulting application of Section 856(d)(2)(B) of the Code would affect the
characterization of less than 0.5% of the gross income (as such term is used in
Section 856(c)(2) of the Code) of the Corporation in any taxable year, after
taking into account the effect of this sentence with respect to all other
capital stock of the Corporation to which this sentence applies.

18
<PAGE> 19

(iii) Prior to granting any exception pursuant to Section 7(i)(i)
or (ii) of these Articles Supplementary, the Board of Directors may require a
ruling from the Internal Revenue Service, or an opinion of counsel, in either
case in form and substance satisfactory to the Board of Directors in its sole
discretion, as it may deem necessary or advisable in order to determine or
ensure the Corporation's status as a REIT.

(j) Legends. Each certificate for Series B Preferred Stock shall bear
substantially the following legends in addition to any legends required to
comply with federal and state securities laws:

CLASSES OF STOCK

"THE CORPORATION IS AUTHORIZED TO ISSUE CAPITAL STOCK OF MORE THAN ONE
CLASS, CONSISTING OF COMMON STOCK AND ONE OR MORE CLASSES OF PREFERRED
STOCK. THE BOARD OF DIRECTORS IS AUTHORIZED TO DETERMINE THE
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF ANY CLASS OF PREFERRED
STOCK BEFORE THE ISSUANCE OF SHARES OF SUCH CLASS OF PREFERRED STOCK.
THE CORPORATION WILL FURNISH, WITHOUT CHARGE, TO ANY STOCKHOLDER MAKING
A WRITTEN REQUEST THEREFOR, A COPY OF THE CORPORATION'S CHARTER AND A
WRITTEN STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES,
CONVERSION OR OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS
TO DISTRIBUTIONS AND OTHER DISTRIBUTIONS, QUALIFICATIONS AND TERMS AND
CONDITIONS OF REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE
CORPORATION HAS THE AUTHORITY TO ISSUE AND, IF THE CORPORATION IS
AUTHORIZED TO ISSUE ANY PREFERRED OR SPECIAL CLASS IN SERIES, (i) THE
DIFFERENCES IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF
EACH SERIES TO THE EXTENT SET, AND (ii) THE AUTHORITY OF THE BOARD OF
DIRECTORS TO SET SUCH RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES.
REQUESTS FOR SUCH WRITTEN STATEMENT MAY BE DIRECTED TO THE SECRETARY OF
THE CORPORATION AT ITS PRINCIPAL OFFICE."

RESTRICTION ON OWNERSHIP AND TRANSFER

"THE SHARES OF SERIES B PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND
TRANSFER FOR THE PURPOSE, AMONG OTHERS, OF THE CORPORATION'S MAINTENANCE
OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT TO CERTAIN
FURTHER RESTRICTIONS AND EXCEPT AS

19
<PAGE> 20

EXPRESSLY PROVIDED IN THE ARTICLES SUPPLEMENTARY FOR THE SERIES B
PREFERRED STOCK, (i) NO PERSON MAY BENEFICIALLY OWN SHARES OF THE
CORPORATION'S SERIES B PREFERRED STOCK WHICH, TAKING INTO ACCOUNT ANY
OTHER CAPITAL STOCK OF THE CORPORATION BENEFICIALLY OWNED BY SUCH
PERSON, WOULD CAUSE SUCH OWNERSHIP TO EXCEED THE OWNERSHIP LIMIT OF
9.8%; (ii) NO PERSON MAY CONSTRUCTIVELY OWN SHARES OF THE CORPORATION'S
SERIES B PREFERRED STOCK WHICH, TAKING INTO ACCOUNT ANY OTHER CAPITAL
STOCK OF THE CORPORATION CONSTRUCTIVELY OWNED BY SUCH PERSON, WOULD
CAUSE SUCH OWNERSHIP TO EXCEED THE OWNERSHIP LIMIT OF 9.8%; (iii) NO
PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF THE
CORPORATION'S SERIES B PREFERRED STOCK THAT, TAKING INTO ACCOUNT ANY
OTHER CAPITAL STOCK OF THE CORPORATION BENEFICIALLY OR CONSTRUCTIVELY
OWNED BY SUCH PERSON, WOULD RESULT IN THE CORPORATION BEING "CLOSELY
HELD" UNDER SECTION 856(h) OF THE CODE OR OTHERWISE CAUSE THE
CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (iv) NO PERSON MAY
TRANSFER SHARES OF SERIES B PREFERRED STOCK IF SUCH TRANSFER WOULD
RESULT IN THE CAPITAL STOCK OF THE CORPORATION BEING OWNED BY FEWER THAN
100 PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR
ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES B PREFERRED STOCK
WHICH CAUSES OR WILL CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY
OWN SERIES B PREFERRED STOCK IN EXCESS OF THE ABOVE LIMITATIONS MUST
IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE RESTRICTIONS ON
TRANSFER OR OWNERSHIP ARE VIOLATED, THE SERIES B PREFERRED STOCK
REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO THE TRUSTEE OF A
TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN
ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND
CONDITIONS SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF
THE BOARD OF DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER
EVENT MAY VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON
THE OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF
THE RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL TERMS IN
THIS LEGEND WHICH ARE DEFINED IN THE ARTICLES SUPPLEMENTARY FOR THE
SERIES B PREFERRED STOCK SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN
SUCH ARTICLES SUPPLEMENTARY, AS THE SAME MAY BE AMENDED FROM TIME TO
TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER AND
OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER

20
<PAGE> 21

OF SERIES B PREFERRED STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR
SUCH A COPY MAY BE DIRECTED TO THE SECRETARY OF THE CORPORATION AT ITS
PRINCIPAL OFFICE."

(k) Exchange of Series B Preferred Units. The Corporation is hereby
expressly vested with authority (subject to the restrictions on ownership,
transfer and redemption of Series B Preferred Stock set forth in this Section 7)
to issue, and so long as Arden Realty, Inc, a Maryland corporation, remains the
general partner of the Operating Partnership, the Corporation shall issue to the
extent provided in the Partnership Agreement, Series B Preferred Stock in
exchange for Series B Preferred Units (as defined in the Partnership Agreement).

(l) Reservation of Shares. Pursuant to the obligations of the
Corporation under the Partnership Agreement to issue Series B Preferred Stock in
exchange for Series B Preferred Units, the Board of Directors is hereby required
to reserve and authorize for issuance a number of authorized but unissued shares
of Series B Preferred Stock not less than the number of Series B Preferred Units
issued to permit the Corporation to issue Series B Preferred Stock in exchange
for Series B Preferred Units that may be exchanged for or converted into Series
B Preferred Stock as provided in the Partnership Agreement.

(m) Severability. If any provision of this Section 7 or any application
of any such provision is determined to be invalid by any Federal or state court
having jurisdiction over the issues, the validity of the remaining provisions
shall not be affected and other applications of such provision shall be affected
only to the extent necessary to comply with the determination of such court.

(n) New York Stock Exchange. Nothing in this Section 7 shall preclude
the settlement of any transaction entered into through the facilities of the New
York Stock Exchange. The shares of Series B Preferred Stock that are the subject
of such transaction shall continue to be subject to the provisions of this
Section 7 after such settlement.

(o) Applicability of Section 7. The provisions set forth in this Section
7 shall apply to the Series B Preferred Stock notwithstanding any contrary
provisions of the Series B Preferred Stock provided for elsewhere in these
Articles Supplementary.

(8) CONVERSION. The Series B Preferred Stock is not convertible into or
exchangeable for any other property or securities of the Corporation.

(9) NO SINKING FUND. No sinking fund shall be established for the
retirement or redemption of Series B Preferred Stock.

(10) NO PREEMPTIVE RIGHTS. No holder of the Series B Preferred Stock of
the Corporation shall, as such holder, have any preemptive rights to purchase or
subscribe for additional shares of stock of the Corporation or any other
security of the Corporation which it may issue or sell.

21
<PAGE> 22

FOURTH: The Series B Preferred Stock has been classified and designated
by the Board under the authority contained in the Charter.

FIFTH: These Articles Supplementary have been approved by the Board in
the manner and by the vote required by law.

SIXTH: These Articles Supplementary shall be effective at the time the
State Department of Assessments and Taxation of Maryland accepts these Articles
Supplementary for record

SEVENTH: The undersigned Executive Vice-President of the Corporation
acknowledges these Articles Supplementary to be the act of the Corporation and,
as to all matters or facts required to be verified under oath, the undersigned
ExecutiveVice-President acknowledges that to the best of his knowledge,
information and belief, these matters and facts are true in all material
respects and that this statement is made under the penalties for perjury.

(Signature Page Follows)

22
<PAGE> 23

IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to
be executed under seal in its name and on its behalf by its President and
attested to by its Secretary on this day of September, 1999.

ARDEN REALTY, INC.,
a Maryland corporation

By: /s/ DIANA M. LAING
------------------------------------
Diana M. Laing
Executive Vice-President

[SEAL]

ATTEST:

/s/ DAVID SWARTZ
----------------------------------
David Swartz
Secretary

S-1

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 333-44141, Form S-3 No. 333-40451, Form S-8 dated October 9, 1997,
Form S-3 No. 333-78061, Form S-8 No. 333-82513) of Arden Realty, Inc. and in the
related Prospectuses of our report dated January 31, 2000, with respect to the
consolidated financial statements of Arden Realty Inc. included in this Form
10-K for the year ended December 31, 1999.

Los Angeles, California
March 21, 2000

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K,
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-01-1997
<CASH> 7,056 4,578 0
<SECURITIES> 0 0 0
<RECEIVABLES> 49,564 40,357 0
<ALLOWANCES> (4,404) (4,036) 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 0 0
<PP&E> 2,588,548 2,323,910 0
<DEPRECIATION> (146,384) (84,312) 0
<TOTAL-ASSETS> 2,570,458 2,331,919 0
<CURRENT-LIABILITIES> 78,750 61,930 0
<BONDS> 1,029,656 840,377 0
0 0 0
0 0 0
<COMMON> 633 624 0
<OTHER-SE> 1,375,125 1,372,766 0
<TOTAL-LIABILITY-AND-EQUITY> 2,570,458 2,331,919 0
<SALES> 0 0 0
<TOTAL-REVENUES> 337,853 281,067 133,817
<CGS> 0 0 0
<TOTAL-COSTS> (178,514) (145,057) (72,025)
<OTHER-EXPENSES> 2,822 3,515 1,630
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 60,239 43,403 19,511
<INCOME-PRETAX> 96,626 90,675 39,630
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 96,626 90,675 39,630
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 96,626 90,675 39,630
<EPS-BASIC> 1.53 1.55 1.43
<EPS-DILUTED> 1.53 1.54 1.41

</TABLE>