===============================================================================
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
Commission file number 000-30571
ARDEN REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Maryland 95-4599813
(State or other jurisdiction of (I.R.S.EmployerIdentification No.)
incorporation or organization)
11601 Wilshire Boulevard,
4th Floor
Los Angeles, California 90025-1740
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code: (310) 966-2600
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No .
----- -----
(2) Yes No X .
----- -----
As of August 9, 2000 there were 65,657,241 shares of the registrant's common
operating partnership units issued and outstanding.
================================================================================
<PAGE>
ARDEN REALTY LIMITED PARTNERSHIP
FORM 10-Q
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION --------
<TABLE>
<CAPTION>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 (Unaudited)
<S> <C>
and December 31, 1999..................................... 3
Consolidated Statements of Income for the three and six
months ended June 30, 2000 and 1999 (Unaudited)........... 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 1999 (Unaudited)................... 5
Notes to Consolidated Financial Statements................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk.. 22
PART II. OTHER INFORMATION................................................. 23
SIGNATURES........................................................ 24
</TABLE>
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ARDEN REALTY LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- -----------
(unaudited)
ASSETS
Commercial properties:
<S> <C> <C>
Land............................................. $468,757 $467,157
Buildings and improvements....................... 1,870,439 1,833,052
Tenant improvements and leasing costs............ 192,179 153,161
---------- ----------
2,531,375 2,453,370
Less: accumulated depreciation.................. (199,112) (157,608)
---------- ----------
2,332,263 2,295,762
Properties under development..................... 220,116 183,349
---------- ----------
Net investment in real estate................... 2,552,379 2,479,111
Cash and cash equivalents.......................... 2,537 7,056
Restricted cash.................................... 19,540 18,513
Rent and other receivables, net of allowance....... 10,965 11,785
Due from general partner........................... 2,744 2,446
Mortgage notes receivable, net of discount......... 13,807 13,847
Deferred rent...................................... 27,274 23,932
Prepaid financing costs, expenses and other assets, 22,339 16,214
---------- ----------
net of amortization................................
Total assets.................................... $2,651,585 $2,572,904
========== ==========
LIABILITIES
Mortgage loans payable............................. $625,866 $740,806
Unsecured lines of credit.......................... 245,350 288,850
Unsecured senior notes, net of discount............ 249,114 --
Accounts payable and accrued expenses.............. 29,624 34,482
Security deposits.................................. 19,904 16,073
---------- ----------
Total liabilities............................... 1,169,858 1,080,211
Minority interests................................. 2,951 2,953
PARTNERS' CAPITAL
Preferred partner, 2,000,000 Series B Cumulative
Redeemable Preferred Units outstanding at June 30, 50,000 50,000
2000 and December 31, 1999.......................
General and limited partners, 65,467,000 and
65,509,000 common operating partnership units
outstanding at June 30, 2000 and December 31, 1999, 1,429,888 1,441,907
respectively....................................
Receivable from general partner for common operating (1,112) (2,167)
---------- ----------
partnership units..................................
Total partners' capital......................... 1,478,776 1,489,740
---------- ----------
Total liabilities and partners' capital......... $2,651,585 $2,572,904
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ARDEN REALTY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2000 1999 2000 1999
------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenue................................... $92,856 $82,712 $182,534 $162,048
Property operating expenses............... 26,721 24,444 52,068 47,954
------- ------- ------- -------
66,135 58,268 130,466 114,094
General and administrative expenses....... 1,625 1,578 3,294 2,869
Interest expense.......................... 18,770 14,455 36,622 27,638
Depreciation and amortization............. 21,277 17,173 41,424 33,388
Interest and other income................. (770) (671) (1,625) (1,341)
------- ------- ------- -------
Income before minority interest........... 25,233 25,733 50,751 51,540
Minority interests........................ (35) (34) (65) (88)
------- ------- ------- -------
Net income................................ $25,198 $25,699 $50,686 $51,452
======= ======= ======= =======
Net income allocated to:
Preferred units........................ $ 1,078 $ -- $2,156 $ --
======= ======= ======= =======
Common units........................... $24,120 $25,699 $48,530 $51,452
======= ======= ======= =======
Net income per common operating
partnership unit:
Basic.................................. $ 0.37 $ 0.39 $ 0.74 $ 0.79
======= ======= ======= =======
Diluted................................ $ 0.37 $ 0.39 $ 0.74 $ 0.78
======= ======= ======= =======
Weighted average common operating
partnership units outstanding:
Basic.................................. 65,467 65,509 65,478 65,509
======= ======= ======= =======
Diluted................................ 65,657 65,661 65,623 65,633
======= ======= ======= =======
</TABLE>
<PAGE>
ARDEN REALTY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
2000 1999
---------- ----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income.............................................. $50,686 $51,452
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests.................................... 65 88
Depreciation and amortization......................... 41,424 33,388
Amortization of loan costs............................ 1,772 1,239
Changes in operating assets and liabilities:
Due from general partner............................ (298) (233)
Rent and other receivables.......................... 1,048 63
Deferred rent....................................... (3,342) (3,567)
Prepaid financing costs, expenses and other assets.. (7,938) (6,012)
Accounts payable and accrued expenses............... 3,567 8,513
Security deposits................................... 3,831 493
------- -------
Net cash provided by operating activities............... 90,815 85,424
------- -------
INVESTING ACTIVITIES:
Acquisitions and improvements to investment in real estate (123,128) (150,959)
------- -------
FINANCING ACTIVITIES:
Proceeds from mortgage loans............................ 11,885 229,888
Repayments of mortgage loans............................ (126,825) (111,737)
Proceeds from unsecured lines of credit................. 68,000 130,461
Repayments of unsecured lines of credit................. (111,500) (120,298)
Proceeds from unsecured senior notes, net of discount... 249,079 --
Distributions to preferred operating partnership unit (2,156) --
holders................................................
Distributions paid to common operating partnership unit (59,595) (56,666)
holders................................................
Increase in restricted cash............................. (1,027) (5,150)
Distributions to minority interests..................... (67) (81)
------- -------
Net cash provided by financing activities............... 27,794 66,417
------- -------
Net (decrease) increase in cash and cash equivalents.... (4,519) 882
Cash and cash equivalents at beginning of period........ 7,056 4,578
------- -------
Cash and cash equivalents at end of period.............. $ 2,537 $ 5,460
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest, net of
amount capitalized................................... $35,261 $30,318
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ARDEN REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1. DESCRIPTION OF BUSINESS
The terms "Operating Partnership", "us", "we" and "our" as used in this
report refer to Arden Realty Limited Partnership. The term "Arden Realty" refers
to Arden Realty, Inc.
We are an operating partnership that owns, manages, leases, develops,
renovates and acquires commercial properties located in Southern California.
Arden Realty, a real estate investment trust, or REIT, is our sole general
partner and, as of June 30, 2000 and December 31, 1999, owned 96.7% of our
common partnership units, or common OP Units. Commencing with its taxable year
ended December 31, 1996, Arden Realty has operated and qualified as a REIT for
federal income tax purposes.
Arden Realty conducts substantially all of its operations through us and
our subsidiaries. As of June 30, 2000, we directly or indirectly owned a
portfolio of 142 primarily offices properties containing approximately 18.5
million net rentable square feet and three properties with approximately 700,000
net rentable square feet under development.
Arden Realty's interest in us entitles it to share in cash distributions
from, and in our profits and losses in proportion to its percentage ownership.
Specific individuals and entities own our remaining common OP Units, including
Messrs. Ziman and Coleman, our Chairman and Chief Executive Officer and our
President and Chief Operating Officer, respectively, together with other
entities and persons who were issued common OP Units in connection with our
acquisition of specific properties previously owned by those entities and
persons. Holders of common OP Units are entitled to cause us to redeem their
common OP Units for cash. Arden Realty, however, may, instead of paying cash,
elect to exchange those common OP Units for shares of its common stock on a
one-for-one basis, subject to specific limitations. With each redemption or
exchange of common OP Units, Arden Realty's percentage interest in us will
increase.
As our sole general partner, Arden Realty generally has the exclusive
power under our partnership agreement to manage us and conduct our business,
subject to limited exceptions. Arden Realty's board of directors manages our
affairs. We cannot be terminated until the year 2096 without the approval of a
majority of our partners or in connection with the sale of all or substantially
all of our assets, a business combination, a judicial decree or the redemption
of all the OP Units held by our limited partners.
The accompanying consolidated condensed financial statements include our
accounts, and the accounts of our other subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
2. INTERIM FINANCIAL DATA
The accompanying consolidated condensed financial statements should be
read in conjunction with our 1999 financial statements and related notes thereto
included in our registration statement on Form S-4 as filed with the Securities
and Exchange Commission on April 21, 2000. The accompanying financial
information reflects all adjustments, which are, in our opinion, of a normal
recurring nature and necessary for a fair presentation of our financial
position, results of operations and cash flows for the interim periods. Interim
results of operations are not necessarily indicative of the results to be
expected for the full year.
Certain prior period amounts have been reclassified to conform with the
current period presentation.
<PAGE>
3. MORTGAGE LOANS PAYABLE, UNSECURED LINES OF CREDIT AND UNSECURED SENIOR NOTES
A summary of our outstanding indebtedness as of June 30, 2000 and December
31, 1999 is as follows:
<TABLE>
<CAPTION>
Stated Annual
June 30, Interest Rate at Number of Maturity
2000 December 31, June 30, 2000 Fixed/Floating Properties Month/
Type of Debt (unaudited) 1999 (unaudited) Rate Securing Loan Year
------------ ----------- ------------ ---------------- -------------- ------------- --------
(in thousands)
MORTGAGE LOANS PAYABLE:
Fixed Rate
<S> <C> <C> <C> <C> <C> <C>
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).............. 113,130 114,016 6.94 Fixed 12 4/09
Mortgage Financing VI(3)............. 22,331 22,426 7.54 Fixed 3 4/09
Westwood Center(3)................... 14,696 14,859 8.09 Fixed 1 5/03
Activity Business Center(3).......... 7,948 8,003 8.85 Fixed 1 5/06
145 South Fairfax(3)................. 4,035 4,050 8.93 Fixed 1 1/27
Marin Corporate Center(3)............ 3,113 3,168 9.00 Fixed 1 7/15
Conejo Business Center(4)............ 3,059 3,114 8.75 Fixed (Note 4) 7/15
Conejo Business Center(4)............ 1,331 1,358 7.88 Fixed (Note 4) 7/15
299 North Euclid(1).................. -- 5,000 -- Fixed 1 7/02
---------- ----------
591,943 598,294
Floating Rate
Construction Loan(5) 33,923 22,037 8.68 LIBOR + 2.00% (Note 6) 12/00
Lehman Prepayable
Term Loan II and III(1).......... -- 120,475 -- LIBOR + 2.25% 9 11/00
---------- ----------
625,866 740,806
UNSECURED LINES OF CREDIT(8):
Floating Rate
Wells Fargo(1).... 243,350 280,850 7.84 LIBOR + 1.15% -- 4/03
City National Bank(1)........... 2,000 8,000 8.62 Prime Rate - 0.875% -- 8/01
---------- ----------
245,350 288,850
UNSECURED SENIOR NOTES:
Fixed Rate
2005 Notes(7)..... 199,513 -- 8.87 Fixed -- 3/05
2010 Notes(7)..... 49,601 -- 9.15 Fixed -- 3/10
---------- ----------
249,114 --
Total Debt...... $1,120,330 $1,029,656
========== ==========
</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.
(4) Both mortgage loans are secured by the Conejo Business Center property.
(5) All interest and principal due upon maturity. This loan matures in
December 2000 with two one-year extension options.
(6) This loan is secured by certain property and construction
improvements relating to the 6060 Center Drive office building in
the Howard Hughes Center.
(7) Requires semi-annual interest payments only, with principal balance due
upon maturity.
(8) See footnote 6 below for discussion of our new line 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 $25.0 million,
resulting in a combined outstanding balance of $145.5 million for both loans.
On March 17, 2000, we issued $250 million of senior unsecured notes in two
tranches. One tranche was for $200 million at an interest rate of 8.87% due in
March 2005 and the other tranche was for $50 million at an interest rate of
9.15% due in March 2010. These notes are our 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 and
resold in reliance upon an exemption from registration provided by Rule 144A
under the Securities Act. As part of issuing these notes, we filed a
registration statement with the Securities and Exchange Commission enabling the
holders of the notes to exchange the privately placed notes for publicly traded
notes.
This registration statement became effective on May 10, 2000 and by June
5, 2000 all holders of the privately placed notes had exchanged such notes for
our registered notes.
On May 3, 2000, we extended our unsecured line of credit with a group of
banks led by Wells Fargo, or the Lenders. The extended line of credit provides
for borrowings up to $275 million with an option to increase the amount to $325
million and bears interest at a rate ranging between LIBOR plus 1.15% and LIBOR
plus 1.80% (including an annual facility fee ranging from .20% to .40% based on
the aggregate amount of the facility) depending on our unsecured debt rating. In
addition, as long as we maintain an unsecured debt rating of BBB-/Baa3 or
better, the agreement contains a competitive bid option, whereby the Lenders may
bid on the interest rate to be charged for up to $137.5 million of the unsecured
line of credit. Under certain circumstances, we also have the option to convert
the interest rate on this line of credit to the prime rate plus 0.5%. This line
of credit matures in April 2003 with an option to extend the maturity date for
one year.
4. PARTNERS' CAPITAL
On April 27, 2000, we made a distribution of $0.465 per common operating
partnership unit.
5. REVENUE FROM RENTAL OPERATIONS AND PROPERTY OPERATING EXPENSES
Revenue from rental operations and property operating expenses are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
(unaudited)
Revenue from Rental Operations:
<S> <C> <C> <C> <C>
Rental........................... $80,003 $72,331 $157,516 $141,841
Tenant reimbursements............ 4,218 2,869 7,810 6,336
Parking, net of expenses ........ 4,415 3,575 8,387 6,757
Other rental operations.......... 4,220 3,937 8,821 7,114
------ -------- -------- --------
92,856 82,712 182,534 162,048
------ -------- -------- --------
Property Operating Expenses:
Repairs and maintenance.......... 8,895 8,255 17,297 15,925
Utilities........................ 6,526 6,538 12,636 12,879
Real estate taxes................ 6,328 5,669 12,592 11,416
Insurance........................ 1,043 988 2,084 1,970
Ground rent...................... 596 313 794 494
Marketing and other.............. 3,333 2,681 6,665 5,270
-------- -------- -------- --------
26,721 24,444 52,068 47,954
-------- -------- -------- --------
$66,135 $58,268 $130,466 $114,094
======== ======== ======== ========
</TABLE>
6. SUBSEQUENT EVENTS
Ms. Diana Laing resigned as Executive Vice President and Chief Financial
Officer effective July 1, 2000 to become Executive Vice President and Chief
Financial Officer of a technology company. At the time of her resignation, Ms.
Laing surrendered stock options valued at approximately $59,000 as well as
42,553 shares of Arden Realty's common stock underlying a promissory note in the
amount of $1.0 million payable to Arden Realty, Inc. The value of the options
and shares surrendered by Ms. Laing equaled the unpaid principal and interest of
her promissory note.
In July 2000, we closed on a $75 million unsecured line of credit with
Lehman Brothers, Inc. Borrowings on this new line of credit will bear interest
at a rate ranging between LIBOR plus 1.05% and LIBOR plus 1.70%, depending on
our unsecured debt rating. We also have the option to convert the interest rate
to the higher of the prime rate plus 0.5%. This line of credit matures in July
2002 with an option to extend the maturity date for one year. Proceeds from this
line of credit will be used to paydown a portion of our Wells Fargo unsecured
line of credit.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
THE FOLLOWING DISCUSSION RELATES TO OUR CONSOLIDATED FINANCIAL STATEMENTS
AND SHOULD BE READ IN CONJUNCTION WITH THE 1999 FINANCIAL STATEMENTS AND RELATED
NOTES THERETO INCLUDED IN OUR REGISTRATION STATEMENT ON FORM S-4.
We are a full service real estate organization that owns, manages, leases,
develops, renovates and acquires commercial properties located in Southern
California. Arden Realty, Inc., a real estate investment trust, or REIT, is our
sole general partner and, as of June 30, 2000, owned 96.7% of our common
operating partnership units. Arden Realty conducts substantially all of its
operations through us and our subsidiaries. We are managed by 11 senior
executive officers who have an average of over 15 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 300 employees.
We are Southern California's largest publicly traded office landlord as
measured by total net rentable square feet owned, as of June 30, 2000. As of
that date, 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 June 30, 2000, our properties were approximately 95.7%
leased, excluding two existing properties under renovation.
Our primary business strategy is to actively manage our portfolio to
achieve gains in occupancy and rental rates, control operating expenses and to
maximize income from ancillary operations and services. When market conditions
permit, we may also develop or acquire new properties that add value and fit
strategically into our portfolio, but we will continue to be very selective and
will evaluate any potential acquisition with alternative uses of our capital.
<PAGE>
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 will be affected by the timing
of significant property renovations, development and acquisitions.
Comparison of the three months ended June 30, 2000 to the three months
ended June 30, 1999 (in thousands, except number of properties and percentages):
<TABLE>
<CAPTION>
Three months Ended
June 30,
------------------- Dollar Percent
2000 1999 Change Change
------- ------- ------ -------
(unaudited)
REVENUE
Revenue from rental operations:
<S> <C> <C> <C> <C>
Rental..................... $80,003 $72,331 $7,672 11%
Tenant reimbursements...... 4,218 2,869 1,349 47%
Parking, net of expenses... 4,415 3,575 840 23%
Other rental operations.... 4,220 3,937 283 7%
92,856 82,712 10,144 12%
Interest and other income... 770 671 99 15%
------- ------- ------- ---
Total revenue.............. $93,626 $83,383 $10,243 12%
======= ======= ======= ===
EXPENSES
Property operating expenses:
Repairs and maintenance.... $ 8,895 $ 8,255 $ 640 8%
Utilities.................. 6,526 6,538 (12) (0%)
Real estate taxes.......... 6,328 5,669 659 12%
Insurance.................. 1,043 988 55 6%
Ground rent................ 596 313 283 90%
Marketing and other........... 3,333 2,681 652 24%
------- ------- ------- ---
Total property operating
expenses................ 26,721 24,444 2,277 9%
General and administrative.. 1,625 1,578 47 3%
Interest.................... 18,770 14,455 4,315 30%
Depreciation and amortization 21,277 17,173 4,104 24%
------- ------- ------- ---
Total expenses............. $68,393 $57,650 $10,743 19%
======= ======= ======= ===
OTHER DATA:
NUMBER OF PROPERTIES
Acquired during period...... -- 2
Owned at end of period...... 142 141
NET RENTABLE SQUARE FEET:
Acquired during period...... -- 363
Owned at end of period...... 18,492 18,391
</TABLE>
<PAGE>
The increase in revenue from rental operations and property operating
expenses for the three months ended June 30, 2000 as compared to the same period
in 1999 was partially due to the 3 properties we acquired after April 1, 1999
and 5 properties under renovation for all or a portion of the periods presented.
Operating results for properties under renovation may significantly vary from
period to period depending on the status of the renovation and occupancy levels.
Following is a summary of the increase in revenue from rental operations
and property operating expenses that relates to the 8 properties we acquired or
were under renovation after April 1, 1999 and for the 134 non-renovation
properties we owned for all of the three month periods ended June 30, 2000 and
1999 (in thousands, except number of properties).
<TABLE>
<CAPTION>
Properties Owned
Properties Acquired or for all of the
Total Under Renovation Three Months Ended
Variance after April 1, 1999 June 30, 2000 and 1999(1)
-------- ---------------------- -------------------------
REVENUE FROM RENTAL OPERATIONS:
<S> <C> <C> <C>
Rental......................... $7,672 $3,556 $4,116
Tenant reimbursements.......... 1,349 5 1,344
Parking, net of operations..... 840 322 518
Other rental operations........ 283 329 (46)
------- ------- -------
$10,144 $4,212 $5,932
======= ======= =======
PROPERTY OPERATING EXPENSES:
Repairs and maintenance........ $ 640 $ 469 $ 171
Utilities...................... (12) 367 (379)
Real estate taxes.............. 659 272 387
Insurance...................... 55 46 9
Ground rent.................... 283 - 283
Marketing and other............ 652 149 503
------- ------- -------
$2,277 $1,303 $ 974
======= ======= =======
OTHER DATA:
Number of properties........... 142 8 134
Net rentable square feet....... 18,492 1,532 16,960
</TABLE>
----------
(1) See the Same Properties analysis below.
Interest and other income increased by approximately $99,000 or 15% for
the three months ended June 30, 2000, as compared to the same period in 1999,
primarily due to higher interest income earned in 2000 on higher restricted cash
balances required by certain mortgage loans entered into after April 1, 1999.
General and administrative expenses as a percentage of total revenues were
approximately 1.7% of total revenues for the three months ended June 30, 2000,
which is consistent with general and administrative expenses of 1.9% of total
revenues for the same period in 1999.
Interest expense increased approximately $4.3 million or 30% during the
three months ended June 30, 2000, as compared to the same period in 1999. This
increase was due to higher outstanding debt balances in 2000, primarily used to
fund capital expenditures, tenant improvements and for the three properties we
acquired after April 1, 1999, as well as higher effective interest rates in
2000.
Depreciation and amortization expense increased by approximately $4.1
million during the three months ended June 30, 2000, primarily due to
depreciation related to properties acquired after April 1, 1999 and for capital
expenditures, tenant improvements and leasing commissions placed in service
after July 1, 1999.
<PAGE>
SAME PROPERTIES
Following is a comparison of property operating data computed under
generally accepted accounting principles, or "GAAP Basis," and excluding the
straight-line rent adjustment, or "Cash Basis," for the 134 non-renovation
properties we owned for the entire three month periods ended June 30, 2000 and
1999 (in thousands, except number of properties and percentages):
<TABLE>
<CAPTION>
Three months Ended
June 30,
---------------------- Dollar Percent
2000 1999 Change Change
---------- ---------- ---------- ---------
(Unaudited)
GAAP BASIS:
<S> <C> <C> <C> <C>
Revenue from rental operations.. $86,454 $80,522 $5,932 7.4%
Property operating expenses..... 24,704 23,730 974 4.1%
------- ------- ------ ------
Net........................ $61,750 $56,792 $4,958 8.7%
======= ======= ====== ======
CASH BASIS (1):
Revenue from rental operations.. $84,483 $78,488 $5,995 7.6%
Property operating expenses..... 24,704 23,730 974 4.1%
------- ------- ------ ------
Net........................ $59,779 $54,758 $5,021 9.2%
======= ======= ====== =======
Number of stabilized properties. 134 134
Average occupancy............... 94.7% 91.0%
Net rentable square feet........ 16,960 16,960
Percentage of total portfolio... 91.7% 92.2%
</TABLE>
----------
(1) Excludes straight-line rent adjustments.
Revenue from rental operations for these properties, computed on a GAAP
basis, increased by approximately $5.9 million, or 7.4%, during the three months
ended June 30, 2000, compared to the same period in 1999, primarily due to a
3.7% increase in average occupancy and an increase in average rental rates. This
increase in occupancy not only contributed to higher rental revenue but also
resulted in higher parking income and tenant reimbursements.
Excluding only the straight-line rent adjustment for these properties,
revenue from rental operations for the three months ended June 30, 2000,
computed on a Cash Basis, increased by approximately $6.0 million or 8%.
Property operating expenses for these properties increased by
approximately $1.0 million, or 4.1%, during the three months ended June 30,
2000, compared to the same period in 1999, primarily due to higher repair and
maintenance, real estate tax, contingent ground rent, and marketing and other
expenses in 2000, these increases were partially offset by lower utilities
expense in 2000. Increases in certain repair and maintenance expense items were
primarily due to the approximate 3.7% increase in average occupancy for these
properties in 2000. Real estate taxes increased by $387,000 in 2000 due to
normal annual increases and final assessments on certain properties. Ground rent
expense increased by $283,000 due to higher operating income from one of our
properties with a participating ground lease. Due to our continued focus on
raising our portfolio wide occupancy, marketing and tenant retention related
expenses were also higher in 2000. These increases in property operating
expenses in 2000 were partially offset by a $379,000 decrease in utility expense
as a result of savings achieved from energy enhancing capital improvements
completed during 1999.
<PAGE>
Comparison of the six months ended June 30, 2000 to the six months ended
June 30, 1999 (in thousands, except number of properties and percentages):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------- Dollar Percent
2000 1999 Change Change
------- ------- ------ ------
(unaudited)
REVENUE
Revenue from rental operations:
<S> <C> <C> <C> <C>
Rental................................ $ 157,516 $ 141,841 $ 15,675 11%
Tenant reimbursements................. 7,810 6,336 1,474 23%
Parking, net of expenses.............. 8,387 6,757 1,630 24%
Other rental operations............... 8,821 7,114 1,707 24%
-------- ---------- ------- ---
182,534 162,048 20,486 13%
Interest and other income.............. 1,625 1,341 284 21%
-------- ---------- ------- ---
Total revenue......................... $ 184,159 $ 163,389 20,770 13%
======== ========== ======= ===
EXPENSES
Property operating expenses:
Repairs and maintenance............... $ 17,297 $ 15,925 1,372 9%
Utilities............................. 12,636 12,879 (243) (2%)
Real estate taxes..................... 12,592 11,416 1,176 10%
Insurance............................. 2,084 1,970 114 6%
Ground rent........................... 794 494 300 61%
Marketing and other....... ........... $ 6,665 5,270 1,395 26%
-------- -------- ------- ---
Total property operating expenses... 52,068 47,954 4,114 9%
General and administrative............. 3,294 2,869 425 15%
Interest............................... 36,622 27,638 8,984 33%
Depreciation and amortization 41,424 33,388 8,036 24%
--------- --------- ------- ---
Total expenses........................ $ 133,408 $ 111,849 $ 21,559 19%
========= ========= ======== ===
OTHER DATA:
NUMBER OF PROPERTIES
Acquired during period................. -- 3
Owned at end of period................. 142 141
NET RENTABLE SQUARE FEET:
Acquired during period................. -- 423
Owned at end of period................. 18,492 18,391
</TABLE>
<PAGE>
The increase in revenue from rental operations and property operating
expenses for the six months ended June 30, 2000 as compared to the same period
in 1999 was partially due to the 4 properties we acquired and the 5 properties
under renovation for all or a portion of the periods presented. Operating
results for properties under renovation may significantly vary from period to
period depending on the status of the renovation and occupancy.
Following is a summary of the increase in revenue from rental operations
and property operating expenses that relates to the 9 properties we acquired or
were under renovation after April 1, 1999 and for the 133 non-renovation
properties we owned for all of the six month periods ended June 30, 2000 and
1999 (in thousands, except number of properties).
<TABLE>
<CAPTION>
Properties Owned
Properties Acquired or for all of the
Total Under Renovation Six Months Ended
Variance after January 1, 1999 June 30, 2000 and 1999 (1)
-------- --------------------- --------------------------
REVENUE FROM RENTAL OPERATIONS:
<S> <C> <C> <C>
Rental......................... $15,675 $7,701 $7,974
Tenant reimbursements.......... 1,474 330 1,144
Parking, net of operations..... 1,630 651 979
Other rental operations........ 1,707 850 857
------- ------ -------
$20,486 $9,532 $10,954
======= ======= =======
PROPERTY OPERATING EXPENSES:
Repairs and maintenance........ $1,372 $ 990 $ 382
Utilities...................... (243) 777 (1,020)
Real estate taxes.............. 1,176 599 577
Insurance...................... 114 99 15
Ground rent.................... 300 - 300
Marketing and other............ 1,395 349 1,046
------- ------- -------
$4,114 $2,814 $1,300
======= ======= =======
OTHER DATA:
Number of properties........... 142 9 133
Net rentable square feet....... 18,492 1,592 16,900
</TABLE>
----------
(1) See the Same Properties analysis below.
Interest and other income increased by approximately $284,000 or 21%
during the six months ended June 30, 2000, as compared to the same period in
1999, primarily due to higher interest income earned in 2000 on higher
restricted cash balances required by certain mortgage loans entered into after
April 1, 1999.
General and administrative expenses as a percentage of total revenues were
approximately 1.8% of total revenues for the six months ended June 30, 2000,
which is consistent with general and administrative expenses of 1.8% of total
revenues for the same period in 1999.
Interest expense increased approximately $9.0 million or 33% during the
six months ended June 30, 2000, as compared to the same period in 1999. This
increase was due to higher outstanding debt balances in 2000, primarily used to
fund capital expenditures, tenant improvements and for the four properties we
acquired in 1999, as well as higher effective interest rates in 2000.
Depreciation and amortization expense increased by approximately $8.0
million during the six months ended June 30, 2000, primarily due to depreciation
related to properties acquired in 1999 and for capital expenditures, tenant
improvements and leasing commissions placed in service after June 30, 1999.
<PAGE>
SAME PROPERTIES
Following is a comparison of property operating data computed under the
GAAP Basis and Cash Basis for the 133 non-renovation properties we owned for the
entire six month periods ended June 30, 2000 and 1999 (in thousands, except
number of properties and percentages):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------- Dollar Percent
2000 1999 Change Change
---------- ---------- ---------- ---------
(Unaudited)
GAAP BASIS:
<S> <C> <C> <C> <C>
Revenue from rental operations.. $169,373 $158,419 $10,954 6.9%
Property operating expenses..... 48,115 46,815 1,300 2.8%
-------- -------- ------- ------
Net........................ $121,258 $111,604 9,654 8.7%
======== ======== ======= ======
CASH BASIS (1):
Revenue from rental operations.. $166,252 $154,829 $11,423 7.4%
Property operating expenses..... 48,115 46,815 1,300 2.8%
-------- -------- ------- ------
Net........................ $118,137 $108,014 10,123 9.4%
======== ======== ======= ======
Number of stabilized properties. 133 133
Average occupancy............... 94.6% 91.0%
Net rentable square feet........ 16,900 16,900
Percentage of total portfolio... 91.4% 91.9%
</TABLE>
----------
(2) Excludes straight-line rent adjustments.
Revenue from rental operations for these properties, computed on a GAAP
basis, increased by approximately $11.0 million, or 6.9%, during the six months
ended June 30, 2000, compared to the same period in 1999, primarily due to a
3.6% increase in average occupancy and an increase in average rental rates. This
increase in occupancy not only contributed to higher rental revenue but also
resulted in higher parking income, tenant reimbursements and miscellaneous
tenants charges including after-hour utility billings, signage and satellite
income.
Excluding only the straight-line rent adjustments for these properties,
revenue from rental operations for the six months ended June 30, 2000, computed
on a Cash Basis, increased by approximately $11.4 million or 7.4%.
Property operating expenses for these properties increased by
approximately $1.0 million, or 4.1%, during the three months ended June 30,
2000, compared to the same period in 1999, primarily due to higher repair and
maintenance, real estate tax, contingent ground rent, and marketing and other
expenses in 2000, these increases were partially offset by lower utilities
expense in 2000. Increases in certain repair and maintenance expense items were
primarily due to the approximate 3.7% increase in average occupancy for these
properties in 2000. Real estate taxes increased by $387,000 in 2000 due to
normal annual increases and final assessments on certain properties. Ground rent
expense increased by $283,000 due to higher operating income from one of our
properties with a participating ground lease. Due to our continued focus on
raising our portfolio wide occupancy, marketing and tenant retention related
expenses were also higher in 2000. These increases in property operating
expenses in 2000 were partially offset by a $379,000 decrease in utility expense
as a result of savings achieved from energy enhancing capital improvements
completed during 1999.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Cash provided by operating activities increased by approximately $5.4
million to $90.8 million for the six months ended June 30, 2000, as compared to
$85.4 million for the same period in 1999, primarily due to our improved
operating results from our property portfolio from increases in both occupancy
and rental rates throughout our portfolio.
Cash used in investing activities decreased by approximately $27.8
million, to $123.1 million for the six months ended June 30, 2000 compared to
$150.9 million for the same period in 1999. The decrease was due to $69.9
million in funds used in 1999 to acquire three properties which was partially
offset by an increase of approximately $42.1 million in 2000 in funds used for
capital improvements due to our increased development, renovation activity and
tenant improvements build out.
Cash provided by financing activities decreased by approximately $38.6
million to an inflow of $27.8 million for the six months ended June 30, 2000, as
compared to an inflow of $66.4 million for the same period in 1999. Cash
provided by financing activities for the six months ended June 30, 2000
consisted primarily of net proceeds from our offering of unsecured senior notes
partially offset by repayments of mortgage loans, paydowns of our unsecured
lines of credit and distributions to stockholders and minority interests.
.
AVAILABLE BORROWINGS, CASH BALANCE AND CAPITAL RESOURCES
We 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,
2001. Proceeds from this line of credit are used, among other things, to provide
funds for tenant improvements and capital expenditures and provide for working
capital and other corporate purposes. As of June 30, 2000, there was $2.0
million outstanding on this line of credit and $8.0 million was available for
additional borrowings.
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 total outstanding balance on these loans was repaid on March 17, 2000 with
the proceeds from the issuance of $250 million in senior unsecured notes
described below.
On March 17, 2000, we issued $250 million of senior unsecured notes in two
tranches. One tranche was for $200 million at an interest rate of 8.875% due in
March 2005 and the other tranche was for $50 million at an interest rate of
9.150% due in March 2010. These notes are our 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 the 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.
On May 3, 2000, we extended our unsecured line of credit with a group of
banks led by Wells Fargo, or the Lenders. The extended line of credit provides
for borrowings up to $275 million with an option to increase the amount to $325
million and bears interest at a rate ranging between LIBOR plus 1.15% and LIBOR
plus 1.80% (including an annual facility fee ranging from .20% to .40% based on
the aggregate amount of the facility) depending on our unsecured debt rating. In
addition, as long as we maintain an unsecured debt rating of BBB-/Baa3 or
better, the agreement contains a competitive bid option, whereby the Lenders may
bid on the interest rate to be charged for up to $137.5 million of the unsecured
line of credit. Under certain circumstances, we also have the option to convert
the interest rate on this line of credit to the prime rate plus 0.5%. This line
of credit matures in April 2003 with an option to extend the maturity date for
one year. As of June 30, 2000, there was approximately $243.4 million
outstanding on this line of credit and approximately $31.6 million was available
for additional borrowings.
In July 2000, we closed on a $75 million unsecured line of credit with
Lehman Brothers, Inc., or the Lenders. Borrowings on this new line of credit
will bear interest at a rate ranging between LIBOR plus 1.05% and LIBOR plus
1.70%, depending on our unsecured debt rating. We also have the option to
convert the interest rate to the prime rate plus 0.5%. This line of credit
matures in July 2002 with an option to extend the maturity date for one year.
Proceeds from this line of credit will be used to paydown a portion of our Wells
Fargo unsecured line of credit.
<PAGE>
Following is a summary of scheduled principal payments for our total debt
outstanding as of June 30, 2000 (in thousands):
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
2000............................................ $ 35,287
2001............................................ 4,861
2002............................................ 3,093
2003............................................ 262,664
2004............................................ 182,302
2005............................................ 207,918
2006............................................ 15,303
2007............................................ 8,895
2008............................................ 230,388
2009............................................ 112,063
Thereafter...................................... 57,556
----------
Total......................................... $1,120,330
==========
</TABLE>
Following is certain other information related to our indebtedness as of
June 30, 2000 (in thousands, except percentage data):
<TABLE>
<CAPTION>
Unsecured and Secured Debt Analysis:
-----------------------------------
Weighted
Average
Interest
Balance Percent Rate (1)
----------- ----------- ----------
<S> <C> <C> <C>
Unsecured Debt........... $ 494,464 44% 8.72%
Secured Debt............. 625,866 56% 7.51%
---------- -------- --------
Total Debt.............. $1,120,330 100% 8.04%
========== ======== ========
</TABLE>
Floating and Fixed Rate Debt Analysis:
-------------------------------------
<TABLE>
<CAPTION>
Weighted
Average
Interest
Balance Percent Rate (1)
----------- ----------- ----------
<S> <C> <C> <C>
Floating Rate Debt....... $ 279,273 25% 8.45%
Fixed Rate Debt.......... 841,057 75% 7.91%
---------- -------- --------
Total Debt............... $1,120,330 100% 8.04%
========== ======== ========
</TABLE>
(1) Includes amortization of prepaid financing costs.
Total interest incurred and the amount capitalized was as follows (in
thousands):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- -------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Total interest incurred. $22,491 $16,859 $43,184 $32,346
Amount capitalized...... (3,721) (2,404) (6,562) (4,708)
------- ------- ------- -------
Amount expensed......... $18,770 $14,455 $36,622 $27,638
======= ======= ======= =======
</TABLE>
As of June 30, 2000, we had $22.1 million in cash and cash equivalents,
including $13.8 million in restricted cash representing interest bearing cash
deposits required by five of our mortgage loans payable. Also included in cash
and cash equivalents were $5.7 million in cash impound accounts for real estate
taxes and insurance as required by several of our mortgage loans payable.
As of June 30, 2000, we had $39.6 million available under our lines of
credit. Also, see discussion above regarding our new $75 million line of credit
closed in July 2000.
<PAGE>
We expect to continue meeting our short-term liquidity and capital
requirements generally through net cash provided by operating activities and
proceeds from our lines of credit. We believe that the net cash provided by
operating activities will continue to be sufficient to pay any distributions
necessary to enable Arden Realty to continue qualifying as a REIT. We also
believe the foregoing sources of liquidity will be sufficient to fund our
short-term liquidity needs for the foreseeable future, including recurring
non-revenue enhancing capital expenditures, tenant improvements and leasing
commissions.
We expect to meet our long-term liquidity and capital requirements such as
scheduled principal repayments, renovation costs, property acquisitions and
other non-recurring capital expenditures through the refinancing of existing
indebtedness and/or the issuance of long-term debt and equity securities.
<PAGE>
FUNDS FROM OPERATIONS
The following table reflects the calculation of our funds from operations
for the three month periods ended June 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- -------------------
2000 1999 2000 1999
------ ------ ------ ------
FUNDS FROM OPERATIONS(1): (unaudited)
<S> <C> <C> <C> <C>
Net income............... $25,198 $25,699 $50,686 $51,452
Depreciation and
amortization
of real estate assets... 21,277 17,173 41,424 33,388
Income allocated to
Preferred Operating (1,078) -- (2,156) --
Partnership Units...... ------- ------- ------- -------
Funds From Operations. $45,397 $42,872 $89,954 $84,840
======= ======= ======= =======
</TABLE>
----------
(1) We consider funds from operations, as defined by The National Association
of Real Estate Investment Trust, or NAREIT, to be a useful financial
measure of our operating performance. We believe that funds from operations
provides investors with an additional basis to evaluate our ability to
service debt and to fund acquisitions and other capital expenditures. Funds
from operations should not be considered an alternative to net income
determined in accordance with GAAP, as an indicator of our financial
performance, as a substitute for cash flow from operating activities
determined in accordance with GAAP or as a measure of our liquidity. Funds
from operations also is not necessarily indicative of funds available to
fund our cash needs, including our ability to service our debt.
The White Paper on funds from operations approved by the Board of Governors
of NAREIT in October 1999 defines funds from operations as net income or
loss computed in accordance with GAAP, excluding extraordinary items, as
defined by GAAP, and gains and losses from sales of depreciable operating
property plus real estate-related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. We compute
funds from operations in accordance with standards established by the White
Paper which may differ from the standards used by other real estate
companies and, accordingly, our funds from operations may not be comparable
to those companies' funds from operations.
PORTFOLIO AND LEASE INFORMATION
The following tables set forth certain information regarding our
Properties as of June 30, 2000.
PORTFOLIO SUMMARY
<TABLE>
<CAPTION>
Net Operating Income
(in thousands and unaudited)
------------------------------
Approximate Net For the Three For the Six
Rentable Square Feet Months Ended Months Ended
Location Number of Properties (in thousands) June 30, 2000 June 30, 2000
-------- ------------------------------- ------------------------------- ------------- -------------
Industrial Industrial
and % of and % of % of % of
Office Retail Total Total Office Retail Total Total Total Total Total Total
------ ------ ----- ----- ------ ------ ----- ----- ----- ----- ----- -----
Los Angeles
County
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
West............... 28 1 29 20% 4,684 37 4,721 26% $21,633 33% $45,163 34%
North.............. 32 - 32 23% 2,876 - 2,876 16% 11,100 17% 21,061 16%
South.............. 16 - 16 12% 2,202 - 2,202 12% 7,667 11% 13,824 11%
Central............ 3 - 3 2% 609 - 609 3% 2,111 3% 3,847 3%
---- ---- ----- ---- ------ ---- ------ ---- ------- ---- ------- ----
Subtotal.......... 79 1 80 57% 10,371 37 10,408 57% 42,511 64% 83,895 64%
Orange County....... 21 - 21 15% 3,317 - 3,317 18% 10,816 17% 21,580 17%
San Diego County.... 21 - 21 15% 2,487 - 2,487 13% 8,332 12% 16,158 12%
Ventura County...... 4 - 4 3% 562 - 562 3% 1,693 3% 3,341 3%
Riverside/San
Bernardino
Counties............ 8 4 12 8% 554 415 969 6% 1,755 3% 3,645 3%
Kern County......... 2 - 2 1% 216 - 216 1% 704 1% 1,477 1%
---- ---- ----- ---- ------ ---- ------ ---- ------- ---- -------- ----
Subtotal.......... 135 5 140 99% 17,507 452 17,959 98% 65,811 100% 130,096 100%
Renovation
Properties.......... 2 - 2 1% 533 - 533 2% 324 0% 370 0%
---- ---- ----- ---- ------ ---- ------ ---- ------- ---- -------- ----
Total............. 137 5 142(1) 100% 18,040 452 18,492(1) 100% $66,135 100% $130,466 100%
==== ==== ===== ==== ====== ==== ====== ==== ======= ==== ======== ====
</TABLE>
----------
(1)Including three properties currently under development, our total portfolio
consists of 145 properties and approximately 19.2 million rentable square
feet.
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OCCUPANCY AND LEASING SUMMARY
Percent Occupied Percent Leased Annualized Base Rent
Location at 6/30/00 at 6/30/00 Per Leased Square Foot (1)
-------- ------------------------ ----------------------- ----------------------------------
Full
Industrial Industrial Industrial Service
and and and Gross
Office Retail Total Office Retail Total Office Retail Total Leases(2)
------ ---------- ----- ------ -------- ----- ------ --------- ----- ----------
Los Angeles County:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
West 95.0% 100.0% 95.1% 95.8% 100.0% 95.8% $22.75 $24.60 $22.77 $22.75
North 92.8% - 92.8% 94.5% - 94.5% 19.97 - 19.97 21.45
South 95.0% - 95.0% 95.7% - 95.7% 17.77 - 17.77 19.20
Central 90.1% - 90.1% 95.3% - 95.3% 19.79 - 19.79 19.79
Orange County 95.4% - 95.4% 97.0% - 97.0% 16.55 - 16.55 19.42
San Diego County 98.0% - 98.0% 98.1% - 98.1% 15.97 - 15.97 18.88
Ventura County 98.2% - 98.2% 99.3% - 99.3% 16.96 - 16.96 16.96
Riverside/San
Bernardino Counties 81.4% 95.7% 87.5% 82.7% 96.5% 88.6% 14.70 8.64 11.87 17.46
Kern County 88.7% - 88.7% 89.9% - 89.9% 18.81 - 18.81 -
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
SUBTOTAL/
WEIGHTED AVERAGE 94.6% 96.1% 94.6% 95.7% 96.8% 95.7% 18.94 9.98 18.71 20.71
Renovation
Properties 41.8% - 41.8% 68.7% - 68.7% 34.01 - 34.01 34.01
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL/ WEIGHTED
AVERAGE 93.0% 96.1% 93.1% 94.9% 96.8% 95.0% $19.26 $ 9.98 $19.03 $21.08
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
<PAGE>
----------
(1)Based on monthly contractual base rent under existing leases as of June 30,
2000, 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.
LEASE EXPIRATIONS
As of June 30, 2000
<TABLE>
<CAPTION>
Percentage Annualized
Square Footage of Base Rent
Number of Aggregate of Estimated Market
Year of Lease Expiration of Expiring Portfolio Expiring Rent of
Leases Leases Leased Leases Expiring Leases
Expiring (in thousands) Square Feet (per square foot) (per square foot)(1)
--------------------- -------- -------------- ----------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
Month-to-Month 185 339 2% $ 20.75 $ 23.81
2000 (2)............. 310 1,109 6% $ 17.56 $ 21.26
2001................. 654 2,283 13% $ 19.06 $ 23.77
2002................. 631 2,821 16% $ 18.48 $ 25.23
2003................. 517 3,005 17% $ 20.04 $ 26.31
2004................. 404 2,720 15% $ 20.46 $ 26.68
</TABLE>
----------
(1) Calculation based on our estimate of current market rental rates and annual
increases in such rates of 8%, 6%, 4%, 3% and 3%, in 2000, 2001, 2002, 2003
and 2004, respectively. Our estimates of these rental rates are based on
current trends which could change or reverse at any time as a result of
future events. Our ability to rent expiring lease space at estimated levels
is highly dependent upon many factors over which we have no control. We
undertake no obligation to update or correct these estimates if future
events prove them to be inaccurate.
(2) Represents leases expiring from July 1, 2000 through December 31, 2000.
LEASING ACTIVITY
For the Three and Six Months Ended June 30, 2000
<TABLE>
<CAPTION>
Net Weighted Average Tenant Improvements
Absorption Retention Lease Term and Commissions
(square feet) Rate (1) (in months) (per square foot)(2)
------------- --------- -------------- --------------------
New Renewal
------- -------
Three Months
<S> <C> <C> <C> <C> <C>
Ended 6/30/00 119,558 75% 54.3 $15.62 $10.59
=========== ========= ========== ====== ======
Six Months
Ended 6/30/00 410,141 73% 58.2 $15.73 $10.43
=========== ========= ========== ====== ======
</TABLE>
(1) Percentage of leases in which tenants were retained at lease expiration.
(2) Excludes properties under renovation and development.
DEVELOPMENT/RENOVATION SUMMARY
As of June 30, 2000
<TABLE>
<CAPTION> Estimated
Costs Percent Estimated Year 1
Incurred Estimated Leased Construction Estimated Stabilized Estimated
Date Total Cost (1) at Completion Stabilization NOI Annual
Property Square Feet (in thousands) (in thousands) 7/31/00 Date Date (in thousands) Yield
-------- ----------- -------------- --------------- ----------- ---------- ------------- -------------- ---------
Development:
Howard Hughes
Center
6060 Center
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Drive 240,724 $47,829 $56,000 100% Complete 3rd Qtr 2000 $6,250 11.2%
Univision
Building 158,473 10,058 51,700 100% 3rd Qtr 2001 3rd Qtr 2001 $5,199 10.1%
6080 Center
Drive 283,204 21,831 75,330 0% 2nd Qtr 2001 4th Qtr 2002 $8,288 11.0%
Unallocated
Acquisition
and Master Plan
Costs (1),(2) -- 21,391 34,600
------- ------- -------
Total Development
Properties 682,401 101,109 217,630
Renovation:
Westwood Center 313,000 86,634 91,122 98% Complete 4th Qtr 2000 $9,568 10.5%
Tourney Pointe 219,991 32,373 33,500 46% Complete 4th Qtr 2000 $2,943 8.8%
------- ------- -------
Total
Properties under 532,991 119,007 124,622
------- ------- -------
Renovation
Total Properties
under Development
and Renovation 1,215,392 $220,116 $ 342,252
</TABLE>
----------
(1) Estimated total cost includes purchase and closing costs, capital
expenditures, tenant improvements, leasing commissions and carrying costs
during renovation or development, and for the Howard Hughes Center
development properties also includes an allocation of land and Master Plan
costs. Master Plan costs include the costs of road and bridge construction
and other Howard Hughes Center infrastructure and master planning costs.
(2) 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 currently developing a
250,000 square foot retail and entertainment complex. This amount also
excludes approximately $4.3 million allocated to 6060 Center Drive, $5.1
million allocated to 6080 Center Drive, and approximately $1.6 million
allocated to the Univision building. We have entitlements to construct an
additional approximately 720,000 net rentable square feet of office space at
the Howard Hughes Center.
<PAGE>
Our ability to rent expiring lease space at estimated levels is highly
dependent upon many factors over which we have no control. These factors include
the national economic climate, perceptions of prospective tenants of the
attractiveness of our properties, and our ability to maintain and manage the
properties. We also have numerous competitors and some of the competing
properties may be newer, better located or owned by parties better capitalized
than us. As new commercial properties are developed and the number of
competitive commercial properties in a particular area increases, competitive
pressures will increase as well. Additionally, all of our properties are located
in Southern California. Our ability to charge estimated rents may be adversely
affected by the local economic climate (which could be adversely impacted by
business layoffs or downsizing, industry slowdowns, changing demographics and
other factors) and local real estate conditions (such as oversupply of or
reduced demand for office and other competing commercial properties). The
preceding discussion is not intended as an exhaustive list of the risks
associated with rent rate projections and should be read in conjunction with the
"Risk Factors" as stated in our registration statement on Form S-4, particularly
"--Real Estate Investment Risks," "--An Inability To Retain Tenants Or Rent
Space Upon Lease Expirations May Adversely Affect Our Ability To Service Our
Debt," "--Our Operating Performance And Property Values Will Be Affected By
Changes In The Economic Climate In Southern California," "--Competition Affects
Occupancy Levels And Rents Which Could Adversely Affect Our Revenue," "--The
Financial Condition And Solvency Of Our Tenants May Reduce Our Cash Flow,"
"--Increase In Taxes And Regulatory Compliance Costs May Reduce Our Revenue,"
"--We May Acquire Properties Through Partnerships Or Joint Ventures With Third
Parties That Could Result In Financial Dependency And Management Conflicts,"
"--We May Not Be Able To Integrate Or Finance Our Acquisitions and Renovation
Activities And Our Acquisitions And Renovations May Not Perform As Expected,"
"--We May Not Be Able To Integrate Or Finance Our Development Activities," and "
"--We May Not Be Able To Expand Into New Markets Successfully" in our
registration statement on Form S-4.
We undertake no obligation to update or correct these estimates if future
events prove them to be inaccurate.
As a result of the foregoing, you should not unduly rely on these
estimated rental rates.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Market risk is the exposure to loss resulting from changes in interest
rates, foreign currency exchange rates, commodity prices and equity prices. The
primary market risk to which we are exposed is interest rate risk, which is
sensitive to many factors, including governmental monetary and tax policies,
domestic and international economic and political considerations and other
factors that are beyond our control.
Interest Rate Risk
Even though we currently have no such agreements, in order to modify and
manage the interest characteristics of our outstanding debt and limit the
effects of interest rates on our operations, we may utilize 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.
Certain 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 at June 30,
2000, a one percentage point increase in interest rates on our $279.3 million of
floating rate debt would decrease annual future earnings and cash flows by
approximately $2.8 million and would not have an impact on the floating rate
debt fair value. A one percentage point decrease in interest rates on our $279.3
million of floating rate debt would increase annual future earnings and cash
flows by approximately $2.8 million and would not have an impact on the floating
rate debt fair value. A one percentage point increase or decrease in interest
rates on our secured note receivable would not have a material impact on annual
future earnings, cash flows and its fair value.
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 such an
environment. Further, in the event of a change of such magnitude, we would
consider taking actions to further mitigate our exposure to the change. However,
due to the uncertainty of the specific actions that would be taken and their
possible effects, this sensitivity analysis assumes no changes in our capital
structure.
<PAGE>
Part II OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a vote of Securities Holders
On May 22, 2000 Arden Realty held its annual meeting of shareholders in
Santa Monica, California. The matters voted on at the meeting and the results
were as follows:
1. To elect three Directors to serve as such until the annual meeting
of shareholders in the year 2003 and until their successors are duly
elected and qualified.
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Voted For Withheld
---------------- ----------------
<S> <C> <C>
Director #1 - Carl D. Covitz 52,561,863 944,765
Director #2 - Larry D. Flax 52,563,738 942,890
Director #3 - Kenneth B. Roath 52,565,863 940,765
</TABLE>
2. To amend the 1996 Stock Option and Amendment of Arden Realty, Inc.
and Arden Realty Limited Partnership to increase the number of
shares reserved for issuance from 4,200,000 to 6,500,000. A total of
43,358,341 shares voted for, with 9,940,308 shares voted against and
207,979 shares abstained.
3. To request the Board of Directors to redeem the shareholder purchase
rights issued in August 1998. A total of 35,768,114 shares voted
for, with 9,557,594 shares voted against and 302,062 shares
abstained.
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
3.1 Second Amended and Restated Agreement of Limited Partnership of the Arden
Realty Limited Partnership dated as of September 7, 1999, filed as an
exhibit to Arden Realty, Inc.'s quarterly report on Form 10-Q, filed with
the Commission on November 15, 1999 and incorporated herein by reference.
10.41 Second Amended and Restated Revolving Credit Agreement between Arden
Realty Limited Partnership and Wells Fargo Bank, dated May 2, 2000, filed
as an exhibit to Arden Realty, Inc.'s quarterly report on Form 10-Q, filed
with the Commission on May 12, 2000 and incorporated herein by reference.
27.1 Financial Data Schedule.
Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARDEN REALTY LIMITED PARTNERSHIP
By: Arden Realty, Inc.
Its:General Partner
Date: August 10, 2000 By: /s/ Daniel S. Bothe
----------------------------------
Daniel S. Bothe
Senior Vice President
Co-Chief Financial Officer
Date: August 10, 2000 By: /s/ Richard S. Davis
----------------------------------
Richard S. Davis
Senior Vice President,
Co-Chief Financial Officer and
Treasurer
