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[ARDEN REALTY, INC. LOGO]
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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, 2000
OR
[ ] 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)
MARYLAND 95-4578533
(State or other jurisdiction of (IRS Employer I.D. Number)
incorporation or organization)
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:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
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. [ ]
The aggregate market value of the shares of common stock held by non-affiliates
was approximately $1.5 billion based on the closing price on the New York Stock
Exchange for such shares on March 23, 2001.
The number of the Registrant's shares of common stock outstanding was 63,658,200
as of March 23, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this report incorporates information by reference from the
definitive Proxy Statement for the 2001 Annual Meeting of Stockholders.
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ARDEN REALTY, INC.
TABLE OF CONTENTS
ITEM PAGE
NO. NO.
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PART I
1. Business................................................................................ 3
2. Properties.............................................................................. 9
3. Legal Proceedings....................................................................... 20
4. Submission of Matters to a Vote of Security Holders..................................... 20
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters................... 21
6. Selected Financial Data................................................................. 22
7. Management's Discussion and Analysis of Financial Condition and Results of Operations... 24
7A. Quantitative and Qualitative Disclosure about Market Risk............................... 34
8. Financial Statements and Supplementary Data............................................. 43
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.... 43
PART III
10. Directors and Executive Officers of the Registrant...................................... 44
11. Executive Compensation.................................................................. 44
12. Security Ownership of Certain Beneficial Owners and Management.......................... 44
13. Certain Relationships and Related Transactions.......................................... 44
PART IV
14. Exhibits, Financial Statements and Reports on Form 8-K.................................. 46
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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. 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, 2000, owned 96.7% of the Operating
Partnership's common partnership units. We conduct substantially all of our
operations through the Operating Partnership and its consolidated subsidiaries.
(b) INDUSTRY SEGMENTS
We are currently involved in only one industry segment, namely the
operation of commercial real estate located in Southern California. All of the
financial information contained in this report relates to this industry segment.
(c) DESCRIPTION OF BUSINESS
We are a full-service real estate organization managed by 11 senior
executive officers who have experience in the real estate industry ranging from
8 to 30 years and who collectively have an average of 18 years of experience. We
perform all property management, construction management, accounting, finance
and acquisition activities and a majority of our leasing transactions for our
portfolio with our staff of approximately 300 employees.
As of December 31, 2000, we were Southern California's largest publicly
traded office landlord as measured by total net rentable square feet owned.
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, 2000, our portfolio consisted
of 142 primarily office properties containing approximately 18.7 million net
rentable square feet and three properties with approximately 725,000 net
rentable square feet under development. As of December 31, 2000, our properties
were approximately 95.5% leased.
PORTFOLIO MANAGEMENT
We perform all portfolio management activities, including management of all
lease negotiations, construction management of tenant improvements, or 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 four 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 managed by a regional manager who is responsible for supervising
the day-to-day activities of our management offices. Each regional office is
staffed with leasing, property management, building engineering, construction
and information systems specialists, our Regional Service Teams. By maintaining
a regionally focused organizational structure headed by seasoned managers, we
are able to quickly respond to our tenants' needs and market opportunities.
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.
We currently lease approximately 70% of our properties using our in-house
staff. We employ outside brokers who are monitored by our regional managers for
the remainder of our properties. Our in-house
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leasing program allows us to closely monitor rental rates and lease terms for
new and renewal leases and reduce third-party leasing commissions.
BUSINESS STRATEGIES
Our primary business strategy is to actively manage our portfolio to
achieve gains in rental rates and occupancy, to control operating expenses and
to maximize income from ancillary operations and services. When market
conditions permit, we may also selectively develop or acquire new properties in
submarkets that add value and fit strategically into our portfolio. We may also
sell existing mature or slow growth properties and deploy the proceeds into
investments that we believe will generate higher yields.
Through our corporate office and regional offices, we implement our
business strategies by:
o 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;
o emphasizing quality service, tenant satisfaction and retention;
o employing intensive property marketing and leasing programs; and
o 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
portfolio.
INTEGRATED DECISION MAKING
We use a multidisciplinary approach to our decision making by having our
management, leasing, construction management, acquisition, disposition 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, acquisition or disposition terms quickly, which facilitates an
efficient completion of lease negotiation and tenant build-out, shorter vacancy
periods after lease expirations and the timely completion of development,
acquisition or disposition 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 outside
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 2000, we
signed approximately 1,000 leases for approximately 4.5 million net rentable
square feet, including approximately 513,000 square feet of net absorption. We
consider net absorption to consist of the total square feet of new and renewal
leases signed less the total square feet of leases expired during a particular
period.
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COST CONTROL AND OPERATING EFFICIENCIES
The size and geographic focus of our portfolio permits us to enhance
portfolio value by controlling 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:
o the sound fundamentals of the Southern California real estate market,
as measured by declining vacancy rates and increasing rental rates,
particularly in the submarkets where our properties are located;
o 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; and
o the strong diversification of the Southern California economy and our
tenant base minimizes the dependence on any one industry segment.
INTERNAL GROWTH
We believe that opportunities exist to increase cash flow from our existing
portfolio. We intend to pursue internal growth by:
o leasing space and renewing leases as they expire at increasing rents
and maximizing scheduled rent increases throughout the new lease term;
o maintaining or improving current occupancy levels throughout our
portfolio by active management and aggressive leasing;
o controlling operating expenses through active cost control management
and systems;
o realizing economies of scale and concentration due to the size and
geographic focus of our portfolio; and
o 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 needs, or moved to other
space within our portfolio.
Leasing Space and Renewing Leases as They Expire at Increasing Rents
Rental rates for the majority of our leases are significantly lower than
the current market rental rates. In 2000, vacancy rates decreased and average
rental rates increased in our markets. During 2000, for all leases expiring that
we renewed or released, rates increased approximately 20% over the expiring
rates. Although it is difficult to predict future trends, we believe we will
have opportunities to increase cash flow by renewing
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or re-leasing space as leases expire at higher rents and to maximize scheduled
rent increases throughout the new lease terms.
Cost Control Management and Systems
We plan to continue controlling our operating expenses through active
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:
o lighting retrofits;
o replacement of inefficient heating, ventilation and air conditioning
systems;
o computer-driven energy management systems that monitor and react to
the climatic requirements of individual properties;
o automated security systems that allow us to provide security services
to our tenants at a lower cost;
o enhancement of billing systems, which enable us to more efficiently
recover operating expenses from our tenants; and
o 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 Regional Service Teams 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. In 1999, we entered into 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, at their cost. During 2000 we
completed the installation of this network. In addition to high speed Internet
services, this network provides 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 sound fundamentals, diversity 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 selective
development, renovation and acquisition opportunities.
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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:
o low vacancy rates;
o opportunities for rising rents due to employment growth and population
movements;
o a minimal amount of developable land; and
o significant barriers to entry because of constraints on new
development, including challenging local entitlement processes,
strictly enforced height and density restrictions and governmental
requirements resulting in significant additional construction costs.
COMPETITION
We compete with other owners and developers of office properties to attract
tenants to our properties and obtain suitable land for development. Ownership of
competing properties is currently diversified among many different types, from
publicly traded companies and institutional investors, including other REITs, to
small enterprises and individual owners. No one owner or group of owners
currently dominate or significantly influence the markets in which we operate.
See "Risk Factors - Competition affects occupancy levels, rents and the cost of
land which could adversely affect our revenues."
CALIFORNIA ELECTRIC UTILITY DEREGULATION
Problems associated with deregulation of the electric industry in
California have resulted in intermittent service interruptions and significantly
higher costs in some areas. Approximately 55% of our buildings and 56% of the
total net rentable square footage of our portfolio are located within
municipalities that either do not produce their own power or have not entered
into long term fixed price contracts. These properties may be subject to
intermittent service interruptions or rate increases from their utility
providers. The remaining portion of our portfolio is located in areas that are
not expected to be subject to intermittent electric service interruptions and
significant electric rate increases.
Approximately 19% of our buildings and 15% of the total net rentable square
footage of our portfolio are subject to leases that require our tenants to pay
all utility costs and the remainder provide that our tenants will reimburse us
for utility costs in excess of a base year amount. We estimate that we will be
able to recover approximately 90% of any utility cost increases from our
tenants. See "Risk Factors - Rising energy costs and power outages in California
may have an adverse effect on our operations and revenue."
Since 1999, Arden has applied considerable resources to energy enhancement
programs with the aim of reducing energy consumption, enhancing efficiency and
lowering operating costs. For the past two years, we have been recognized by the
Environmental Protection Agency with the national Commercial Real Estate Partner
of the Year award for our performance in the Energy Star Program. The
competition involves top commercial real estate landlords throughout the United
States and rigorous bench-marking procedures that track individual building
energy efficiency. Of the 215 total Energy Star designated office buildings
awarded nationally, 93 were awarded in California, of those, we had 80
award-winning buildings and were cited for having the most energy efficient
buildings within a single portfolio in the nation.
We are also working with other companies to provide new applications of
Distributed Generation, or on-site energy systems, such as solar microturbines,
natural gas reciprocating engines, fuel cells and other "green" power
alternatives. Lastly, we maintain ongoing communication with our tenants to
assist them in ways to lower consumption in their workplace.
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EMPLOYEES
As of December 31, 2000, we had approximately 300 full-time employees that
perform all of our property management, construction 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.
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ITEM 2. PROPERTIES
Existing Portfolio
Our portfolio consists of 142 primarily office properties, containing
approximately 18.7 million net rentable square feet, that individually range
from approximately 12,000 -- 600,000 net rentable square feet. Of the 142
properties in our portfolio, 137 or 96% are office properties. All our
properties are located in Southern California and most are in suburban areas in
close proximity to main thoroughfares. 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 high speed
internet access, security, parking, conference facilities, on-site management,
food services and health clubs.
Following is a summary of our property portfolio as of December 31, 2000:
NET OPERATING
INCOME FOR THE YEAR
APPROXIMATE NET ENDED
NUMBER OF PROPERTIES RENTABLE SQUARE FEET DECEMBER 31, 2000
------------------------------------- ---------------------------------------------- --------------------
INDUSTRIAL INDUSTRIAL
AND % OFF AND % OF % OF
LOCATION OFFICE RETAIL TOTAL TOTAL OFFICE RETAIL TOTAL TOTAL TOTAL TOTAL
- --------- ------- ------ --------- --------- ---------- --------- ---------- -------- ---------- -------
Los Angeles County:
West.................. 30 1 31 22% 5,238,543 36,959 5,275,502 29% $ 102,312 37%
North................. 32 -- 32 23 3,021,048 -- 3,021,048 16 42,679 16
South................. 16 -- 16 11 2,201,823 -- 2,201,823 12 26,816 10
Central............... 3 -- 3 2 608,789 -- 608,789 3 8,956 3
Orange County........... 21 -- 21 15 3,317,302 -- 3,317,302 18 43,101 16
San Diego County........ 21 -- 21 15 2,486,777 -- 2,486,777 13 33,470 12
Ventura County.......... 4 -- 4 3 561,841 -- 561,841 3 6,839 2
Riverside/San Bernardino
Counties.............. 8 4 12 8 553,896 414,674 968,570 5 6,972 3
Kern County............. 2 -- 2 1 216,522 -- 216,522 1 2,528 1
--- - --- --- ---------- ------- ---------- --- --------- ---
TOTAL............... 137 5 142 100% 18,206,541 451,633 18,658,174 100% $ 273,673 100%
=== == === ==== ========== ======= ========== === ========= ===
PERCENT OCCUPIED PERCENT LEASED ANNUALIZED BASE RENT
AT DECEMBER 31, 2000 AT DECEMBER 31, 2000 PER LEASED SQUARE FOOT(1)
---------------------------- ---------------------------- -------------------------------------
FULL
INDUSTRIAL INDUSTRIAL INDUSTRIAL SERVICE
AND AND AND GROSS
LOCATION OFFICE RETAIL TOTAL OFFICE RETAIL TOTAL OFFICE RETAIL TOTAL LEASES(2)
- -------- ------ ------ ------- ------- -------- --------- -------- -------- ------- --------
Los Angeles County:
West................... 94.4% 100.0% 94.5% 95.2% 100.0% 95.2% $ 25.03 $ 24.60 $ 25.03 $ 25.03
North.................. 88.5 -- 88.5 90.5 -- 90.5 20.55 -- 20.55 21.73
South.................. 94.3 -- 94.3 96.6 -- 96.6 18.07 -- 18.07 19.55
Central................ 94.7 -- 94.7 97.1 -- 97.1 19.82 -- 19.82 19.82
Orange County............ 97.5 -- 97.5 98.5 -- 98.5 16.97 -- 16.97 19.97
San Diego County......... 98.3 -- 98.3 98.3 -- 98.3 16.59 -- 16.59 19.64
Ventura County........... 100.0 -- 100.0 100.0 -- 100.0 17.21 -- 17.21 17.21
Riverside/San Bernardino
Counties............... 83.9 96.4 89.2 85.7 96.4 90.3 15.14 8.99 12.33 17.89
Kern County.............. 88.3 -- 88.3 89.4 -- 89.4 17.27 -- 17.27 --
----- ----- ----- ----- ---- ----- ------- ------ ------- ------
Total/Weighted Average.. 94.3% 96.7% 94.4% 95.5% 96.7% 95.5% $ 19.99 $ 10.31 $ 19.75 $ 21.88
===== ====== ===== ===== ===== ===== ======= ======= ======= =======
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(1) Calculated as monthly contractual base rent under existing leases as of
December 31, 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 47 properties and approximately 4.1 million net rentable square
feet under triple net and modified gross leases. Triple net and modified
gross leases are those where tenants pay not only base rent but also some
or all real estate taxes and operating expenses of the leased property. If
these properties and square footage had been included, our total weighted
average annualized base rent per leased net rentable square foot would be
$19.75.
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Development Properties
In addition to the properties listed above, we currently have three
properties under development containing approximately 725,000 net rentable
square feet. These properties are located in the Howard Hughes Center, a 70-acre
commercial development located two miles north of Los Angeles International
Airport and immediately adjacent to the San Diego Freeway (I-405), with on- and
off-ramps that directly serve the site.
The following table summarizes information about our properties under
development as of December 31, 2000.
ESTIMATED
PERCENT ESTIMATED ESTIMATED YEAR 1
COST LEASED CONSTRUCTION ESTIMATED YEAR 1 ANNUAL
PROPERTY SQUARE INCURRED ESTIMATED AT COMPLETION STABILIZATION STABILIZED CASH
FEET TO DATE TOTAL COST(1) 1/31/01 DATE DATE(2) CASH NOI(3) YIELD
---- ------- ------------- ------- ---- ------- ----------- -----
(IN THOUSANDS)(IN THOUSANDS (IN THOUSANDS)
Howard Hughes Center
Univision Build-to-Suit.. 159,000 $25,397 $ 51,700 100% 3rd Qtr 2001 3rd Qtr 2001 $ 5,200 10.1%
6080 Center Drive........ 283,000 43,925 73,500 75% 2nd Qtr 2001 4th Qtr 2001 $ 8,400 11.4%
6100 Center Drive........ 283,000 12,298 79,000 -- 2nd Qtr 2002 2nd Qtr 2003 $ 8,850 11.2%
Unallocated Acquisition
and Master Plan Costs (1) -- 11,764 19,800
------- ------- --------
Total Development
Properties.......... 725,000 $93,384 $224,000
======= ======== ========
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(1) Estimated total cost includes purchase and closing costs, capital
expenditures, tenant improvements, leasing commissions and carrying costs
during development, as well as an allocation of land and master plan costs.
Unallocated acquisition and master plan costs consists of unallocated land
costs and master plan costs that will be allocated to future development
projects at the Howard Hughes Center. We have entitlements to construct an
additional approximately 425,000 net rentable square feet of office space
at the Howard Hughes Center.
(2) We consider a property to be stabilized in the quarter when the property is
at least 95% leased.
(3) We consider Stabilized Cash NOI to be the rental revenues from the property
less the operating expenses of the property on a cash basis before
deducting financing costs (interest and principal payments) after the
property is at least 95% leased.
In addition to the properties above, we have preliminary architectural
designs completed for additional build-to-suit buildings at the Howard Hughes
Center totaling an additional approximately 425,000 net rentable square feet.
Build-to-suit buildings consist of properties constructed to the tenant's
specifications in return for the tenant's long term commitment to the property.
We do not intend to commence construction on any additional build-to-suit
buildings at the Howard Hughes Center until development plans and budgets are
finalized and build-to-suit tenant leases are signed with terms allowing us to
achieve yields commensurate with the project's development risk.
In addition to our development at the Howard Hughes Center, we have
completed preliminary designs and are marketing an approximately 170,000 net
rentable square foot build-to-suit office building at our Long Beach Airport
Business Park. We do not intend to commence construction on this project until a
build-to-suit tenant lease is signed with terms allowing us to achieve yields
commensurate with the project's development risk.
We expect to finance our development activities over the next 24 months
through net cash provided by operating activities, proceeds from asset sales or
proceeds from our lines of credit.
Acquisitions
We did not acquire any properties in 2000.
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Dispositions
On October 13, 2000, we sold a 76,000 net rentable square foot retail
property located in Thousand Oaks, California, for approximately $12.0 million
and recorded a gain of approximately $2.1 million.
As of December 31, 2000, we had approximately $59.6 million of properties
held for sale. We intend to reinvest the net proceeds from the sale of these
mature or slow growth assets into higher yielding investments.
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The following table presents specific information regarding our 142
properties as of December 31, 2000:
YEAR(s)
BUILT/
PROPERTY NAME SUBMARKET LOCATION RENOVATED
- ------------- ----------------------------- -------------- ---------
OFFICE
LOS ANGELES COUNTY
LOS ANGELES WEST
9665 Wilshire................ Beverly Hills/Century City Beverly Hills 1972/92-93
Beverly Atrium............... Beverly Hills/Century City Beverly Hills 1989
8383 Wilshire................ Beverly Hills/Century City Beverly Hills 1971/93
120 South Spalding........... Beverly Hills/Century City Beverly Hills 1984
9100 Wilshire Blvd........... Beverly Hills/Century City Beverly Hills 1971/90
Century Park Center.......... Beverly Hills/Century City Los Angeles 1972/94
10350 Santa Monica........... Beverly Hills/Century City Los Angeles 1979
10351 Santa Monica........... Beverly Hills/Century City Los Angeles 1984
Westwood Terrace............. Westwood/West Los Angeles Los Angeles 1988
1950 Sawtelle................ Westwood/West Los Angeles Los Angeles 1988/95
10780 Santa Monica........... Westwood/West Los Angeles Los Angeles 1984
Wilshire Pacific Plaza....... Westwood/West Los Angeles Los Angeles 1976/87
World Savings Center(2)...... Westwood/West Los Angeles Los Angeles 1983
11075 Santa Monica........... Westwood/West Los Angeles Los Angeles 1983
2730 Wilshire(3)............. Westwood/West Los Angeles Santa Monica 1985
2800 28th Street............. Westwood/West Los Angeles Santa Monica 1979
1919 Santa Monica............ Westwood/West Los Angeles Santa Monica 1991
2001 Wilshire................ Westwood/West Los Angeles Santa Monica 1980
Westwood Center.............. Westwood/West Los Angeles Santa Monica 1965/2000
400 Corporate Pointe......... Marina Area/Culver City/LAX Culver City 1987
600 Corporate Pointe......... Marina Area/Culver City/LAX Culver City 1989
Bristol Plaza................ Marina Area/Culver City/LAX Culver City 1982
5200 West Century............ Marina Area/Culver City/LAX Culver City 1982/98-99
Skyview Center............... Marina Area/Culver City/LAX Los Angeles 1981/87/95
Northpoint................... Marina Area/Culver City/LAX Los Angeles 1991
Howard Hughes Tower.......... Marina Area/Culver City/LAX Los Angeles 1987
6060 Center Drive............ Marina Area/Culver City/LAX Los Angeles 2000
6100 Wilshire................ Park Mile/West Hollywood Los Angeles 1986
145 South Fairfax............ Park Mile/West Hollywood Los Angeles 1984
Beverly Sunset Medical Plaza. Park Mile/West Hollywood Los Angeles 1963/92-95
Subtotal/Weighted Average -
Los Angeles West..........
ANNUALIZED
PERCENTAGE OF BASE RENT
TOTAL PER LEASED
APPROXIMATE PORTFOLIO NET ANNUALIZED NUMBER NET RENTABLE
NET RENTABLE RENTABLE PERCENT BASE RENT OF SQUARE
PROPERTY NAME SQUARE FEET SQUARE FEET LEASED ($000S) LEASES FEET(1)
- ------------- ----------- ------------ ------ --------- -------- ------------
OFFICE
LOS ANGELES COUNTY
LOS ANGELES WEST
9665 Wilshire................ 158,684 0.9% 100.0% $ 5,376 24 $33.65
Beverly Atrium............... 59,650 0.3 88.6 1,353 11 25.61
8383 Wilshire................ 417,463 2.2 94.1 9,060 130 23.06
120 South Spalding........... 60,656 0.3 100.0 2,242 14 35.82
9100 Wilshire Blvd........... 326,227 1.7 94.4 7,532 80 24.47
Century Park Center.......... 243,404 1.3 87.6 4,614 107 21.64
10350 Santa Monica........... 42,292 0.2 100.0 984 19 23.19
10351 Santa Monica........... 96,251 0.5 100.0 2,013 18 20.89
Westwood Terrace............. 135,943 0.7 100.0 4,164 28 30.40
1950 Sawtelle................ 103,106 0.6 100.0 2,186 35 21.20
10780 Santa Monica........... 92,486 0.5 95.1 1,856 35 21.11
Wilshire Pacific Plaza....... 100,122 0.5 95.8 2,278 40 23.75
World Savings Center(2)...... 469,115 2.5 98.1 13,521 55 29.38
11075 Santa Monica........... 35,696 0.2 100.0 731 7 20.49
2730 Wilshire(3)............. 55,080 0.3 100.0 1,348 32 24.02
2800 28th Street............. 103,506 0.6 94.1 2,350 40 24.12
1919 Santa Monica............ 43,796 0.2 100.0 1,115 5 25.46
2001 Wilshire................ 101,125 0.5 100.0 2,574 22 25.46
Westwood Center.............. 313,000 1.7 87.2 10,602 34 38.85
400 Corporate Pointe......... 164,598 0.9 100.0 3,003 21 18.25
600 Corporate Pointe......... 273,339 1.5 97.6 5,874 24 22.02
Bristol Plaza................ 84,014 0.5 95.8 1,567 27 19.47
5200 West Century............ 310,910 1.7 95.0 4,913 37 16.63
Skyview Center............... 391,675 2.1 87.1 5,670 54 16.62
Northpoint................... 104,235 0.6 96.9 2,469 9 24.44
Howard Hughes Tower.......... 313,833 1.7 100.0 8,175 35 25.96
6060 Center Drive............ 241,928 1.3 100.0 8,273 9 34.20
6100 Wilshire................ 202,704 1.1 100.0 4,733 54 22.98
145 South Fairfax............ 53,994 0.3 100.0 1,141 13 21.06
Beverly Sunset Medical Plaza. 139,711 0.7 72.8 3,123 57 30.74
-------- ---- ------ --------- ----- ------
Subtotal/Weighted Average -
Los Angeles West.......... 5,238,543 28.1% 95.2% $ 124,840 1,076 $25.03
12
13
YEAR(s)
BUILT/
PROPERTY NAME SUBMARKET LOCATION RENOVATED
- ------------- ----------------------------- -------------- ---------
LOS ANGELES NORTH
Calabasas Commerce Center....... Simi/Conejo Valley Calabasas 1990
Calabasas Tech Center........... Simi/Conejo Valley Calabasas 1990
Thousand Oaks Plaza............. Simi/Conejo Valley Thousand Oaks 1988
Rancho Road..................... Simi/Conejo Valley Thousand Oaks 1987
Pennsfield Plaza................ Simi/Conejo Valley Thousand Oaks 1989
Conejo Business Center.......... Simi/Conejo Valley Thousand Oaks 1991
Marin Corporate Center.......... Simi/Conejo Valley Thousand Oaks 1986
Hillside Corporate Center....... Simi/Conejo Valley Westlake 1998
5601 Lindero Canyon............. Simi/Conejo Valley Westlake 1989
Renaissance Court............... Simi/Conejo Valley Westlake 1981/92
Westlake Gardens I.............. Simi/Conejo Valley Westlake 1998
Westlake Gardens II............. Simi/Conejo Valley Westlake 1999
6800 Owensmouth(2).............. West San Fernando Valley Canoga Park 1986
Woodland Hills Financial Center. West San Fernando Valley Woodland Hills 1972/95
Clarendon Crest................. West San Fernando Valley Woodland Hills 1990
Lyons Plaza..................... Santa Clarita Valley Santa Clarita 1990
Tourney Pointe.................. Santa Clarita Valley Santa Clarita 1985/98-2000
16000 Ventura................... Central San Fernando Valley Encino 1980/96
15250 Ventura................... Central San Fernando Valley Sherman Oaks 1970/90-91
Noble Professional Center....... Central San Fernando Valley Sherman Oaks 1985/93
Sunset Pointe Plaza............. Valencia Newhall 1988
303 Glenoaks Blvd............... East San Fernando Valley/Tri-Cities Burbank 1983/96
601 South Glenoaks.............. East San Fernando Valley/Tri-Cities Burbank 1990
Burbank Executive Plaza......... East San Fernando Valley/Tri-Cities Burbank 1983
California Federal Building..... East San Fernando Valley/Tri-Cities Burbank 1978
425 West Broadway............... East San Fernando Valley/Tri-Cities Glendale 1984
Glendale Corporate Center....... East San Fernando Valley/Tri-Cities Glendale 1985
70 South Lake................... East San Fernando Valley/Tri-Cities Pasadena 1982/94
150 East Colorado............... East San Fernando Valley/Tri-Cities Pasadena 1979/97
299 North Euclid................ East San Fernando Valley/Tri-Cities Pasadena 1983
5161 Lankershim................. East San Fernando Valley/Tri-Cities North Hollywood 1985/97
535 Brand Boulevard............. East San Fernando Valley/Tri-Cities North Hollywood 1973/92/2000
Subtotal/Weighted Average --
Los Angeles North............
ANNUALIZED
PERCENTAGE OF BASE RENT
TOTAL PER LEASED
APPROXIMATE PORTFOLIO NET ANNUALIZED NUMBER NET RENTABLE
NET RENTABLE RENTABLE PERCENT BASE RENT OF SQUARE
PROPERTY NAME SQUARE FEET SQUARE FEET LEASED ($000S) LEASES FEET(1)
- ------------- ----------- ----------- ------ ---------- ------ -----------
LOS ANGELES NORTH
Calabasas Commerce Center....... 126,771 0.7% 99.6% $ 2,123 12 $16.81
Calabasas Tech Center........... 273,526 1.5 86.4 3,678 12 15.61
Thousand Oaks Plaza............. 13,434 0.1 100.0 226 5 16.80
Rancho Road..................... 24,057 0.1 100.0 405 20 16.83
Pennsfield Plaza................ 21,202 0.1 95.0 358 12 17.76
Conejo Business Center.......... 69,017 0.4 97.6 1,227 30 18.23
Marin Corporate Center.......... 51,360 0.3 99.5 1,040 32 20.36
Hillside Corporate Center....... 59,876 0.3 100.0 1,436 9 23.98
5601 Lindero Canyon............. 105,830 0.6 100.0 1,489 2 14.07
Renaissance Court............... 61,245 0.3 90.8 1,114 15 20.03
Westlake Gardens I.............. 49,639 0.3 93.6 1,200 17 25.81
Westlake Gardens II............. 48,874 0.3 100.0 1,243 4 25.44
6800 Owensmouth(2).............. 80,014 0.4 82.8 1,270 13 19.17
Woodland Hills Financial Center. 224,955 1.2 86.9 4,310 68 22.04
Clarendon Crest................. 43,063 0.2 91.2 737 11 18.75
Lyons Plaza..................... 61,203 0.3 83.3 1,137 23 22.32
Tourney Pointe.................. 219,991 1.2 48.4 2,078 16 19.51
16000 Ventura................... 174,841 0.9 98.1 3,573 49 20.82
15250 Ventura................... 110,641 0.6 95.3 2,348 39 22.27
Noble Professional Center....... 51,828 0.3 99.9 1,096 20 21.16
Sunset Pointe Plaza............. 58,105 0.3 99.8 1,369 31 23.60
303 Glenoaks Blvd............... 175,289 0.9 98.5 3,890 24 22.53
601 South Glenoaks.............. 72,524 0.4 100.0 1,460 16 20.13
Burbank Executive Plaza......... 60,395 0.3 91.7 1,301 14 23.50
California Federal Building..... 81,243 0.4 86.2 1,628 10 23.22
425 West Broadway............... 71,589 0.4 85.4 1,258 12 20.56
Glendale Corporate Center....... 108,209 0.6 88.8 1,966 24 20.44
70 South Lake................... 100,133 0.5 100.0 2,492 19 24.84
150 East Colorado............... 61,168 0.3 95.4 1,164 20 19.93
299 North Euclid................ 73,522 0.4 100.0 1,476 5 20.03
5161 Lankershim................. 178,317 1.0 97.1 3,937 9 22.74
535 Brand Boulevard............. 109,187 0.6 92.8 2,193 31 21.64
-------- ---- ------ --------- ----- -------
Subtotal/Weighted Average --
Los Angeles North............ 3,021,048 16.2% 90.5% $ 56,222 624 $ 20.55
13
14
YEAR(s)
BUILT/
PROPERTY NAME SUBMARKET LOCATION RENOVATED
- ------------- ----------- --------- ---------
LOS ANGELES SOUTH
4811 Airport Plaza(2)................ Long Beach Long Beach 1987/95
4900/4910 Airport Plaza(2)........... Long Beach Long Beach 1987/95
5000 East Spring(2).................. Long Beach Long Beach 1989/95
100 West Broadway.................... Long Beach Long Beach 1987/96
1501 Hughes Way...................... Long Beach Long Beach 1983/97
3901 Via Oro......................... Long Beach Long Beach 1986/97
Oceangate Tower...................... Long Beach Long Beach 1971/93-94
Norwalk.............................. Long Beach Norwalk 1978/94
91 Freeway Business Center........... Mid-Cities Artesia 1986/97
Continental Grand.................... El Segundo El Segundo 1986
Grand Avenue Plaza................... El Segundo El Segundo 1979/80
South Bay Centre..................... Torrance Gardena 1984
Harbor Corporate Center.............. Torrance Gardena 1985
Pacific Gateway II................... Torrance Torrance 1982/90
Mariner Court........................ Torrance Torrance 1989
South Bay Technology Center.......... Torrance Torrance 1984
Subtotal/Weighted Average --
Los Angeles South............
LOS ANGELES CENTRAL
Los Angeles Corporate Center......... San Gabriel Valley Monterey Park 1984/86
Whittier Financial Center............ San Gabriel Valley Whittier 1967/82
Gateway Center....................... San Gabriel Valley Diamond Bar 1988
Subtotal/Weighted Average --
Los Angeles Central..........
ANNUALIZED
PERCENTAGE OF BASE RENT
TOTAL PER LEASED
APPROXIMATE PORTFOLIO NET ANNUALIZED NUMBER NET RENTABLE
NET RENTABLE RENTABLE PERCENT BASE RENT OF SQUARE
PROPERTY NAME SQUARE FEET SQUARE FEET LEASED ($000S) LEASES FEET(1)
- ------------- ------------- ------------ --------- ---------- -------- -----------
LOS ANGELES SOUTH
4811 Airport Plaza(2)........... 121,610 0.7% 100.0% $ 1,211 1 $ 9.96
4900/4910 Airport Plaza(2)...... 150,403 0.8 100.0 1,354 1 9.00
5000 East Spring(2)............. 163,358 0.8 91.0 3,258 30 21.91
100 West Broadway............... 191,727 1.0 98.3 4,100 33 21.75
1501 Hughes Way................. 77,060 0.4 100.0 1,271 7 16.43
3901 Via Oro.................... 53,195 0.3 96.8 865 4 16.81
Oceangate Tower................. 210,907 1.1 90.7 3,329 43 17.40
Norwalk......................... 122,175 0.7 97.7 2,034 9 17.04
91 Freeway Business Center...... 93,277 0.5 98.7 1,729 31 18.78
Continental Grand............... 235,926 1.3 99.1 5,908 45 25.28
Grand Avenue Plaza.............. 81,448 0.4 99.8 1,303 6 16.03
South Bay Centre................ 202,830 1.1 94.5 3,410 40 17.80
Harbor Corporate Center......... 63,925 0.3 94.5 936 21 15.51
Pacific Gateway II.............. 223,731 1.2 99.2 4,371 41 19.69
Mariner Court................... 105,436 0.6 98.4 1,900 40 18.32
South Bay Technology Center..... 104,815 0.6 89.6 1,470 10 15.66
-------- ---- ------ --------- --- ------
Subtotal/Weighted Average -- 2,201,823 11.8% 96.6% $ 38,449 362 $18.07
Los Angeles South............
LOS ANGELES CENTRAL
Los Angeles Corporate Center.... 389,293 2.1 97.2 7,169 41 18.94
Whittier Financial Center....... 135,415 0.7 95.0 2,826 39 21.98
Gateway Center.................. 84,081 0.5 100.0 1,727 17 20.50
-------- ---- ------ --------- --- ------
Subtotal/Weighted Average --
Los Angeles Central.......... 608,789 3.3% 97.1% $ 11,722 97 $19.82
14
15
YEAR(s) APPROXIMATE
BUILT/ NET RENTABLE
PROPERTY NAME SUBMARKET LOCATION RENOVATED SQUARE FEET
- ------------- ----------------------------- -------------- --------- -------------
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
ANNUALIZED
PERCENTAGE OF BASE RENT
TOTAL PER LEASED
PORTFOLIO NET ANNUALIZED NUMBER NET RENTABLE
RENTABLE PERCENT BASE RENT OF SQUARE
PROPERTY NAME SQUARE FEET LEASED ($000S) LEASES FEET(1)
- ------------- ----------- --------- ---------- ------- -----------
ORANGE COUNTY
5832 Bolsa...................... 0.3% 100.0% $ 651 1 $13.20
Huntington Beach Plaza I & II... 0.3 99.1 786 17 15.20
5702 Bolsa...................... 0.1 100.0 202 2 7.28
5672 Bolsa...................... 0.1 100.0 103 1 8.61
5632 Bolsa...................... 0.1 100.0 181 1 8.40
Huntington Commerce Center...... 0.4 100.0 531 21 7.85
City Centre..................... 1.6 99.7 5,096 25 16.89
Fountain Valley Plaza........... 0.6 99.6 2,128 8 19.92
3300 Irvine Avenue.............. 0.4 97.8 1,611 28 22.20
1821 East Dyer Boulevard........ 0.6 100.0 1,406 3 12.15
Von Karman Corporate Center..... 2.4 100.0 9,024 31 19.99
South Coast Executive Plaza..... 0.3 97.7 1,006 25 16.98
Anaheim City Centre (2)......... 0.9 100.0 3,445 18 19.45
Crown Cabot Financial........... 0.9 99.0 4,394 39 25.66
625 The City.................... 0.7 97.4 2,673 33 19.62
One Venture..................... 0.3 100.0 1,086 8 24.85
Orange Financial Center......... 1.6 93.1 5,836 41 20.52
Centerpointe La Palma........... 3.2 98.0 10,324 83 17.63
Lambert Office Plaza............ 0.2 98.2 628 10 19.51
Savi Tech Center................ 1.8 100.0 3,037 4 8.89
Yorba Linda Business Park....... 0.9 93.8 1,268 59 8.09
---- ------ ---------- --- ------
Subtotal/Weighted Average --
Orange County................ 17.7% 98.5% $ 55,416 458 $16.97
15
16
YEAR(s) APPROXIMATE
BUILT/ NET RENTABLE
PROPERTY NAME SUBMARKET LOCATION RENOVATED SQUARE FEET
- ------------- ----------------------------- -------------- --------- -------------
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 Boulevard... I-15 Corridor San Diego 1978/96 43,560
Cymer Technology Center......... I-15 Corridor Rancho Bernardino 1986 155,612
10965-93 Via Frontera........... I-15 Corridor Rancho Bernardino 1982/97 77,920
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
Morehouse Tech.................. 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
ANNUALIZED
PERCENTAGE OF BASE RENT
TOTAL PER LEASED
PORTFOLIO NET ANNUALIZED NUMBER NET RENTABLE
RENTABLE PERCENT BASE RENT OF SQUARE
PROPERTY NAME SQUARE FEET LEASED ($000S) LEASES FEET(1)
- ------------- ----------- ------ ---------- ------ -------------
SAN DIEGO COUNTY
Imperial Bank Tower(2).......... 2.9% 97.8% $ 10,236 94 $19.37
Foremost Professional Plaza..... 0.3 90.3 1,253 34 22.92
Activity Business Center........ 0.9 91.8 1,862 40 12.14
Bernardo Regency................ 0.3 95.2 1,100 16 24.13
Carlsbad Corporate Center....... 0.7 100.0 1,725 1 13.80
10180 Scripps Ranch Boulevard... 0.2 100.0 412 1 9.45
Cymer Technology Center......... 0.8 100.0 1,760 2 11.31
10965-93 Via Frontera........... 0.4 100.0 794 6 10.08
Poway Industrial................ 0.6 100.0 605 1 5.40
Balboa Corporate Center......... 0.4 100.0 803 1 11.49
Panorama Corporate Center....... 0.7 100.0 2,317 1 17.40
Ruffin Corporate Center......... 0.2 100.0 449 1 9.95
Skypark Office Plaza............ 1.1 99.7 3,579 16 17.76
Governor Park Plaza............. 0.6 100.0 2,138 20 20.43
Westridge....................... 0.3 100.0 631 4 12.90
5120 Shoreham................... 0.2 100.0 678 1 17.95
Morehouse Tech.................. 1.0 94.9 3,177 7 18.48
Torreyanna Science Park......... 0.4 100.0 1,784 1 21.97
Waples Tech Center.............. 0.2 100.0 378 3 13.46
Genesee Executive Plaza......... 0.8 99.7 3,750 18 24.15
10251 Vista Sorrento............ 0.4 100.0 1,125 1 16.21
---- -------- --------- --- ------
Subtotal/Weighted Average --
San Diego County............. 13.4% 98.3% $ 40,556 269 $16.59
16
17
YEAR(s)
BUILT/
PROPERTY NAME SUBMARKET LOCATION RENOVATED
- ------------- -------------------- ------------ ---------
VENTURA COUNTY
Center Promenade................ West County Ventura 1982
1000 Town Center................ West County Oxnard 1989
Solar Drive Business Park....... West County Oxnard 1982
Camarillo Business Center....... West County Camarillo 1984/97
Subtotal/Weighted Average --
Ventura County...............
RIVERSIDE AND SAN BERNARDINO
COUNTIES
Centrelake Plaza................ Inland Empire West Ontario 1989
Tower Plaza I................... Temecula Temecula 1988
Tower Plaza II.................. Temecula Temecula 1983
Tower Plaza III................. Temecula Temecula 1983
Chicago Avenue Business Park.... Inland Empire East Riverside 1986
Hunter Business Center.......... Inland Empire East Riverside 1990
Havengate....................... Inland Empire East Rancho Cucamonga 1985
HDS Plaza....................... Inland Empire East San Bernardino 1987
--
Subtotal/Weighted Average --
Riverside and San Bernardino
Counties....................
ANNUALIZED
PERCENTAGE OF BASE RENT
TOTAL PER LEASED
APPROXIMATE PORTFOLIO NET ANNUALIZED NUMBER NET RENTABLE
NET RENTABLE RENTABLE PERCENT BASE RENT OF SQUARE
PROPERTY NAME SQUARE FEET SQUARE FEET LEASED ($000S) LEASES FEET(1)
- ------------- ----------- ----------- -------- --------- -------- ------------
VENTURA COUNTY
Center Promenade................ 174,837 0.9% 93.9% $ 2,699 57 $16.43
1000 Town Center................ 107,656 0.6 97.6 1,976 10 18.82
Solar Drive Business Park....... 125,132 0.7 100.0 2,299 41 16.88
Camarillo Business Center....... 154,216 0.8 100.0 2,718 23 17.23
----------- ---- --------- ---------- -------- ---------
Subtotal/Weighted Average --
Ventura County............... 561,841 3.0% 100.0% $ 9,692 131 $17.21
RIVERSIDE AND SAN BERNARDINO
COUNTIES
Centrelake Plaza................ 110,763 0.6% 69.0% $ 1,552 17 $20.32
Tower Plaza I................... 72,350 0.4 97.1 1,233 21 17.54
Tower Plaza II.................. 19,301 0.1 100.0 274 22 14.11
Tower Plaza III................. 12,483 0.1 82.0 142 20 13.86
Chicago Avenue Business Park.... 47,482 0.2 100.0 673 8 14.16
Hunter Business Center.......... 106,782 0.6 83.1 573 13 6.45
Havengate....................... 80,557 0.4 89.4 1,174 17 16.30
HDS Plaza....................... 104,178 0.6 86.6 1,565 12 17.37
----------- ---- --------- ---------- -------- --------
Subtotal/Weighted Average --
Riverside and San Bernardino
Counties.................... 553,896 3.0% 85.7% $ 7,186 130 $15.14
17
18
YEAR(s) APPROXIMATE
BUILT/ NET RENTABLE
PROPERTY NAME SUBMARKET LOCATION RENOVATED SQUARE FEET
- ------------- -------------------- -------------- --------- -------------
KERN COUNTY
Parkway Center.................... Bakersfield Bakersfield 1992/95 61,333
California Twin Center............ Bakersfield Bakersfield 1983 155,189
----------
Subtotal/Weighted Average -
Kern County.................... 216,522
----------
Total/Weighted Average - Office... 18,206,541
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
Tower Plaza Retail................ Temecula Temecula 1970/97 133,481
Howard Hughes - Spectrum.......... Marina Area/Culver City/LAX Los Angeles 1993 36,959
----------
Total/Weighted Average - Retail. 170,440
PORTFOLIO TOTAL/
WEIGHTED AVERAGE............... 18,658,174
===========
ANNUALIZED
PERCENTAGE OF PERCENTAGE OF
TOTAL PER LEASED
APPROXIMATE PORTFOLIO NET ANNUALIZED NUMBER NET RENTABLE
NET RENTABLE RENTABLE PERCENT BASE RENT OF SQUARE
PROPERTY NAME SQUARE FEET SQUARE FEET LEASED ($000S) LEASES FEET(1)
- ------------- ------------ -------------- --------- ---------- -------- -----------
KERN COUNTY
Parkway Center.................... 61,333 0.4% 97.2% $ 1,098 10 $18.43
California Twin Center............ 155,189 0.8 86.3 2,245 16 16.75
---------- --------- ------ ---------- ------- ---------
Subtotal/Weighted Average -
Kern County.................... 216,522 1.2% 89.4% $ 3,343 26 $17.27
---------- --------- ------ --------- ------- ------
Total/Weighted Average - Office... 18,206,541 97.7% 95.5% $ 347,426 3,173 $19.99
INDUSTRIAL
RIVERSIDE AND SAN BERNARDINO
COUNTIES
Ontario Airport Commerce Center... 213,127 1.1% 99.8% $ 1,456 45 $ 6.84
Highlands I....................... 26,856 0.1 100.0 279 9 10.41
Highlands II...................... 41,210 0.2 99.9 405 12 9.82
---------- --------- ------ ---------- ------- ---------
Total/Weighted Average - Industrial 281,193 1.4% 99.9% $ 2,140 66 $ 7.62
RETAIL
Tower Plaza Retail................ 133,481 0.7% 89.2% $ 1,457 21 $12.24
Howard Hughes - Spectrum.......... 36,959 0.2 100.0 909 1 24.60
---------- --------- ------ ---------- ------- ---------
Total/Weighted Average - Retail. 170,440 0.9% 91.5% $ 2,366 22 $15.16
PORTFOLIO TOTAL/
WEIGHTED AVERAGE............... 18,658,174 100.0% 95.5% $ 351,932 3,261 $ 19.75
=========== ======== ====== ========== ======= ========
- ----------
(1) Calculated as monthly contractual base rent under existing leases as of
December 31, 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) We lease the land underlying those 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.
18
19
Tenant Information
As of December 31, 2000, we had over 3,000 tenants, with no one tenant
representing more than 2.1% of the aggregate annualized base rent of our
properties, and only two 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, education,
publishing and local, state and federal government entities.
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. Approximately 78% of our total leased rentable
square footage is under full service gross leases under which tenants typically
pay for all real estate taxes and operating expenses above those for an
established base year or expense stop. Our remaining square footage is under
triple net and modified gross leases. Triple net and modified gross leases are
those where tenants pay not only base rent, but also some or all real estate
taxes and operating expenses of the leased property. Tenants generally reimburse
us the full direct cost, without regard to a base year or expense stop, for use
of lighting, heating and air conditioning during non-business hours, 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, 2000 derived
from the twenty largest tenants at our properties, based on the percentage of
aggregate portfolio annualized base rent:
WEIGHTED PERCENTAGE OF PERCENTAGE OF
AVERAGE AGGREGATE AGGREGATE
REMAINING PORTFOLIO PORTFOLIO
NUMBER OF LEASE TERM LEASED ANNUALIZED
TENANT(1) LEASES IN MONTHS SQUARE FEET BASE RENT(2)
- --------- ---------- ------------ ----------- ------------
State of California.................... 38 60 2.14% 2.10%
University of Phoenix.................. 18 40 1.31 1.19
Sony (Consolidated Entities)........... 8 36 0.76 0.80
Pacific Bell........................... 5 48 0.75 0.77
Boeing................................. 2 58 1.53 0.73
Atlantic Richfield..................... 6 68 0.71 0.69
GTE (Consolidated Entities)............ 5 44 0.84 0.66
Community Healthcare Alliance.......... 1 32 0.75 0.66
U.S. Government........................ 17 61 0.65 0.68
Walt Disney Pictures & Television...... 1 31 0.55 0.64
Salomon Smith Barney................... 9 62 0.44 0.63
State Compensation Insurance Fund...... 1 87 0.64 0.59
Omnicom Group.......................... 1 34 0.29 0.58
Blue Shield of California.............. 3 19 0.47 0.55
Ceridian Tax Service................... 5 21 0.59 0.52
Aurora Biosciences Corp................ 1 93 0.46 0.51
Cymer, Inc............................. 2 108 0.87 0.50
Pacific Southwest Bank................. 1 84 0.70 0.49
Latham & Watkins....................... 1 38 0.36 0.46
Earth Technology....................... 7 32 0.33 0.45
------ ----- ------ ------
TOTAL/WEIGHTED AVERAGE(3).............. 132 55 15.14% 14.20%
====== ===== ====== ======
- ----------
(1) Excludes two leases with a division of Vivendi Universal Publishing for
approximately 217,000 square feet comprising approximately 1.22% of the
aggregate portfolio leased square footage with a weighted average lease
term of 120 months that will begin in 2001. Assuming these leases had been
in place at December 31, 2000, this tenant would have ranked first in our
list of largest tenants with approximately 2.25% of aggregate annualized
base rent.
(2) Annualized base rent is calculated as monthly contractual base rent under
existing leases as of December 31, 2000, 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.
(3) The weighted average calculation is based on net rentable square footage
leased by each tenant.
19
20
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, 2000:
PERCENT ANNUALIZED PERCENTAGE
OF AGGREGATE BASE RENT OF AGGREGATE AVERAGE
NUMBER PERCENT TOTAL PORTFOLIO OF PORTFOLIO BASE RENT
OF OF ALL LEASED LEASED LEASES(1) ANNUALIZED PER LEASED
SQUARE FEET UNDER LEASE LEASES LEASES SQUARE FEET SQUARE FEET ($000S) BASE RENT SQUARE FOOT
- ----------------------- -------- --------- ---------- ----------- ----------- ----------- -----------
2,500 and under.......... 1,697 52.04% 2,323,971 13.04% $ 50,869 13.44% $ 21.89
2,501 -- 5,000.......... 717 21.99 2,508,071 14.08 56,444 14.92 22.50
5,001 -- 7,500.......... 266 8.16 1,629,391 9.14 35,479 9.38 21.77
7,501 -- 10,000.......... 185 5.67 1,601,539 8.99 33,224 8.78 20.75
10,001 -- 20,000.......... 262 8.03 3,728,960 20.93 86,410 22.84 23.17
20,001 -- 40,000.......... 77 2.36 2,112,886 11.86 45,532 12.03 21.55
40,001 and over........... 57 1.75 3,914,463 21.96 70,396 18.61 17.98
----- ------- ----------- ------ --------- ------ -------
Total/Weighted Average.. 3,261 100.00% 17,819,281 100.00% $ 378,354 100.00% $ 21.23
===== ======= =========== ====== ========= ====== =======
- ----------
(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, 2000.
This table assumes that none of the tenants exercise renewal options or
termination rights, if any, at or prior to the scheduled expirations:
SQUARE PERCENTAGE ANNUALIZED PERCENTAGE AVERAGE
NUMBER FOOTAGE OF AGGREGATE BASE RENT OF AGGREGATE BASE RENT
OF OF PORTFOLIO OF EXPIRING PORTFOLIO PER NET RENTABLE
LEASES EXPIRING LEASED LEASES(1) ANNUALIZED SQUARE FOOT OF
YEAR OF LEASE EXPIRATION EXPIRING LEASES SQUARE FEET ($000S) BASE RENT EXPIRING LEASES
- ------------------------ -------- --------- ----------- ------------ ----------- ---------------
Month-to-Month........... 173 301,642 1.69% $ 5,964 1.58% $19.77
2001..................... 646 2,109,127 11.84 42,038 11.11 19.93
2002..................... 644 2,720,970 15.27 50,684 13.40 18.63
2003..................... 608 3,140,624 17.62 63,771 16.85 20.31
2004..................... 413 2,748,993 15.43 56,417 14.91 20.52
2005..................... 418 2,939,156 16.49 64,816 17.13 22.05
2006..................... 105 1,103,481 6.19 24,372 6.44 22.09
2007..................... 71 768,784 4.31 16,978 4.49 22.08
2008..................... 32 512,915 2.88 13,935 3.68 27.17
2009..................... 30 416,784 2.34 9,608 2.54 23.05
2010..................... 50 701,995 3.94 20,249 5.35 28.85
2011..................... 12 85,042 0.48 2,579 0.68 30.33
2012+.................... 59 269,768 1.52 6,943 1.84 25.74
-------- ---------- ----------- ---------- --------- -----------
Total/Weighted Average. 3,261 17,819,281 100.00% $ 378,354 100.00% $21.23
======== ========== =========== ========= ========= ======
- ----------
(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.
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 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, 2000.
20
21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the New York Stock Exchange, or NYSE, under
the symbol "ARI." On March 23, 2001, the last reported sales price per share of
common stock on the NYSE was $63,658,200, and there were approximately 174
registered holders of record of our common stock. The table below sets forth the
quarterly high and low closing sales price per share of our common stock as
reported on the NYSE and the cash dividends per share we declared with respect
to each period.
DIVIDENDS
HIGH LOW DECLARED
---- --- --------
1999
First Quarter.......................................... $ 22.25 $ 20.13 $ 0.445
Second Quarter......................................... $ 25.13 $ 20.50 $ 0.445
Third Quarter.......................................... $ 23.25 $ 20.38 $ 0.445
Fourth Quarter......................................... $ 21.13 $ 17.38 $ 0.445
2000
First Quarter.......................................... $ 21.69 $ 19.56 $ 0.465
Second Quarter......................................... $ 24.81 $ 21.06 $ 0.465
Third Quarter.......................................... $ 27.06 $ 24.19 $ 0.465
Fourth Quarter......................................... $ 26.19 $ 23.69 $ 0.465
We pay quarterly cash dividends to common stockholders at the discretion of
our Board of Directors. The amount of each quarterly cash dividend depends 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.
21
22
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 by Arden Realty
Group, Inc. and a group of affiliated entities in the formation transactions
completed prior to our initial public offering of common stock in October 1996.
ARDEN REALTY, INC. ARDEN PREDECESSORS
---------------------------------------------------------------- ----------------------
FOR THE
PERIOD
FOR THE YEARS ENDED OCTOBER 9, FOR THE PERIOD
DECEMBER 31, 1996 TO JANUARY 1, 1996
----------------------------------------------- DECEMBER 31 TO OCTOBER 8,
2000 1999 1998 1997 1996 1996
---------- ----------- ---------- ---------- ------------ ----------------
(IN THOUSANDS, EXCEPT RATIO AND PER SHARE AMOUNTS)
OPERATING DATA:
Revenues................................. $ 388,117 $ 340,675 $ 284,582 $ 135,447 $ 19,572 $ 40,465
Property operating expenses.............. 110,917 101,284 86,570 44,332 6,005 14,224
General and administrative expense...... 9,336 7,393 6,665 4,322 753 1,758
Depreciation and amortization............ 87,267 69,837 51,822 20,260 3,108 5,264
---------- ---------- ---------- ---------- -------- --------------
180,597 162,161 139,525 66,533 9,706 19,219
Interest expense......................... (78,406) (60,239) (43,403) (19,511) (1,280) (24,521)
Gain on sale of property................. 2,132 -- -- -- -- --
Loss on valuation of derivative.......... -- -- -- (3,111) -- --
---------- ---------- ---------- ---------- -------- --------------
Equity in net loss of noncombined entities -- -- -- -- -- 336
---------- ---------- ---------- ---------- -------- --------------
Income (loss) before minority
interests and extraordinary items..... 104,323 101,922 96,122 43,911 8,426 (5,638)
Minority interests' share of loss of
Arden Predecessors.................... -- -- -- -- -- 721
Minority interests....................... (7,613) (5,296) (5,447) (4,281) (993) --
---------- --------- ---------- ---------- --------- --------------
Income (loss) before extraordinary items. 96,710 96,626 90,675 39,630 7,433 (4,917)
Extraordinary (loss) gain on early
extinguishment of debt, net of
minority interests' share.............. -- -- -- -- (13,105) 1,877
---------- ---------- ---------- ---------- -------- --------------
Net income (loss)....................... $ 96,710 $ 96,626 $ 90,675 $ 39,630 $ (5,672) $ (3,040)
========== ========== ========== ========== ======== =========
Earnings per share:
Net income (loss) per common share:
Income before extraordinary item........ $ 1.53 $ 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 $ 1.53 $ 1.55 $ 1.43 $ (.26)
========== ========== ========== ========== ========
Diluted............................. $ 1.52 $ 1.53 $ 1.54 $ 1.41 $ (.26)
========== ========== ========== ========== ========
Weighted average common shares outstanding:
Basic............................... 63,408 63,016 58,660 27,794 21,680
========== ========== ========== ========== ========
Diluted............................. 63,598 63,072 58,814 28,039 21,680
========== ========== ========== ========== ========
Cash dividends declared per common share $ 1.86 $ 1.78 $ 1.68 $ 1.60 $ .36
========== ========== ========== ========== ========
OTHER DATA:
Cash provided by operating activities... $ 192,152 $ 170,354 $ 152,273 $ 39,156 $ 8,665 $ 7,387
Cash used in investing activities....... (216,024) (283,574) (1,099,833) (659,670) (164,763) (119,083)
Cash provided by financing activities... 22,248 115,698 946,838 618,182 163,730 119,908
Funds from Operations(1)................. 185,146 170,405 147,369 64,171 11,534 (374)
EBITDA(2)................................ 267,864 231,998 191,347 86,793 12,814 24,483
Ratio of EBITDA to interest expense(2).. 3.42 3.85 4.41 4.45 10.01 1.00
Ratio of EBITDA to fixed charges(2)(3).. 2.81 3.26 3.66 4.20 9.58 1.00
Ratio of earnings to fixed charges(3)(4) 1.81 2.20 2.56 2.86 6.52 0.80
22
23
ARDEN REALTY, INC.
---------------------------------------------------------------------------------
DECEMBER 31,
---------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------- ------------- ------------- ------------- -------------
Balance Sheet Data:
Net investment in real estate..... $ 2,603,566 $ 2,479,111 $ 2,260,433 $ 1,247,701 $ 532,728
Total assets...................... 2,705,597 2,570,458 2,331,919 1,284,004 551,256
Total indebtedness................ 1,177,769 1,029,656 840,377 477,566 155,000
Other liabilities(5).............. 56,885 50,555 35,720 23,205 9,768
Minority interests................ 86,176 86,294 56,222 95,973 45,667
Total Stockholders' Equity........ 1,355,171 1,375,758 1,373,390 672,983 331,977
- ----------
(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.
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 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.
(5) Excludes dividends payable.
23
24
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 experience in the
real estate industry ranging from 8 to 30 years and who collectively have an
average of 18 years experience. We perform all property management, construction
management, accounting, finance and acquisition activities and a majority of our
leasing transactions with our staff of approximately 300 employees.
As of December 31, 2000, we are Southern California's largest publicly
traded office landlord as measured by total net rentable square feet owned. As
of that date, our portfolio consisted of 142 primarily suburban office
properties containing approximately 18.7 million net rentable square feet and
three properties with approximately 725,000 net rentable square feet under
development. As of December 31, 2000, our properties were approximately 95.5%
leased.
Our primary business strategy is to actively manage our portfolio to
achieve gains in rental rates and occupancy, control operating expenses and to
maximize income from ancillary operations and services. When market conditions
permit, we may also selectively develop or acquire new properties that add value
and fit strategically into our portfolio. We may also sell existing mature or
slow growth properties and redeploy the proceeds into investments that we
believe will generate higher yields.
24
25
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, the comparability of financial data from period to period will be
affected by the timing of significant property renovations, development,
acquisitions and dispositions.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 TO THE YEAR
ENDED DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT NUMBER
OF PROPERTIES AND PERCENTAGES)
YEAR ENDED DECEMBER 31,
--------------------------- PERCENT
2000 1999 CHANGE CHANGE
----------- --------- ----------- ---------
REVENUE
Revenue from rental operations:
Rental......................... $ 328,460 $ 292,688 $ 35,772 12%
Tenant reimbursements.......... 16,371 13,863 2,508 18
Parking, net of expense........ 18,348 14,384 3,964 28
Other rental operations........ 21,411 16,918 4,493 27
---------- ---------- ----------- -------
Total........................ 384,590 337,853 46,737 14
Interest and other income...... 3,527 2,822 705 25
---------- ---------- ----------- -------
Total revenue................ $ 388,117 $ 340,675 $ 47,442 14%
========== ========== ======== =======
EXPENSES
Property expenses:
Repairs and maintenance........ $ 35,390 $ 32,902 $ 2,488 8%
Utilities...................... 29,872 28,305 1,567 6
Real estate taxes.............. 26,808 23,167 3,641 16
Insurance...................... 4,203 3,993 210 5
Ground rent.................... 1,214 891 323 36
Administrative................. 13,430 12,026 1,404 12
---------- ---------- ----------- -------
Total property expenses...... 110,917 101,284 9,633 10
General and administrative..... 9,336 7,393 1,943 26
Interest....................... 78,406 60,239 18,167 30
Depreciation and amortization.. 87,267 69,837 17,430 25
---------- ---------- ----------- -------
Total expenses............... $ 285,926 $ 238,753 $ 47,173 20%
========== ========== ======== =======
OTHER DATA:
NUMBER OF PROPERTIES:
Acquired during period......... -- 4
Completed and placed in service
during period.................. 1 --
Disposed of during period...... (1) --
Owned at end of period......... 142 142
NET RENTABLE SQUARE FEET:
Acquired during period......... -- 524
Completed and placed in service
during period.................. 242 --
Disposed of during period...... (76) --
Owned at end of period......... 18,658 18,492
Variances for revenue from rental operations and property expenses are
discussed below.
Interest and other income increased by approximately $705,000 in 2000 as
compared to 1999, primarily due to increases in management fees for owner
associations we manage and from higher interest income earned in 2000 on higher
restricted cash balances required by mortgage loans entered into after January
1, 1999.
25
26
General and administrative expenses were approximately $9.3 million, or
2.4% of total revenue, in 2000 as compared to $7.4 million, or 2.2% of total
revenue, in 1999. This increase was primarily related to higher personnel costs
in 2000, including approximately $590,000 in non-cash compensation expense from
restricted stock awards granted to several key executives.
Interest expense increased approximately $18.2 million in 2000 as compared
to 1999. This increase was primarily due to both higher outstanding balances in
2000 resulting from the funding of acquisitions, tenant improvement, leasing
commission costs and development and renovation projects placed in service
during the periods presented, and higher average interest rates in 2000.
Depreciation and amortization expense increased by approximately $17.4
million in 2000, primarily due to depreciation related to properties acquired in
1999, newly developed and renovated properties, and capital expenditures, tenant
improvements and leasing commissions placed in service in 2000.
VARIANCES FOR REVENUE FROM RENTAL OPERATIONS AND PROPERTY OPERATING EXPENSES
The increase in revenue from rental operations and property operating
expenses in 2000 as compared to 1999 was partially due to the four properties we
acquired during 1999, a development property placed in service in the third
quarter of 2000, a property sold in the fourth quarter of 2000 and the five
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
maintained during the renovation.
Following is a summary of the increase in revenue from rental operations
and property operating expenses that relates to the eleven properties that were
either acquired, sold or placed in service after January 1, 1999 or were under
renovation for all or a portion of the period beginning after January 1, 1999
and for the 132 non-renovation properties we owned for all 1999 and 2000 (in
thousands, except number of properties).
PROPERTIES ACQUIRED,
SOLD, PLACED IN SERVICE NON-RENOVATION
OR PROPERTIES OWNED
UNDER RENOVATION FOR ALL OF
TOTAL VARIANCE AFTER JANUARY 1, 1999 1999 AND 2000(1)
-------------- --------------------- ----------------
REVENUE FROM RENTAL OPERATIONS:
Rental....................... $ 35,772 $ 17,122 $ 18,650
Tenant reimbursements........ 2,508 185 2,323
Parking, net of expense...... 3,964 1,442 2,522
Other rental operations...... 4,493 6,882 (2,389)
--------- -------- ---------
$ 46,737 $ 25,631 $ 21,106
========= ======== =========
PROPERTY EXPENSES:
Repairs and maintenance...... 2,488 1,955 533
Utilities.................... 1,567 1,432 135
Real estate taxes............ 3,641 1,401 2,240
Insurance.................... 210 165 45
Ground rent.................. 323 -- 323
Administrative............... 1,404 738 666
--------- -------- ---------
$ 9,633 $ 5,691 $ 3,942
========= ======== =========
OTHER DATA:
Number of properties......... 11 132
Net rentable square feet..... 1,910 16,824
- ----------
(1) See analysis of Properties Owned for all of 1999 and 2000 below.
26
27
PROPERTIES OWNED FOR ALL OF 1999 AND 2000
Following is a comparison of property operating data computed under the
GAAP basis and cash basis for the 132 non-renovation properties we owned for all
of 1999 and 2000 (in thousands, except number of properties and percentages).
YEAR ENDED
DECEMBER 31, DOLLAR PERCENT
2000 1999 CHANGE CHANGE
----------- ----------- ------ ------
GAAP BASIS:
Revenue from rental operations............. $ 343,045 $ 321,939 $ 21,106 6.6%
Property expenses.......................... 100,714 96,772 3,942 4.1
---------- ---------- -------- -----
$ 242,331 $ 225,167 $ 17,164 7.6%
========== ========== ======== =====
CASH BASIS(1):
Revenue from rental operations............. $ 334,915 $ 315,498 $ 19,417 6.2%
Property expenses.......................... 100,714 96,772 3,942 4.1
---------- ---------- -------- -----
$ 234,201 $ 218,726 $ 15,475 7.1%
========== ========== ======== =====
Number of properties......................... 132 132
Average occupancy............................ 95.1% 93.9%
Net rentable square feet..................... 16,824 16,824
- ----------
(1) Excludes straight-line rent adjustments.
Revenue from rental operations for these properties, computed on a GAAP
basis, increased by approximately $21.1 million, or 6.6%, during 2000, compared
to 1999. Approximately $18.7 million of this increase was from rental revenue,
of which $17.0 million was related to scheduled rents and $1.7 million was from
straight-line rent. Approximately 55% of the increase in scheduled rents was due
to increases in rental rates in 2000 and the remaining 45% was related to higher
average occupancy in 2000. The increase in straight-line rent was primarily due
to new leases and extensions signed with higher rental rate escalations than in
1999. Revenue from rental operations was also higher due to an approximate $2.3
million increase in tenant reimbursements, a $2.5 million increase in parking
income net of an approximate $2.4 million decrease in other revenue from rental
operations. In addition to recoveries of approximately $688,000 from increases
in utility rates for our San Diego properties, tenant reimbursements and parking
income primarily increased due to the approximate 1.2% increase in average
occupancy in 2000, while other rental operations decreased primarily due to
lower lease termination settlement fees in 2000.
Excluding only the straight-line rent adjustment for these properties,
revenue from rental operations computed on a cash basis, increased by
approximately $19.4 million or 6.2%.
Property operating expenses for these properties increased by approximately
$3.9 million, or 4.1%, during 2000, compared to 1999, primarily due to higher
real estate taxes, repairs and maintenance, contingent ground rent and property
administrative expenses in 2000. Real estate taxes increased by approximately
$2.2 million in 2000 due to normal annual increases and final assessments on
certain properties. Repairs and maintenance increased by $533,000 primarily due
to the 1.2% increase in average occupancy in 2000. Ground rent expense increased
by $323,000 due to higher operating income from one of our properties with a
participating ground lease. Property administrative expenses, comprised
primarily of personnel and related costs, were approximately $666,000 higher in
2000, primarily due to our continued focus on raising our portfolio-wide
occupancy. Utility costs increased by approximately $135,000 in 2000 due to both
higher average occupancy and rate increases for our San Diego properties,
partially offset by savings achieved from energy enhancing capital improvements
completed during 1999.
27
28
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE YEAR
ENDED DECEMBER 31, 1998 (IN THOUSANDS, EXCEPT NUMBER
OF PROPERTIES AND PERCENTAGES)
YEAR ENDED DECEMBER 31, DOLLAR PERCENT
1999 1998 CHANGE CHANGE
---------- ---------- --------- --------
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
Administrative.................. 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
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.
28
29
Following is a summary of the 1999 increase in revenue from rental
operations and property expenses that relate 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).
PROPERTIES PROPERTIES
ACQUIRED DURING OWNED FOR ALL OF
TOTAL VARIANCE 1998 AND 1999 1998 AND 1999(1)
-------------- ------------------ ----------------
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
Administrative................... 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
- ----------
(1) See analysis of Properties Owned for all of 1998 and 1999 below.
Interest and other income decreased by approximately $700,000 in 1999 as
compared to 1998, primarily due to lower interest income earned on 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.
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PROPERTIES OWNED FOR ALL OF 1998 AND 1999
Following is a comparison of property operating data computed on a GAAP
basis and cash basis for the 72 non-renovation properties we owned for the
entire twelve months ended December 31, 1999 and 1998 (in thousands, except
number of properties and percentages).
YEARS ENDED
DECEMBER ENDED
---------------------------- DOLLAR PERCENT
1999 1998 CHANGE CHANGE
----------- ---------- ------ ------
GAAP BASIS:
Revenue from rental operations..... $ 210,312 $ 192,977 $ 17,335 9%
Property expenses.................. 65,270 60,330 4,940 8
---------- ---------- -------- ---
Net.............................. $ 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
---------- ---------- -------- ---
Net.............................. $ 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
- ----------
(1) Excludes straight-line rent adjustments.
Revenue from rental operations for the 72 properties we owned for all of
1998 and 1999 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 administrative and overhead expenses. These increases were
primarily related to the four percentage point increase in average occupancy in
1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash provided by operating activities increased by $21.8 million to $192.2
million for the year ended December 31, 2000, as compared to $170.4 million for
the year ended December 31, 1999, primarily due to improved operating results
for the 132 properties we owned for all of 1999 and 2000, as well as the net
operating results of the eleven properties we developed, renovated or acquired
subsequent to January 1, 1999.
Cash used in investing activities decreased by approximately $67.0 million
to $216.0 million in 2000 compared to $283.6 million in 1999. This decrease was
primarily due to $89.8 million used in 1999 to acquire four properties which was
partially offset by an increase of approximately $14.4 million used in 2000 for
capital expenditures related to our increased development and renovation
activity and additional costs associated with tenant improvement build-outs
resulting from occupancy gains achieved in 2000.
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Cash provided by financing activities decreased by $93.5 million to $22.2
million, as compared to $115.7 million in 1999. This decrease was primarily due
to the timing of an equity issuance. In September 1999, we issued $50 million in
8-5/8% Series B Cumulative Redeemable Preferred Operating Units. Cash provided
by financing activities for the year ended December 31, 2000 consisted primarily
of net proceeds from our offerings of unsecured senior notes, partially offset
by repayments of mortgage loans, paydowns of our unsecured lines of credit and
distributions to our stockholders and minority interests.
Capital Commitments
As of December 31, 2000, we had approximately $14.1 million outstanding in
capital commitments related to tenant improvements, development and
property-related capital expenditures. We expect to fund short term capital
commitments through cash flow generated by operating activities and proceeds
from asset sales or proceeds from our lines of credit.
Available Borrowings, Cash Balances and Capital Resources
On May 3, 2000, we extended our unsecured line of credit with a group of
banks led by Wells Fargo. 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
under this line of credit 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. As of December
31, 2000, there was approximately $172.4 million outstanding on this line of
credit and approximately $102.6 million was available for additional borrowings.
In July 2000, we closed on a $75 million unsecured line of credit with
Lehman Brothers. Borrowings on this new line of credit 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 have been used to reduce the outstanding balance under our $275 million
line of credit. As of December 31, 2000, there was $75 million outstanding on
this line of credit.
In August 2000, we extended our unsecured line of credit with a total
commitment of $10 million from City National Bank to August 2001. This line of
credit accrues interest at the City National Bank Prime Rate less 0.875%. As of
December 31, 2000, there was an outstanding balance of $6.0 million on this line
of credit, and $4.0 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.
As of December 31, 2000 we had $106.6 million available under our unsecured
lines of credit.
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 two prepayable term loans to an
affiliate of Lehman Brothers and a mortgage loan and to reduce the outstanding
balance 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 Rule 144A under the Securities Act. We subsequently filed a
registration statement that became effective on May 10, 2000 and all privately
placed notes were exchanged for notes registered under the Securities Act.
On November 20, 2000, we completed a private placement of $100 million
8.50% senior notes due in November 2010, with interest payable semi-annually on
November 15 and May 15 of each year. We used the net proceeds from this private
placement to reduce the outstanding balance on one of our unsecured lines of
credit and to repay a construction loan related to our development of the 6060
Center Drive project. These senior unsecured notes were issued in a private
placement in reliance upon an exemption from registration provided by
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Rule 144A under the Securities Act. We subsequently filed a registration
statement that became effective on March 29, 2001 and are currently exchanging
these privately placed notes for registered notes. We expect to complete this
exchange offer by April 26, 2001.
The following is a summary of scheduled principal payments for our total
outstanding indebtedness as of December 31, 2000 (in thousands):
YEAR AMOUNT
- ---- ------
2001.................................. $ 8,492
2002.................................. 77,618(1)
2003.................................. 177,804(2)
2004.................................. 182,218
2005.................................. 207,834
Thereafter............................ 523,803
-----------
Total............................... $ 1,177,769
===========
- ----------
(1) Consists primarily of $75.0 million outstanding on our Lehman Brothers line
of credit which has a one year extension.
(2) Consists primarily of $172.4 million outstanding on our Wells Fargo line of
credit.
The following is other information related to our indebtedness as of
December 31, 2000 (in thousands, except percentage and interest rate data):
Unsecured and Secured Debt:
PERCENT OF WEIGHTED AVERAGE
BALANCE TOTAL DEBT INTEREST RATE(1)
------------- ---------- ----------------
Unsecured debt................... $ 601,714 51% 8.88%
Secured debt..................... 576,055 49% 7.36%
------------- ----- -----
Total/Weighted average...... $ 1,177,769 100% 8.14%
============= ===== =====
Floating and Fixed Rate Debt:
PERCENT OF WEIGHTED AVERAGE
BALANCE TOTAL DEBT INTEREST RATE(1)
------------- ---------- ----------------
Floating rate................... $ 253,350 22% 8.58%
Fixed rate...................... 924,419 78% 8.02%
------------- ----- -----
Total/Weighted average..... $ 1,177,769 100% 8.14%
============= ===== =====
- ----------
(1) Includes amortization of prepaid financing costs.
As of December 31, 2000, we had approximately $24.8 million in cash and
cash equivalents, including $19.4 million in restricted cash, including $13.9
million in interest-bearing cash deposits required by some of our mortgage loans
payable. In addition, we had $5.5 million in cash impound accounts for real
estate taxes and insurance as required by several of our mortgage loans payable.
We may sell mature or slow growth assets over the next twelve to
twenty-four months. Due to market conditions beyond our control, it is difficult
to predict the actual period and amount of these asset sales. At the time any
such sales proceeds are realized, we expect to redeploy such amounts into
investments that we believe will generate higher yields, which may include
development of office buildings, acquisitions or repurchase of our common stock.
In addition, we expect to use a portion of any proceeds to pay down portions of
our debt in order to maintain our conservative leverage and coverage ratios.
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 or proceeds from asset sales. 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 the foregoing sources of liquidity will be
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sufficient to fund our short-terms liquidity needs over the next twelve months,
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, development costs, property acquisitions, if
any, and other non-recurring capital expenditures through net cash provided by
operations, refinancing of existing indebtedness, proceeds from asset sales
and/or the issuance of long-term debt and equity securities.
Funds From Operations and Funds Available for Distribution
The following table reflects the calculation of our funds from operations
for the years ended December 31, 2000, 1999 and 1998 (in thousands):
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------------------------
2000 1999 1998
------------- ---------------- -------------
Funds from Operations (1):
Net Income ..................................... $ 96,710 $ 96,626 $ 90,675
Depreciation and amortization .................. 87,267 69,837 51,822
Minority interest .............................. 7,613 5,296 4,872(2)
Gain on disposition of property ................ (2,132) -- --
Distributions on Preferred Operating Partnership (4,312) (1,354) --
--------- --------- ---------
Units
Funds from Operations ............................. 185,146(3) 170,405 147,369
Arden Realty's share percentage ................ 96.7% 96.2% 95.3%
--------- --------- ---------
Arden Realty's share of Funds from Operations .. $ 179,036 $ 163,930 $ 140,443
========= ========= =========
Funds Available for Distribution(4):
Funds From Operations .......................... $ 185,146 $ 170,405 $ 147,369
Straight-line rent adjustment .................. (8,078) (7,680) (8,193)
Capital expenditure, tenant improvement
and leasing commission reserve ............... (30,494) (27,272) (21,487)
--------- --------- ---------
Funds Available for Distribution .................. $ 146,574 $ 135,453 $ 117,689
========= ========= =========
Weighted average shares common operating
partnership units outstanding - Diluted ...... 65,759 65,566 61,999
========= ========= =========
- ----------
(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 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 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.
(3) Includes $586,000 in non-cash compensation expense.
(4) Funds available for distribution consists of funds from operations,
excluding straight-line rent adjustments and less a reserve for capital
expenditures, tenant improvements and leasing commissions
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CURRENT ECONOMIC CLIMATE
Our short and long-term liquidity is significantly impacted by the
operating results of our properties, all of which are located in Southern
California. Our ability to lease available space and increase rates when leases
expire is largely dependent on the demand for office space in the markets where
our properties are located. National and local economic trends may affect demand
for our properties. The timing and extent of changes in the national and local
economy and their effects on our properties and results of operations are
difficult to accurately predict. Some sectors of the national and California
economy, particularly the sectors containing technology and Internet companies,
are reported to be experiencing slower growth, reduced earnings or increased
losses. Problems associated with deregulation of the electric industry in
California have resulted in intermittent service interruptions and significantly
higher costs in some areas of the state. As of the date of this Form 10-K, we
have not noted any material trends or effects arising from these national and
regional issues on our ability to lease and renew available space, to increase
rental rates as leases expire and to collect amounts due from our tenants. It is
possible, however, that these national and regional issues may more directly
affect us and our operating results in the future, making it more difficult for
us to lease and renew available space, to increase or maintain rental rates as
leases expire and to collect amounts due from our tenants. See "Risk Factors -
Our operating performance and property values will be affected by changes in the
economic climate in Southern California," - "the financial condition and
solvency of our tenants may reduce our cash flow," and "- Rising energy costs
and power outages in California may have an adverse effect on our operations and
revenue."
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
you, 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.
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 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, 2000, a 1% increase in interest rates on our $253.4 million of floating rate
debt would decrease annual future earnings and cash flows by approximately $2.5
million and would not have an impact on the fair value of the floating rate
debt. A 1% decrease in interest rates on our $253.4 million of floating rate
debt would increase annual future earnings and cash flows by approximately $2.5
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. The weighted average
interest rate on our floating debt as of December 31, 2000 was 8.58%
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Our fixed rate debt totaled $924.4 million as of December 31, 2000 with a
weighted average interest rate of 8.02%. and an unrealized loss of approximately
$25.9 million for a total fair value of approximately $898.5 million. A 1%
decrease in interest rates on our $924.4 million of fixed rate debt would
decrease its fair value by approximately $45.2 million and would not have an
impact on annual future earnings and cash flows. A 1% increase in interest rates
in our $924.4 million of fixed rate debt would increase its fair value by
approximately $45.2 million and would not have an impact of annual future
earnings and cash flows.
These amounts are determined by considering the impact of 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 risk 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.
Through 2005, 2,729 leases, including month-to-month leases comprising 73%
of our leased net rentable square footage and 73% of our annualized base rents
at December 31, 2000 will expire as follows:
NUMBER PERCENTAGE OF PERCENTAGE OF
OF LEASES AGGREGATE PORTFOLIO AGGREGATE PORTFOLIO
YEAR EXPIRING LEASED SQUARE FEET ANNUALIZED BASE RENT
---- -------- ------------------ --------------------
2001...................................... 646 11.8% 11.1%
2002...................................... 644 15.3% 13.4%
2003...................................... 608 17.6% 16.8%
2004...................................... 413 15.4% 14.9%
2005...................................... 418 16.4% 17.1%
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 business 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 that are
unique to or particularly affect the Southern California economy and real estate
market, which may adversely affect our business.
Competition affects occupancy levels rents and cost of land which could
adversely affect our revenues.
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. Although ownership of these
competing properties is currently diversified among many different types, from
publicly traded companies and institutional investors to small enterprises and
individual owners, and no one or group of owners currently dominate or
significantly influence the market, consolidation of owners could create
efficiencies and marketing advantages for the consolidated group that could
adversely affect us. These competitive advantages, the number of competitors and
the number of competitive commercial properties in a particular area could have
a material adverse effect on the rents we can charge, our ability to lease space
in our existing properties or at newly acquired or developed properties and the
prices we have to pay for developable land.
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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.
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.
Rising energy costs and power outages in California may have an adverse
effect on our operations and revenue.
Problems associated with deregulation of the electric industry in
California have resulted in intermittent service interruptions and significantly
higher costs in some areas. Approximately 55% of our buildings and approximately
56% of the total net rentable square footage of our portfolio are located within
municipalities that either do not produce their own power or have not entered
into long term fixed price contracts. These properties may be subject to
intermittent service interruptions or significant rate increases from their
utility providers. The remaining portion of our portfolio is located in areas
that are not expected to be subject to intermittent electric service
interruptions and significant electric rate increases.
Approximately 19% of our buildings and 15% of the total net rentable square
footage of our portfolio are subject to leases that require our tenants to pay
all utility costs. The remainder of our leases provide that tenants will
reimburse us for utility costs in excess of a base year amount. We estimate that
we will be able to recover approximately 90% of any utility cost increases from
our tenants.
Although we have not experienced any material losses resulting from
electric deregulation, it is possible that some of our tenants will not fulfill
their lease obligations and reimburse us for their share of any significant
electric rate increases and that we will not be able to retain or replace our
tenants if energy problems in California continue.
Increases in taxes and regulatory compliance costs may reduce our revenue.
Except for our triple net leases, we may not be able to pass all real
estate tax increases through to some of our tenants. 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. 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 our business.
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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. Depending on the characteristics and business objectives of the
joint venture or partnership, we may not have voting control over the joint
venture or partnership. Partnership or joint venture investments may, under
certain circumstances, involve risks not otherwise present, including:
o our partners or co-venturers might become bankrupt;
o 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
o 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.
Neither the limited partnership agreement of our operating partnership nor
our governing documents prevent us from participating in joint ventures with our
affiliates. Because a joint venture with an affiliate may not be negotiated in a
traditional arm's length transaction, terms of the joint venture may not be as
favorable to us as we could obtain if we entered into a joint venture with an
outside third party.
We may not be able to integrate or finance our acquisitions.
As we acquire additional properties, we will be subject to risks associated
with managing new properties, including building systems not operating as
expected, delay in or failure to lease vacant space and tenants failing to renew
leases as they expire. In addition, our ability to manage our growth effectively
will require us to successfully integrate our new acquisitions into our existing
accounting systems and property 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. Moreover, acquisition costs of a property
may exceed original estimates, possibly making the property uneconomical.
Our acquisitions and renovations may not perform as expected.
Although we currently have no plans to significantly expand or renovate our
properties, we may do so in the future. Expansion and renovation projects may
inconvenience and displace existing tenants, require us to engage in time
consuming up-front planning and engineering activities and expend capital, and
require us to obtain 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.
Our development activities may be more expensive than anticipated and may not
yield our anticipated results.
We currently have three properties under development at the Howard Hughes
Center in Los Angeles, California. The estimated total costs for these three
properties is approximately $204.2 million. In addition, we have preliminary
architectural designs completed for additional build-to-suit buildings at the
Howard Hughes Center and have completed preliminary designs on a build-to-suit
office building at our Long Beach Airport Business Park, but do not intend to
commence construction on any of these projects until development plans and
budgets are finalized and build-to-suit tenant leases are signed with terms
allowing us to achieve yields commensurate with the project's development risk.
We also intend to review, from time to time, other opportunities for developing
and constructing office buildings and other commercial properties in accordance
with our development and underwriting policies.
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We expect to finance our development activities over the next 24 months
through net cash provided by operating activities, proceeds from asset sales or
proceeds from our lines of credit.
Risks associated with our development activities may include:
o abandonment of development opportunities due to a lack of financing or
other reasons;
o construction costs of a property exceeding original estimates,
possibly making the property uneconomical;
o occupancy rates and rents at a newly completed property may not be
sufficient to make the property profitable;
o construction and lease-up may not be completed on schedule, resulting
in increased debt service expense and construction costs; and
o 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 are not subject to any limit on the amount or percentage of our assets that
may be invested in any single property or any single geographic area.
Our governing documents do not restrict the amount or percentage of our
assets that we may invest in a single property or geographic area. All of our
properties are currently in Southern California and we have no immediate plans
to invest outside of Southern California. This lack of diversification in our
investments makes us more highly susceptible to changes affecting the Southern
California economy and real estate markets or damages from regional events such
as earthquakes.
We may not be able to expand into new markets successfully.
While our business is currently limited 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, 2000, we had total
debt of approximately $1.2 billion, consisting of approximately $576 million in
secured debt and approximately $602 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:
o 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;
o make it more difficult for us to satisfy our debt obligations;
o limit our ability to refinance our debt and obtain additional debt
financing; and
o 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.
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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. Neither the limited partnership agreement
of our operating partnership nor our charter or bylaws limit the amount or the
percentage of indebtedness that we may incur. We may borrow up to a maximum of
$360 million under our three lines of credit. In addition, we have the option to
increase our $275 million unsecured line of credit by $50 million. If we
exercised the option, we would be able to borrow up to $410 million under our
three lines of credit. As of December 31, 2000, we had the ability to borrow an
additional approximately $106.6 million under these three lines of credit. If
new debt is added to our current debt levels, the related risks that we now face
could intensify and could increase the risk of default on our indebtedness.
Scheduled debt payments could adversely affect our financial condition.
Our cash flow could be insufficient to meet required payments of principal
and interest when due. In addition, we may not be able to refinance existing
indebtedness, which in virtually all cases requires substantial principal
payments at maturity, and, if we can refinance, the terms of the refinancing
might not be as favorable as the terms of our existing indebtedness. As of
December 31, 2000, approximately $8.5 million of principal will be coming due
over the next twelve months. If principal payments 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 and continue to service and repay our debt obligations.
Rises in interest rates could adversely affect our financial condition.
An increase in prevailing interest rates would have an immediate effect on
the interest rates charged on our variable rate debt which rise and fall upon
changes in interest rates. At December 31, 2000, approximately 22% of our debt
was variable rate debt. Increases in interest rates would also impact the
refinancing of our fixed rate debt. If interest rates are higher when our fixed
debt becomes due, we may be forced to borrow at the higher rates. If prevailing
interest rates or other factors result in higher interest rates, the increased
interest expense would adversely affect our cash flow and our ability to service
our debt, including the exchange notes. 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. As of December 31, 2000, we were not a party
to any such agreements.
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 $556.8
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 two or more mortgages are cross-defaulted, a default in one mortgage will
trigger a default in the other mortgages. The cross-defaults can give the lender
a number of remedies depending on the circumstances such as the right to
increase the interest rate, demand additional collateral, accelerate the
maturity date of the mortgages or foreclose on and sell the properties. To the
extent two or more mortgages are cross-collateralized, a default in one mortgage
will allow the mortgage lender to foreclose upon and sell the properties that
are not the primary collateral for the loan in default. Five additional
properties are subject to single property mortgages totaling approximately $19.3
million at December 31, 2000. If we are unable to meet our obligations under
these mortgages, we could be forced to pay higher interest rates or provide
additional collateral or the properties subject to the mortgages could be
foreclosed upon and sold, which could have a material adverse effect on us and
our ability to pay or refinance our debt obligations.
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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,
(90% beginning January 1, 2001) 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.
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.
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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:
o deter tender offers for our common stock, which offers may be
attractive to the stockholders; and
o 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 common 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 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.
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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.
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.
An earthquake could adversely affect our business.
All of our properties are located in Southern California which is 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, 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.
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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.
In the past few years, independent environmental consultants have conducted
or updated Phase I environmental assessments and other environmental
investigations as appropriate at some of our properties. These environmental
site assessments and investigations have included, among other things, a visual
inspection of the properties and the surrounding area and a review of relevant
state, federal and historical documents. Soil and groundwater samplings were
performed where warranted.
The environmental site assessments and investigations have identified a
total of 28 properties in our portfolio, representing approximately 26.7% of the
total net rentable square feet of the portfolio, affected by environmental
concerns. These environmental concerns include properties that may be impacted
by known or suspected (a) contamination caused by third party sources or (b)
soil and/or groundwater contamination which has been or is being remediated, and
(c) those containing underground storage tanks, asbestos, or some known or
suspected amount of indoor air contaminants.
Of these properties, one is believed to be affected by contamination caused
by third party sources and houses underground storage tanks, one contains
friable asbestos, 14 contain non-friable asbestos, nine house underground
storage tanks, and three contain known or suspected indoor air contaminants. The
property affected by contamination is affected primarily by petroleum and
solvent substances, and a third party has indemnified us for any and all
problems associated with this contamination. With regard to those properties
affected by asbestos, asbestos does not pose a health hazard if it is not
disturbed in such a way to cause an airborne release of asbestos. Asbestos is
friable when it can be crumbled, pulverized or reduced to powder by hand
pressure, and non-friable when hand pressure cannot release encapsulated
asbestos fibers. Friable asbestos is more likely to be released into the air
than no-friable asbestos. We manage all asbestos in ways that minimize its
potential to become airborne or otherwise threaten human health. Regarding
underground storage tanks, subsurface leakage of the materials contained within
the tank constitutes the primary risk posed by these devices. We comply with all
applicable laws, including double-wall construction, testing protocols,
placement of tanks within bermed areas, and the installation of leak and spill
detection equipment, to minimize the risks posed by underground storage tanks.
The environmental site assessments and investigations have not, however,
revealed any environmental liability that we believe would have a material
adverse effect on our business, 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.
We believe that our properties are in compliance in all material respects
with all federal, state and local laws 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. It is possible that future laws will impose material
environmental liabilities on us and that the current environmental condition of
our properties will 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.
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.
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PART III
The information required by Part III is incorporated by reference from our
definitive proxy statement for our 2001 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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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:
PAGE
----
ARDEN REALTY, INC.
Report of Independent Auditors............................................................................... F-1
Consolidated Balance Sheets as of December 31, 2000 and 1999................................................. F-2
Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998................... F-3
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998......... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 .................. F-5
Notes to Financial Statements................................................................................ F-6
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) REPORTS ON FORM 8-K
The Company filed the following report on Form 8-K during the quarter ended
December 31, 2000.
DATE OF FILING ITEMS REPORTED FINANCIAL STATEMENT
November 20, 2000............................. 9 No
Form 8-K was filed on November 20, 2000. Under Item 9 - Regulation FD
Disclosure, we reported that our operating partnership placed $100 million of
8.5% senior unsecured notes due November 2010.
Exhibit Number Description
- -------------- -----------
3.1* Amended and Restated Articles of Incorporation as filed as an
exhibit to Arden Realty Registration Statement on Form S-11
(No. 333-8163).
3.2* Articles Supplementary of Class A Junior Participating
Preferred Stock as filed as an exhibit to the current report
on Form 8-K, dated August 26, 1998.
3.3* Articles Supplementary of the 8 5/8 Series B Cumulative
Redeemable Preferred Stock dated September 7, 1999, filed as
an exhibit to Arden Realty's 10-K dated March 27, 2000.
3.4* By-laws of Registrant as filed as an exhibit to Arden Realty's
on Form S-11 (No. 333-8163).
3.5* Certificate of Amendment of the By-laws of Arden Realty dated
July 14, 1998, filed as an exhibit to Arden Realty's quarterly
report on Form 10-Q dated August 14, 1998.
3.6* Certificate of Amendment of the Bylaws of Arden Realty dated
March 17, 2000, filed as an exhibit on Form 10-Q dated May 11,
2000.
4.1* Rights Agreement, dated August 14, 1998, between Arden Realty
and The Bank of New York, as filed as an exhibit to Arden
Realty's current report on Form 8-K dated August 26, 1998.
4.2* Indenture between Arden Realty Limited Partnership and The
Bank of New York, as trustee, dated March 14, 2000 as filed as
an exhibit to Arden Realty Limited Partnership's registration
statement on Form S-4 (No. 333-35406).
4.3 First amendment to Rights Agreement.
10.1* 1996 Stock Option and Incentive Plan of Arden Realty, Inc.
and Arden Realty Limited Partnership as filed as an exhibit to
Arden Realty's registration statement on Form S-11 (No.
333-8163).
10.2* 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 Arden Realty's Schedule
14A filed with the Commission on June 23, 1998.
10.3* Form of Officers and Directors Indemnification Agreement as
filed as an exhibit to Arden Realty's registration statement
on Form S-11 (No. 333-8163).
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Exhibit Number Description
- -------------- -----------
10.4* Loan Agreement dated June 8, 1998 by and between Arden Realty
Finance III, L.L.C., a Delaware 10.4* limited liability
company and Lehman Brothers Realty Corporation, a Delaware
corporation filed as an exhibit to Arden Realty's quarterly
report of Form 10-Q filed with the Commission on August 14,
1998.
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, 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 Arden Realty's quarterly report on Form 10-Q filed
with the Commission on August 14, 1998.
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 Arden Realty's quarterly report on Form 10-Q filed
with the Commission on August 14, 1998.
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 Arden Realty's quarterly report on Form 10-Q
filed with the Commission on August 14, 1998.
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 Arden Realty's
quarterly report on Form 10-Q filed with the Commission on
August 14, 1998.
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 Arden Realty's
quarterly report on Form 10-Q filed with the Commission on
August 14, 1998.
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Exhibit Number Description
- -------------- -----------
10.13* Letter agreement between Lehman Brothers Realty Corporation,
Arden Realty Finance III, L.L.C., Arden Realty and Arden
Realty Limited Partnership, filed as an exhibit to Arden
Realty's quarterly report on Form 10-Q filed with the
Commission on August 14, 1998.
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
Arden Realty's quarterly report on Form 10-Q filed with the
Commission on August 14, 1998.
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).
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 Arden Realty's quarterly report on Form 10-Q filed
with the Commission on August 14, 1998.
10.19* Assignment of Leases and Rents 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 Arden Realty's
quarterly report on Form 10-Q filed with the Commission on
August 14, 1998.
10.20* Collateral Assignment of Management Agreement and
Subordination 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, filed as an exhibit to Arden Realty's quarterly
report on Form 10-Q filed with the Commission on August 14,
1998.
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Exhibit Number Description
- -------------- -----------
10.21* Security Agreement is entered into as of June 8, 1998 by and
between Arden Realty Finance IV, 10.21* L.L.C., a Delaware
limited liability company ("Debtor"), and Lehman Brothers
Realty Corporation, a Delaware corporation ("Secured Party"),
filed as an exhibit to Arden Realty's quarterly report on Form
10-Q filed with the Commission on August 14, 1998.
10.22* Environmental Indemnity 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 Arden Realty's quarterly report on Form 10-Q filed
with the Commission on August 14, 1998.
10.23* Letter agreement between Lehman Brothers Realty Corporation,
Arden Realty Finance IV, L.L.C., Arden Realty and Arden Realty
Limited Partnership, filed as an exhibit to Arden Realty's
quarterly report on Form 10-Q filed with the Commission on
August 14, 1998.
10.24*# Amended and Restated Employment Agreement dated August 4,
1998, between Arden Realty and Mr. Richard S. Ziman, filed as
an exhibit to Arden Realty's quarterly report on Form 10-Q/A
filed with the Commission on December 15, 1998.
10.25*# Amended and Restated Employment Agreement dated August 4,
1998, between Arden Realty and Mr. Victor J. Coleman, filed as
an exhibit to Arden Realty's quarterly report on Form 10-Q/A
filed with the Commission on December 15, 1998.
10.26*# Amended and Restated Employment Agreement dated August 4,
1998, between Arden Realty and Mr. Herbert Porter, filed as an
exhibit to Arden Realty's quarterly report on Form 10-Q/ A
filed with the Commission on December 15, 1998.
10.27*# Amended and Restated Employment Agreement dated January 1,
1999, between Arden Realty and Mr. Robert Peddicord, filed as
a exhibit to Arden Realty's quarterly report on Form 10-Q
filed with the Commission on August 8, 2000.
10.28* Miscellaneous Rights Agreement among Arden Realty, Arden
Realty Limited Partnership, NAMIZ, Inc. and Mr. Ziman, filed
as an exhibit to Arden Realty's registration statement on Form
S- II (No. 333-8163).
10.29* Credit Facility documentation consisting of Second Amended
and Restated Revolving Credit Agreement by and among Arden
Realty Limited Partnership and a group of banks led by Wells
Fargo Bank as filed as an exhibit to Arden Realty's quarterly
report on Form 10-Q filed with the Commission on May 12, 2000.
48
49
Exhibit Number Description
- -------------- -----------
10.30* Mortgage Financing documentation consisting of Loan Agreement
by and between Arden Realty's 10.30* 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 Arden Realty's registration statement
of Form S-11 (No. 333-30059).
10.31* 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 Arden Realty's
current report Form 8-K filed with the Commission on April 20,
1999.
10.32* 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 Arden Realty's current report on Form
8-K filed with the Commission on April 20, 1999.
10.33* 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 Arden Realty's
current report on Form 8-K filed with the Commission on April
20, 1999.
10.34* 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 Arden
Realty's current report on Form 8-K filed with the Commission
on April 20, 1999.
10.35* 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 Arden Realty's current report on Form 8-K filed
with the Commission on April 20, 1999.
10.35* Form of Arden Realty Limited Partnership's unsecured 8.875%
senior note due 2005, dated March 17, 2000 filed as an exhibit
to Arden Realty Limited Partnership's registration statement
on Form S-4 (No. 333-35406).
10.36* Form of Arden Realty Limited Partnership's unsecured 9.150%
senior note due 2010, dated March 17, 2000 filed as an exhibit
to Arden Realty Limited Partnership's registration statement
on Form S-4 (No. 333-35406).
10.37* Senior Unsecured Credit Agreement between Arden Realty
Limited Partnership and Lehman Brothers Inc. dated July 27,
2000 filed as an exhibit to Arden Realty's quarterly report on
Form 10-Q filed with the Commission on November 12, 2000.
49
50
Exhibit Number Description
- -------------- -----------
10.38* Registration Rights Agreement between Arden Realty Limited
Partnership and the initial purchasers 10.38* set forth
therein dated as of March 17, 2000, filed as an exhibit to
Arden Realty Limited Partnership's registration statement on
Form S-4 (No. 333-35406).
10.39* Purchase Agreement between Arden Realty Limited Partnership
and the initial purchasers set forth therein dated as of March
14, 2000, filed as an exhibit to Arden Realty Limited
Partnership's registration statement on Form S-4 (No.
333-35406).
10.40* Registration Rights Agreement between Arden Realty Limited
Partnership and Lehman Brothers Inc. dated as of November 20,
2000 as filed as an exhibit to Arden Realty Limited
Partnership's registration statement on Form S-4 (No.
333-53376).
10.41* Purchase Agreement between Arden Realty Limited Partnership
and Lehman Brothers Inc. dated as of November 15, 2000 as
filed as an exhibit to Arden Realty Limited Partnership's
registration statement on Form S-4 (No. 333-53376).
10.42* Amended and Restated Employment Agreement dated May 27, 1999,
between Arden Realty and Mr. Randy J. Noblitt as filed as an
exhibit to Arden Realty Limited Partnership's registration
statement on Form S-4 (No. 333-53376).
10.43* Amended and Restated Employment Agreement dated July 27,
2000, by and between Arden Realty and Mr. Richard S. Ziman as
filed as an exhibit to Arden Realty Limited Partnership's
registration statement on Form S-4 (No. 333-53376).
10.44* Amended and Restated Employment Agreement dated July 27,
2000, by and between Arden Realty and Mr. Victor J. Coleman as
filed as an exhibit to Arden Realty Limited Partnership's
registration statement on Form S-4 (No. 333-53376).
10.45*# Amendment to the 1996 Stock Option and Incentive Plan of
Arden Realty, Inc. and Arden Realty Limited Partnership as
filed as an exhibit to Arden Realty's Schedule 14A filed with
the Commission on April 25, 2000.
10.46* Form of Arden Realty Limited Partnership's unsecured 8.50%
senior note due 2010, dated November 20, 2000 as filed as an
exhibit to Arden Realty Limited Partnership's registration
statement on Form S-4 (No. 333-53376).
10.47 Admission of New Partners and Amendment to Limited
Partnership Agreement entered into as of the 20th day of
December, 2000, by and between Arden Realty Limited
Partnership and the persons identified as the "New Partners"
therein.
50
51
Exhibit Number Description
- -------------- -----------
21.1* Subsidiaries of Arden Realty Limited Partnership as filed as
an exhibit to Arden Realty Limited Partnership's registration
statement on Form S-4 (No. 333-53376).
23.1 Consent of Ernst & Young LLP
- ------------------
(*) Incorporated by reference.
(#) Management contract or compensatory plan or arrangement required to be
identified by Item 14(a)3.
51
52
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.
NAME TITLE DATE
---- ----- ----
/s/ RICHARD S. ZIMAN Chairman of the Board, Chief March 29, 2001
- ---------------------------------------------------- Executive Officer and Director
Richard S. Ziman
/s/ VICTOR J. COLEMAN President, Chief Operating March 29, 2001
- ---------------------------------------------------- Officer and Director
Victor J. Coleman
/s/ ANDREW J. SOBEL Executive Vice President March 29, 2001
- ---------------------------------------------------- Strategic Planning and Operations
Andrew J. Sobel
/s/ DANIEL S. BOTHE Senior Vice President and March 29, 2001
- ---------------------------------------------------- Co-Chief Financial Officer
Daniel S. Bothe
/s/ RICHARD S. DAVIS Senior Vice President, March 29, 2001
- ---------------------------------------------------- Co-Chief Financial Officer and
Richard S. Davis Treasurer
/s/ CARL D. COVITZ Director March 29, 2001
- ----------------------------------------------------
Carl D. Covitz
/s/ PETER S. GOLD Director March 29, 2001
- ----------------------------------------------------
Peter S. Gold
/s/ STEVEN C. GOOD Director March 29, 2001
- ----------------------------------------------------
Steven C. Good
/s/ KENNETH B. ROATH Director March 29, 2001
- ----------------------------------------------------
Kenneth B. Roath
52
53
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, 2000 and 1999 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2000. 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, 2000 and 1999 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
Los Angeles, California /s/ ERNST & YOUNG LLP
January 30, 2001
F-1
54
ARDEN REALTY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
----------------------------------
2000 1999
---------------- ----------------
ASSETS
Commercial properties:
Land .............................................................................. $ 466,426 $ 467,157
Buildings and improvements ........................................................ 1,985,950 1,833,052
Tenant improvements and leasing costs ............................................. 225,620 153,161
----------- -----------
2,677,996 2,453,370
Less: accumulated depreciation .................................................... (227,463) (157,608)
----------- -----------
2,450,533 2,295,762
Properties under development ...................................................... 93,384 183,349
Properties held for disposition, net .............................................. 59,649 --
----------- -----------
Net investment in real estate ..................................................... 2,603,566 2,479,111
Cash and cash equivalents ............................................................ 5,432 7,056
Restricted cash ...................................................................... 19,367 18,513
Rent and other receivables, net of allowance of $1,705 and $2,390 at December 31, 2000
and 1999, respectively ............................................................ 13,198 11,785
Mortgage notes receivable, net of discount of
$1,555 and $2,014 at December 31, 2000 and 1999, respectively ..................... 13,761 13,847
Deferred rent ........................................................................ 31,588 23,932
Prepaid financing costs, expenses and other assets, net of accumulated amortization of
$5,456 and $5,742 at December 31, 2000 and 1999, respectively ..................... 18,685 16,214
----------- -----------
Total assets ................................................................ $ 2,705,597 $ 2,570,458
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage loans payable ............................................................... $ 576,055 $ 740,806
Unsecured lines of credit ............................................................ 253,350 288,850
Unsecured senior notes, net of discount .............................................. 348,364 --
Accounts payable and accrued expenses ................................................ 37,415 34,482
Security deposits .................................................................... 19,470 16,073
Dividends payable .................................................................... 29,596 28,195
----------- -----------
Total liabilities ........................................................... 1,264,250 1,108,406
Minority interests ................................................................... 86,176 86,294
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 20,000,000 shares authorized,
none issued ....................................................................... -- --
Common stock, $.01 par value, 100,000,000 shares authorized, 63,646,871 and 63,358,977
issued and outstanding, respectively .............................................. 637 633
Additional paid-in capital ........................................................... 1,363,407 1,377,292
Deferred compensation ................................................................ (8,873) --
Notes receivable from officers for purchase of common stock .......................... -- (2,167)
----------- -----------
Total stockholders' equity .................................................. 1,355,171 1,375,758
----------- -----------
Total liabilities and stockholders' equity .................................. $ 2,705,597 $ 2,570,458
=========== ===========
See accompanying notes to financial statements.
F-2
55
ARDEN REALTY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------------------
2000 1999 1998
------------- --------------- ---------------
Revenue ................................. $ 384,590 $ 337,853 $ 281,067
Property operating expenses ............. 110,917 101,284 86,570
--------- --------- ---------
273,673 236,569 194,497
General and administrative .............. 9,336 7,393 6,665
Interest ................................ 78,406 60,239 43,403
Depreciation and amortization ........... 87,267 69,837 51,822
Interest and other income ............... (3,527) (2,822) (3,515)
--------- --------- ---------
Income before gain and minority interests 102,191 101,922 96,122
Gain on sale of property ................ 2,132 -- --
--------- --------- ---------
Income before minority interests ........ 104,323 101,922 96,122
Minority interests ...................... (7,613) (5,296) (5,447)
--------- --------- ---------
Net income .............................. $ 96,710 $ 96,626 $ 90,675
--------- ========= =========
Net income per common share:
Basic ................................ $ 1.53 $ 1.53 $ 1.55
========= ========= =========
Diluted .............................. $ 1.52 $ 1.53 $ 1.54
========= ========= =========
Weighted average number of common shares:
Basic ................................ 63,408 63,016 58,660
========= ========= =========
Diluted .............................. 63,598 63,072 58,814
========= ========= =========
See accompanying notes to financial statements.
F-3
56
ARDEN REALTY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK ADDITIONAL NOTES TOTAL
--------------------- PAID IN RETAINED DEFERRED RECEIVABLE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION FROM OFFICERS EQUITY
---------- --------- ------------ ------------- ------------- -------------- -------------
Balance at January 1, 1998 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
----------- ----------- ----------- ----------- ----------- ----------- -----------
Surrender of restricted
stock by officers .... (85,106) -- (1,920) -- -- -- (1,920)
Notes and interest
receivable
from officers ........ -- -- -- -- 2,167 -- 2,167
Stock compensation ..... 373,000 4 9,455 -- (9,459) -- --
Amortization of stock
compensation ......... -- -- -- -- 586 -- 586
Preferred partnership
units issuance costs . -- -- (119) -- -- -- (119)
Net income ............. -- -- -- 96,710 -- -- 96,710
Dividends declared
and payable ......... -- -- (21,301) (96,710) -- -- (118,011)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31,
2000 ..................... 63,646,871 $ 637 $1,363,407 $ -- (8,873) $ -- $1,355,171
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements.
F-4
57
ARDEN REALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------------------------------
2000 1999 1998
------------------ ------------------ ------------------
OPERATING ACTIVITIES:
Net income...................................................... $ 96,710 $ 96,626 $ 90,675
Adjustments to reconcile net income
to net cash provided by operating activities:
Minority interests........................................... 7,613 5,296 5,447
Depreciation and amortization................................ 87,267 69,837 51,822
Amortization of loan costs and fees.......................... 3,568 2,868 1,941
Gain on sale of property..................................... (2,132) -- --
Amortization of deferred compensation........................ 586 -- --
Changes in operating assets and liabilities:
Rent and other receivables................................. (1,080) (2,279) 1,280
Deferred rent.............................................. (7,656) (6,928) (8,193)
Prepaid financing costs, expenses and other assets......... (7,480) (1,456) (2,967)
Accounts payable and accrued expenses...................... 11,359 4,250 5,182
Security deposits.......................................... 3,397 2,140 7,086
----------- ----------- -----------
Net cash provided by operating activities....................... 192,152 170,354 152,273
----------- ----------- -----------
INVESTING ACTIVITIES:
Acquisitions and improvements to commercial properties......... (227,707) (283,574) (1,119,833)
Proceeds from sale of property.................................. 11,683 -- --
Escrow deposit.................................................. -- -- 20,000
----------- ----------- -----------
Net cash used in investing activities........................... (216,024) (283,574) (1,099,833)
------------ ------------ -----------
FINANCING ACTIVITIES:
Proceeds from mortgage loans.................................... 45,052 310,038 677,520
Repayment of mortgage loans..................................... (209,804) (113,259) (370,659)
Proceeds from unsecured lines of credit......................... 238,000 209,661 413,350
Repayments of unsecured lines of credit......................... (273,500) (217,261) (357,300)
Proceeds from issuances of unsecured senior notes, net of discount 348,364 -- --
Increase in restricted cash..................................... (854) (6,104) (8,369)
Proceeds from issuance of common stock, net of offering costs.. -- -- 706,582
Distributions to and contributions from minority interests, net. (3,968) (4,629) (22,017)
Distributions to preferred operating partnership units holder... (4,312) (1,354) --
Dividends paid.................................................. (116,611) (110,394) (92,269)
Proceeds from issuance of preferred operating partnership units. -- 50,000 --
Preferred operating partnership units issuance cost............. (119) (1,000) --
------------ ------------ -----------
Net cash provided by financing activities....................... 22,248 115,698 946,838
------------ ------------ -----------
Net (decrease) increase in cash and cash equivalents............ (1,624) 2,478 (722)
Cash and cash equivalents at beginning of period................ 7,056 4,578 5,300
------------ ------------ -----------
Cash and cash equivalents at end of period...................... $ 5,432 $ 7,056 $ 4,578
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest, net of amount capitalized $ 70,139 $ 58,365 $ 48,206
========= ========= =========
See accompanying notes to financial statements.
F-5
58
ARDEN REALTY, INC.
NOTES TO CONSOLIDATED 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, or 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, or 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, 2000, our portfolio consisted
of 142 primarily suburban office properties containing approximately 18.7
million net rentable square feet and three properties with approximately 725,000
net rentable square feet under development. As of December 31, 2000, our
properties were approximately 95.5% leased.
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 our subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The minority interests at December 31, 2000 and December 31, 1999 consisted
of limited partnership interests in the Operating Partnership of approximately
3.3%, exclusive of ownership interests of our preferred units holders.
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, namely the operation of
commercial real estate located in Southern California, and the financial
information disclosed herein represents all of the financial information related
to this principal operating segment.
Commercial Properties
Our properties are stated at depreciated 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,
are less than its book value. Properties held for disposition are carried at the
lower of
F-6
59
depreciated cost or fair value. Based on our assessment, no write-downs to
estimated fair value were necessary as of December 31, 2000 and 1999,
respectively.
Repair and maintenance costs are charged to expenses as incurred and
significant replacements and betterments are capitalized. Repairs and
maintenance costs include all costs that do not extend the useful life of a an
asset or increase its operating efficiency. Significant replacements and
betterments represent costs that extend an asset's useful life or increase its
operating efficiency.
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.
Costs associated with leasing properties are capitalized and amortized to
expense on a straight-line basis over the related lease term.
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, 2000 and 1999 primarily consists of $13.9
million and $13.7 million, respectively, in cash deposits as required by certain
of our mortgage loans payable and $5.5 million and $4.8 million, respectively,
in impound accounts for real estate taxes and insurance, as required by certain
of our mortgage loans payable.
Prepaid Financing Costs
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 (90% beginning January 1, 2001) 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 2000, 1999 and 1998, we declared dividends of $1.86, $1.78 and $1.68
per share, respectively
F-7
60
Fair Value of Financial Instruments
Our disclosures of estimated fair value of financial instruments at
December 31, 2000 were determined using available market information and
appropriate valuation methodologies. Considerable judgment is necessary to
interpret market data and develop estimated fair value. The use of different
market assumptions or estimation methodologies may have a material effect on the
estimated fair value amounts.
Our cash equivalents, mortgage notes receivable, accounts payable and other
financial instruments are carried at amounts that reasonably approximate their
fair value amounts.
The estimated fair value of our notes payable is as follows (in thousands):
DECEMBER 31, 2000 DECEMBER 31, 1999
--------------------------- ----------------------
Carrying Estimated Carrying Estimated
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------ ---------- ------ ----------
Notes payable................... $1,177,769 $1,151,886 $1,029,656 $1,050,034
The estimated fair value is based on interest rates available at each of
the dates presented for issuance of debt with similar terms and remaining
maturities. The estimated fair value amounts of our notes payable above are not
necessarily indicative of the amounts that we could realize in a current market
exchange. The unrealized gains in our notes payable are presented for disclosure
purposes and are not reflected in our balance sheets or results of operations.
New Accounting Standards
In June 1998, June 1999 and June 2000, respectively, the Financial
Accounting Standards Board issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of Statement No. 133," and Statement No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of Statement No. 133."
These statements outline the accounting treatment for all derivative activity.
In October 2000, the SEC issued "Frequently Asked Questions on Staff Accounting
Bulletin No. 101 on Revenue Recognition." This document formalizes the position
of the SEC staff regarding key topics about income recognition. We adopted SAB
101 on October 1, 2000 and its adoption did not impact our financial results. We
adopted on January 1, 2001 Statement No. 133 and do not expect adoption to have
a significant effect on our consolidated results of operations or financial
position.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
3. COMMERCIAL PROPERTIES
Acquisitions
We did not acquire any properties in 2000.
Dispositions
On October 13, 2000, we sold a 76,000 net rentable square foot retail
property located in Thousand Oaks, California, for approximately $12.0 million
and recorded a gain of approximately $2.1 million.
Capitalized Interest
We capitalize interest and taxes related to buildings under construction
and renovation to the extent those assets qualify for capitalization.
F-8
61
Total interest incurred and the amount capitalized for the years ended
December 31, 2000, 1999, and 1998 were as follows (in thousands):
2000 1999 1998
----------- ----------- --------
Total interest incurred... $ 91,052 $ 69,826 $ 52,323
Interest capitalized...... (12,646) (9,587) (8,920)
---------- ---------- ----------
Interest expensed......... $ 78,406 $ 60,239 $ 43,403
========== ========== ==========
Future Minimum Lease Payments
Future minimum lease payments to be received under noncancelable operating
leases existing as of December 31, 2000, are as follows (in thousands):
2001......................... $ 321,202
2002......................... 281,099
2003......................... 229,090
2004......................... 170,853
2005......................... 117,280
Thereafter................... 219,468
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 at
six of our buildings. Ground lease expense, including amounts netted against
parking revenues, was approximately $2.3 million, $1.7 million and $2.0 million
for the years ended December 31, 2000, 1999 and 1998, respectively. Future
minimum ground lease payments due under existing ground leases are as follows
(in thousands):
2001..................... $ 1,717
2002..................... 1,754
2003..................... 1,754
2004..................... 1,785
2005..................... 1,815
Thereafter............... 116,492
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 8.84%
at December 31, 2000.
F-9
62
5. MORTGAGE LOANS AND UNSECURED INDEBTEDNESS
A summary of mortgage loans payable, unsecured lines of credit and
unsecured senior notes is as follows:
NUMBER OF
STATED ANNUAL PROPERTIES MATURITY
DECEMBER 31, DECEMBER 31, INTEREST RATE AT RATE SECURING MONTH/
TYPE OF DEBT 2000 1999 DECEMBER 31, 2000 FIXED/FLOATING LOAN YEAR
- ------------ ------------ ----------- ----------------- -------------- ---------- ------
(IN THOUSANDS)
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)............... 112,212 114,016 6.94% Fixed 12 4/09
Mortgage Financing VI(3).............. 22,241 22,426 7.54% Fixed 3 4/09
Activity Business Center(3).......... 7,881 8,003 8.85% Fixed 1 5/06
145 South Fairfax(3).................. 4,021 4,050 8.93% Fixed 1 1/27
Marin Corporate Center(3)............. 3,071 3,168 9.00% Fixed 1 7/15
Conejo Business Center(3)............. 3,017 3,114 8.75% Fixed (Note 4) 7/15
Conejo Business Center(3)............. 1,312 1,358 7.88% Fixed (Note 4) 7/15
Westwood Center....................... -- 14,859 -- -- -- --
299 North Euclid...................... -- 5,000 -- -- -- --
----------- -----------
576,055 598,294
Floating Rate
Construction Loan..................... -- 22,037 -- -- -- --
Lehman Prepayable Term Loan II and III -- 120,475 -- -- -- --
----------- -----------
576,055 740,806
UNSECURED LINES OF CREDIT:
Floating Rate
Wells Fargo(1)........................ 172,350 280,850 7.89% LIBOR + 1.15% -- 4/03
(Note 5)
Lehman Brothers(1),(6)................ 75,000 -- 8.01% LIBOR + 1.30% -- 7/02
City National Bank(1)................. 6,000 8,000 8.63% Prime Rate - -- 8/01
----------- ----------- 0.875
253,350 288,850
UNSECURED SENIOR NOTES:
Fixed Rate
2005 Notes(7)......................... 199,564 -- 8.88% Fixed -- 3/05
2010 Notes(7)......................... 49,622 -- 9.15% Fixed -- 3/10
2010 Notes(7)......................... 99,178 -- 8.50% Fixed -- 11/10
----------- -----------
348,364 --
----------- -----------
Total Debt......................... $ 1,177,769 $ 1,029,656
=========== ===========
- ----------
(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) This line of credit also has an annual 25 basis points facility fee on the
entire $275 million commitment amount.
(6) This line of credit has a one-year extension option.
(7) Requires semi-annual interest payments only, with principal balance due
upon maturity.
Unsecured Lines of Credit
On May 3, 2000, we extended our unsecured line of credit with a group of
banks led by Wells Fargo. 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 on
this of line of credit 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. As of December
31, 2000, there was approximately $172.4 million outstanding on this line of
credit and approximately $102.6 million was available for additional borrowings.
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
F-10
63
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. Proceeds from this line of credit have been
used to provide funds for tenant improvements and capital expenditures and to
provide for working capital and other purposes.
In July 2000, we closed on a $75 million unsecured line of credit with
Lehman Brothers. Borrowings on this new line of credit 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 on July 27, 2002 with an
option to extend the maturity date for one year. Proceeds from this line of
credit have been used to reduce the outstanding balance under our $275 million
line of credit. As of December 31, 2000, there was $75 million outstanding on
this line of credit.
In August 2000, we extended our unsecured line of credit with a total
commitment of $10 million from City National Bank to August 2001. This line of
credit accrues interest at the City National Bank Prime Rate less 0.875%. As of
December 31, 2000, there was $6 million outstanding on this line of credit and
$4 million was available for additional borrowing. Proceeds from this line of
credit have been used, among other things, to provide funds for tenant
improvement and capital expenditures and provide for working capital and other
purposes.
Unsecured Senior Notes
On March 17, 2000, our Operating Partnership 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 two prepayable term
loans to an affiliate of Lehman Brothers and a mortgage loan and to reduce the
outstanding balance 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 Rule 144A under the Securities Act. Our operating
partnership subsequently filed a registration statement that became effective on
May 10, 2000 and all privately placed notes were exchanged for notes registered
under the Securities Act.
On November 20, 2000, our Operating Partnership completed a private
placement of $100 million 8.50% senior notes due 2010, with interest payable
semi-annually on November 15 and May 15 of each year. We used the net proceeds
from this private placement to reduce the outstanding balance on one of our
unsecured lines of credit and to repay a construction loan related to our
development of the 6060 Center Drive Project. These senior unsecured notes were
issued in a private placement in reliance upon an exemption from registration
provided by Rule 144A under the Securities Act. Our Operating Partnership
subsequently filed a registration statement that became effective on March 29,
2001 and is currently exchanging these privately placed notes for registered
notes. We expect to complete this exchange offer by April 26, 2001.
F-11
64
Following is a summary of scheduled principal payments for our total debt
outstanding as of December 31, 2000 (in thousands):
YEAR ENDED
DECEMBER 31, AMOUNT
------------ ------
2001.................................................. $ 8,492
2002.................................................. 77,618
2003.................................................. 177,804
2004.................................................. 182,218
2005.................................................. 207,834
Thereafter............................................ 523,803
----------
$1,177,769
==========
6. STOCKHOLDERS' EQUITY
During 2000, we issued a total of 373,000 restricted stock awards to
several key executive officers. The restriction on these shares prohibits the
sale or transfer of such shares and lapses equally over four years for 100,000
shares and over five years for 273,000 shares. We have recorded a deferred
compensation charge of approximately $9.5 million, based on the market value of
these shares on the date of award, in the accompanying consolidated statement of
stockholders' equity and will amortize such charge on a straight-line basis over
the restriction period for each award. In 2000, we recorded $586,000 in non-cash
compensation expense related to these restricted stock awards.
On September 7, 1999, our Operating Partnership 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.
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.
A dividend was declared on December 1, 2000 to stockholders of record on
December 31, 2000 of $0.465 per common share, for the quarter ended December 31,
2000. This dividend was paid on January 27, 2001. Arden Realty declared
dividends of $1.86 per common share for the year ended December 31, 2000.
7. COMMITMENTS AND CONTINGENCIES
Capital Commitments
As of December 31, 2000, we had approximately $14.1 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.
F-12
65
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
were recourse and secured by the shares of common stock issued to the executive
officers.
Mr. Andrew J. Sobel resigned as Executive Vice President and Director of
Property Operations effective February 18, 2000. At the time of his resignation,
Mr. Sobel surrendered the common stock underlying his promissory note 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 received compensation of $6,000 per month
which was applied against the unpaid interest and principal on the new
promissory note. In July 2000, Mr. Sobel returned to Arden Realty as Executive
Vice President, terminating the consulting and non-competition agreement
described above, and is in the process of finalizing a new employment agreement
with Arden Realty addressing, among other things, the promissory note.
Ms. Diana Laing resigned as Executive Vice President and Chief Financial
Officer effective July 1, 2000. At the time of her resignation, Ms. Laing
surrendered stock options valued at approximately $59,000 as well as the 42,553
shares of Arden Realty's common stock underlying her promissory note. The value
of the options and shares surrendered by Ms. Laing equaled the unpaid principal
and interest of her promissory note.
9. REVENUE FROM RENTAL OPERATIONS AND PROPERTY OPERATING EXPENSES
Revenue from rental operations and property operating expenses for the
years ended December 31, 2000, 1999 and 1998 are summarized as follows (in
thousands):
2000 1999 1998
----------- ----------- -------
REVENUE FROM RENTAL OPERATIONS:
Rental........................................ $ 328,460 $ 292,688 $ 250,467
Tenant reimbursements......................... 16,371 13,863 9,505
Parking, net of expenses...................... 18,348 14,384 12,223
Other rental operations....................... 21,411 16,918 8,872
--------- --------- ---------
384,590 337,853 281,067
--------- --------- ---------
PROPERTY OPERATING EXPENSES:
Repairs and maintenance....................... 35,390 32,902 27,141
Utilities..................................... 29,872 28,305 26,559
Real estate taxes............................. 26,808 23,167 19,433
Insurance..................................... 4,203 3,993 4,110
Ground rent................................... 1,214 891 714
Administrative................................ 13,430 12,026 8,613
--------- --------- ---------
110,917 101,284 86,570
--------- --------- ---------
$ 273,673 $ 236,569 $ 194,497
========= ========= =========
F-13
66
10. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net
income per share for the years ended December 31, 2000, 1999 and 1998 (in
thousands, except per share amounts):
2000 1999 1998
---------- ---------- ----------
Net income........................................... $ 96,710 $ 96,626 $ 90,675
========= ========= =========
Weighted average shares - basic...................... 63,408 63,016 58,660
Weighted average dilutive stock options.............. 190 56 154
--------- --------- ---------
Weighted average shares - diluted.................... 63,598 63,072 58,814
========= ========= =========
Basic net income per share........................... $ 1.53 $ 1.53 $ 1.55
========= ========= =========
Diluted net income per share......................... $ 1.52 $ 1.53 $ 1.54
========= ========= =========
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 APB 25, 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, 2000, 6,500,000 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 such
options and all options were granted at exercise prices equal to the market
prices at the date of the grant.
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 2000, 1999 and 1998, respectively: risk-free interest rate of
6.13%, 6.67% and 5.68% dividend yield of 7.75%, 5.79% and 7.25% and a volatility
factor of the expected market price of Arden Realty's common stock of .198, .245
and .268. 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, 2000, 1999 and 1998 follows (in
thousands, except earnings per share information):
2000 1999 1998
---------- ---------- ---------
Pro forma net income...................................$ 92,266 $ 92,490 $ 88,711
========= ========= =========
Pro forma net income per share.........................$ 1.45 $ 1.46 $ 1.51
========= ========= =========
F-14
67
A summary of Arden Realty's stock option activity, and related information
for the years ended December 31, 2000, 1999 and 1998 follows:
2000 1999 1998
----------------------------- ------------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE
(000S) PRICE (000S) PRICE (000S) PRICE
------ ----- ------ ----- ------ -----
Outstanding, beginning of period.... 3,599 $ 23.98 2,899 $ 24.99 1,262 $ 23.98
Granted............................. 1,367 25.05 710 19.27 1,647 26.01
Exercised........................... (373) 25.17 -- -- -- --
Forfeited........................... (510) 25.38 (10) 25.94 (10) 20.00
---- ---------- --------- ---------- --------- --------
Outstanding at end of year.......... 4,083 $ 24.40 3,599 $ 23.98 2,899 $ 24.99
===== ======== ========= ======== ======== ========
Exercisable at end of the period.... 2,601 $ 25.07 1,617 $ 24.67 606 $ 23.07
======== ======== ========= ======== ========= =======
Weighted-average fair value of
options granted................ $ 2.13 $ 3.35 $ 3.27
======== ======== ========
Exercise prices for options outstanding as of December 31, 2000 ranged from
$19.13 to $32.25. The weighted average remaining contractual life of those
options is 6.3 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 $517,000 in 2000,
$385,000 in 1999 and $187,000 in 1998. Plan participants are immediately vested
in their contributions and are vested equally over four years in matching
contributions by us.
13. SUBSEQUENT EVENT -- UNAUDITED
Dividend Declaration
On March 6, 2001, we declared a first quarter dividend of $0.49 per share
to shareholders of record on March 30, 2001.
F-15
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14. QUARTERLY RESULTS
Following is a quarterly summary of our revenue and expenses for the years
ended December 31, 2000, 1999 and 1998. Revenue and expenses have fluctuated
significantly from quarter to quarter primarily due to our development,
renovation and acquisition activity (unaudited).
FOR THE QUARTER ENDED (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
---------------------------------------------------------------------------------------
MARCH 31, 2000 JUNE 30, 2000 SEPTEMBER 30, 2000 DECEMBER 31, 2000
--------------------- --------------------- -------------------- --------------------
Revenue...................... $ 89,678 $ 92,856 $ 99,031 $ 103,025
Property operating expenses.. (25,347) (26,721) (29,516) (29,333)
General and administrative... (1,821) (1,838) (2,297) (3,380)
Interest expense............. (17,852) (18,770) (20,345) (21,439)
Depreciation and amortization (20,147) (21,277) (22,528) (23,315)
Interest and other income.... 855 770 948 954
Gain on sale of property..... -- -- -- 2,132
Minority interests........... (1,875) (1,822) (1,921) (1,995)
---------- ---------- ---------- ----------
Net Income................... $ 23,491 $ 23,198 $ 23,372 $ 26,649
========== ========== ========== ==========
Net income per share:
Basic.................. $ 0.37 $ 0.37 $ 0.37 $ 0.42
========== ========== ========== ==========
Diluted................ $ 0.37 $ 0.37 $ 0.37 $ 0.42
========== ========== ========== ==========
FOR THE QUARTER ENDED (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
---------------------------------------------------------------------------------------
MARCH 31, 1999 JUNE 30, 1999 SEPTEMBER 30, 1999 DECEMBER 31, 1999
--------------------- --------------------- -------------------- --------------------
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
========== ========== ========== ==========
FOR THE QUARTER ENDED (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
---------------------------------------------------------------------------------------
MARCH 31, 1998 JUNE 30, 1998 SEPTEMBER 30, 1998 DECEMBER 31, 1998
--------------------- --------------------- -------------------- --------------------
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
========== ========== ========== ==========
F-16
69
15. SCHEDULE OF COMMERCIAL PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SQUARE FOOT DATA)
BASIS
INITIAL COSTS STEP UP
--------------------- ------------------- COSTS
BUILDINGS BUILDINGS CAPITALIZED
SQUARE AND AND SUBSEQUENT TO
FOOTAGE LAND IMPROVEMENTS LAND IMPROVEMENTS ACQUISITION(2)
------- ---- ------------ ---- ------------ --------------
Century Park Center... 243,404 $ 7,190 $ 16,742 $ -- $ -- $ 8,881
Beverly Atrium........ 59,650 4,127 11,513 117 328 2,685
Woodland Hills
Financial Center... 224,955 6,566 14,754 365 880 6,398
Anaheim City Centre... 175,391 515 11,199 94 2,074 4,387
425 West Broadway..... 71,589 1,500 4,436 305 918 2,625
1950 Sawtelle......... 103,106 1,988 7,263 -- -- 2,199
Bristol Plaza......... 84,014 1,820 3,380 257 485 2,472
16000 Ventura......... 174,841 1,700 17,189 185 1,929 4,829
5000 East Spring...... 163,358 -- 11,658 -- 424 3,621
70 South Lake......... 100,133 1,360 9,097 -- -- 2,758
Westwood Terrace...... 135,943 2,103 16,850 -- -- 2,667
5601 Lindero Canyon... 105,830 2,576 6,067 -- -- 2,634
6100 Wilshire......... 202,704 1,200 19,902 -- -- 5,008
Calabasas Commerce
Center............. 126,771 1,262 9,725 -- -- 1,870
Long Beach--DF&G...... 272,013 -- 14,452 -- -- 446
Skyview Center........ 391,675 6,514 33,701 -- -- 5,767
400 Corporate Pointe.. 164,598 3,383 17,527 74 390 3,294
5832 Bolsa............ 49,355 690 3,526 15 80 952
9665 Wilshire......... 158,684 6,697 22,230 139 473 6,456
Imperial Bank Tower... 540,413 3,722 35,184 64 626 12,218
100 West Broadway..... 191,727 4,570 15,255 -- -- 1,980
Norwalk............... 122,175 4,508 5,532 -- -- 4,041
303 North Glenoaks Blvd. 175,289 6,500 18,132 -- -- 2,986
10351 Santa Monica.... 96,251 3,080 7,906 -- -- 1,636
2730 Wilshire......... 55,080 3,515 5,944 -- -- 1,514
Grand Avenue Plaza.... 81,448 620 2,832 -- -- 4,298
Burbank Executive
Plaza.............. 60,395 1,100 4,384 -- -- 7,906
California Federal 81,243 1,500 5,981 -- -- (4,317)
Building...........
Center Promenade...... 174,837 2,310 9,266 -- -- 2,877
Los Angeles Corporate
Center............. 389,293 26,781 15,139 -- -- 8,350
5200 West Century..... 310,910 2,080 9,360 -- -- 20,221
Sumitomo Bank
Building........... 110,641 2,560 10,257 -- -- 3,191
10350 Santa Monica.... 42,292 860 3,456 -- -- 833
535 Brand Boulevard... 109,187 1,600 8,427 -- -- 12,896
10780 Santa Monica.... 92,486 2,625 7,997 -- -- 1,281
California Twin
Center............. 155,189 4,680 14,877 -- -- 2,161
Whittier Financial
Center............. 135,415 3,575 10,798 -- -- 1,896
TOTAL COSTS
---------------------
BUILDINGS YEAR
AND ACCUMULATED BUILT
LAND IMPROVEMENTS TOTAL DEPRECIATION(2) ENCUMBRANCES RENOVATED
---- ------------ ----- --------------- ------------ ----------
Century Park Center... $ 7,190 $ 25,623 $ 32,813 $ 7,344 $ -- 1972
Beverly Atrium........ 4,244 14,526 18,770 3,489 5,268(3) 1989
Woodland Hills
Financial Center... 6,931 22,032 28,963 5,663 14,564(3) 1972/95
Anaheim City Centre... 609 17,660 18,269 3,945 8,914(3) 1986
425 West Broadway..... 1,805 7,979 9,784 1,106 4,734(3) 1984
1950 Sawtelle......... 1,988 9,462 11,450 2,088 6,855(3) 1988/95
Bristol Plaza......... 2,077 6,337 8,414 1,279 4,082(3) 1982
16000 Ventura......... 1,885 23,947 25,832 4,538 11,634(3) 1980/96
5000 East Spring...... -- 15,703 15,703 3,795 -- 1989/95
70 South Lake......... 1,360 11,855 13,215 1,733 6,677(3) 1982/94
Westwood Terrace...... 2,103 19,517 21,620 3,003 -- 1988
5601 Lindero Canyon... 2,576 8,701 11,277 1,903 6,225(3) 1989
6100 Wilshire......... 1,200 24,910 26,110 4,242 11,567(3) 1986
Calabasas Commerce
Center............. 1,262 11,595 12,857 1,962 8,103(3) 1990
Long Beach--DF&G...... -- 14,898 14,898 1,928 -- 1987/95
Skyview Center........ 6,514 39,468 45,982 6,388 27,604(3) 1981/87/95
400 Corporate Pointe.. 3,457 21,211 24,668 3,043 15,583(3) 1987
5832 Bolsa............ 705 4,558 5,263 545 2,675(3) 1985
9665 Wilshire......... 6,836 29,159 35,995 3,915 -- 1972/92/93
Imperial Bank Tower... 3,786 48,028 51,814 7,591 -- 1982/96
100 West Broadway..... 4,570 17,235 21,805 2,341 15,120(3) 1987/96
Norwalk............... 4,508 9,573 14,081 1,071 7,186(3) 1978
303 North Glenoaks Blvd. 6,500 21,118 27,618 2,371 13,104(3) 1983/96
10351 Santa Monica.... 3,080 9,542 12,622 1,294 5,541(3) 1984
2730 Wilshire......... 3,515 7,458 10,973 899 4,854(3) 1985
Grand Avenue Plaza.... 620 7,130 7,750 1,428 5,918(3) 1980
Burbank Executive
Plaza.............. 1,100 12,290 13,390 1,424 4,188(3) 1978/83
California Federal 1,500 1,664 3,164 314 4,188(3) 1978/83
Building...........
Center Promenade...... 2,310 12,143 14,453 1,494 -- 1982
Los Angeles Corporate
Center............. 26,781 23,489 50,270 2,927 21,043(3) 1986
5200 West Century..... 2,080 29,581 31,661 2,649 -- 1982
Sumitomo Bank
Building........... 2,560 13,448 16,008 1,509 -- 1970/90-91
10350 Santa Monica.... 860 4,289 5,149 485 2,280(3) 1979
535 Brand Boulevard... 1,600 21,323 22,923 1,135 -- 1973/92/2000
10780 Santa Monica.... 2,625 9,278 11,903 1,394 -- 1984
California Twin
Center............. 4,680 17,038 21,718 2,114 -- 1983
Whittier Financial
Center............. 3,575 12,694 16,269 1,833 -- 1967/82
F-17
70
BASIS
INITIAL COSTS STEP UP
------------------------ ------------------ COSTS
BUILDINGS BUILDINGS CAPITALIZED
SQUARE AND AND SUBSEQUENT TO
FOOTAGE LAND IMPROVEMENTS LAND IMPROVEMENTS ACQUISITION(2)
------- ---- ------------ ---- ------------ --------------
6800 Owensmouth....... 80,014 1,725 5,851 -- -- 827
Clarendon Crest....... 43,063 1,300 3,951 -- -- 289
Noble Professional 51,828 1,657 5,096 -- -- 1,063
Center.............
South Bay Centre...... 202,830 4,775 14,365 -- -- 2,753
8383 Wilshire......... 417,463 13,570 45,505 -- -- 9,159
Parkway Center........ 61,333 1,480 5,941 -- -- 499
Centerpointe
La Palma........... 597,550 16,011 64,400 -- -- 5,446
299 North Euclid...... 73,522 1,050 6,110 -- -- 5,466
2800 28th Street...... 103,506 2,938 9,063 -- -- 2,253
Harbor Corporate Center 63,925 870 3,538 -- -- 711
1000 Town Center...... 107,656 2,800 11,260 -- -- 639
Mariner Court......... 105,436 2,350 9,461 -- -- 1,918
Pacific Gateway II.... 223,731 6,288 19,191 -- -- 5,646
1821 East Dyer........ 115,061 1,808 5,474 -- -- 2,898
Crown Cabot Financial. 172,900 7,056 21,360 -- -- 5,328
120 South Spalding.... 60,656 2,775 8,544 -- -- 5,542
South Bay Technology
Center............. 104,815 1,600 4,782 -- -- 1,510
Gateway Center........ 84,081 2,698 8,141 -- -- 764
Renaissance Court..... 61,245 1,580 5,477 -- -- 1,275
Foremost Professional
Plaza.............. 60,534 2,049 6,196 -- -- 661
Northpoint............ 104,235 1,800 20,272 -- -- 1,185
Thousand Oaks Plaza... 13,434 444 1,343 -- -- 47
Rancho Road........... 24,057 711 2,213 -- -- 156
Pennsfield Plaza...... 21,202 800 2,383 -- -- 422
Conejo Business Center 69,017 2,489 7,359 -- -- 679
Marin Corporate
Center............. 51,360 1,956 5,915 -- -- 574
145 South Fairfax..... 53,994 1,825 5,551 -- -- 1,078
Bernardo Regency...... 47,916 1,625 4,937 -- -- 722
City Centre........... 302,519 8,250 24,951 -- -- 2,455
Wilshire Pacific Plaza 100,122 3,750 11,317 -- -- 3,401
Glendale Corporate
Center............. 108,209 2,750 12,734 -- -- 1,654
World Savings Center.. 469,115 -- 110,382 -- -- 11,280
Beverly Sunset Medical
Plaza.............. 139,711 7,180 21,666 -- -- 6,090
Sunset Pointe Plaza... 58,105 2,075 6,362 -- -- 749
Activity Business Center 167,045 3,650 11,303 -- -- 827
Westlake Gardens I.... 49,639 1,831 5,550 -- -- 2,586
9100 Wilshire Boulevard 326,227 16,250 48,950 -- -- 6,421
Westwood Center....... 313,000 3,159 24,920 -- -- 74,237
1919 Santa Monica..... 43,796 2,580 7,772 -- -- 667
600 Corporate Pointe.. 273,339 8,575 35,325 -- -- 4,661
150 East Colorado..... 61,168 1,988 5,841 -- -- 1,447
5161 Lankershim....... 178,317 5,016 25,568 -- -- 3,148
TOTAL COSTS
----------------------
BUILDINGS
AND ACCUMULATED YEAR BUILT
LAND IMPROVEMENTS TOTAL DEPRECIATION(1) ENCUMBRANCES RENOVATED
---- ------------ ----- --------------- ------------ ---------
6800 Owensmouth....... 1,725 6,678 8,403 754 -- 1986
Clarendon Crest....... 1,300 4,240 5,540 488 3,239(3) 1990
Noble Professional 1,657 6,159 7,816 713 3,580(3) 1985/93
Center.............
South Bay Centre...... 4,775 17,118 21,893 2,057 13,465(3) 1984
8383 Wilshire......... 13,570 54,664 68,234 6,500 -- 1971/93
Parkway Center........ 1,480 6,440 7,920 744 5,029(3) 1992/95
Centerpointe
La Palma........... 16,011 69,846 85,857 7,207 33,832(3) 1986/88/90
299 North Euclid...... 1,050 11,576 12,626 1,237 -- 1983
2800 28th Street...... 2,938 11,316 14,254 1,280 -- 1979
Harbor Corporate Center 870 4,249 5,119 494 -- 1985
1000 Town Center...... 2,800 11,899 14,699 1,220 -- 1989
Mariner Court......... 2,350 11,379 13,729 1,288 7,221(3) 1989
Pacific Gateway II.... 6,288 24,837 31,125 2,618 -- 1982/90
1821 East Dyer........ 1,808 8,372 10,180 748 -- 1980/88
Crown Cabot Financial. 7,056 26,688 33,744 2,923 -- 1989
120 South Spalding.... 2,775 14,086 16,861 1,564 8,611(3) 1984
South Bay Technology
Center............. 1,600 6,292 7,892 792 -- 1984
Gateway Center........ 2,698 8,905 11,603 936 5,532(3) 1988
Renaissance Court..... 1,580 6,752 8,332 593 -- 1981/92
Foremost Professional
Plaza.............. 2,049 6,857 8,906 730 -- 1992
Northpoint............ 1,800 21,457 23,257 2,231 -- 1991
Thousand Oaks Plaza... 444 1,390 1,834 200 -- 1988
Rancho Road........... 711 2,369 3,080 190 -- 1987
Pennsfield Plaza...... 800 2,805 3,605 236 -- 1989
Conejo Business Center 2,489 8,038 10,527 588 3,072 1991
Marin Corporate
Center............. 1,956 6,489 8,445 495 4,329 1986
145 South Fairfax..... 1,825 6,629 8,454 535 4,021 1984
Bernardo Regency...... 1,625 5,659 7,284 556 -- 1986
City Centre........... 8,250 27,406 35,656 2,401 -- 1982
Wilshire Pacific Plaza 3,750 14,718 18,468 1,470 -- 1976/87
Glendale Corporate
Center............. 2,750 14,388 17,138 1,318 -- 1985
World Savings Center.. -- 121,662 121,662 10,647 -- 1983
Beverly Sunset Medical
Plaza.............. 7,180 27,756 34,936 2,332 -- 1963/92-95
Sunset Pointe Plaza... 2,075 7,111 9,186 721 3,452(3) 1988
Activity Business Center 3,650 12,130 15,780 1,040 7,881 1987
Westlake Gardens I.... 1,831 8,136 9,967 1,074 -- 1998
9100 Wilshire Boulevard 16,250 55,371 71,621 5,637 -- 1971/90
Westwood Center....... 3,159 99,157 102,316 602 -- 1965/2000
1919 Santa Monica..... 2,580 8,439 11,019 791 3,724(3) 1991
600 Corporate Pointe.. 8,575 39,986 48,561 3,113 17,692(3) 1989
150 East Colorado..... 1,988 7,288 9,276 575 5,025(3) 1979/97
5161 Lankershim....... 5,016 28,716 33,732 2,954 13,573(3) 1985/97
F-18
71
BASIS
INITIAL COSTS STEP UP
------------------------ ------------------ COSTS
BUILDINGS BUILDINGS CAPITALIZED
SQUARE AND AND SUBSEQUENT TO
FOOTAGE LAND IMPROVEMENTS LAND IMPROVEMENTS ACQUISITION(2)
------- ---- ------------ ---- ------------ --------------
1501 Hughes Way....... 77,060 1,349 4,058 -- -- 3,114
3901 Via Oro.......... 53,195 692 2,081 -- -- 1,677
Huntington Beach
Plaza I & II....... 52,186 1,109 3,317 -- -- 524
Fountain Valley Plaza. 107,252 2,949 9,377 -- -- 2,135
3300 Irvine Avenue.... 74,224 2,215 6,697 -- -- 1,296
Von Karman Corporate
Center............. 451,477 11,513 34,783 -- -- 8,018
South Coast Executive
Plaza.............. 60,605 1,563 4,731 -- -- 521
One Venture........... 43,324 1,137 3,492 -- -- 1,281
625 The City.......... 139,806 4,792 14,470 -- -- 1,942
Orange Financial Center 305,439 10,379 34,415 -- -- 5,925
Lambert Office Plaza.. 32,807 1,095 3,296 -- -- 595
Carlsbad Corporate 125,000 3,722 15,061 -- -- 2,626
Center.............
Balboa Corporate Center 69,890 2,759 8,303 -- -- (153)
Panorama Corporate 133,149 6,512 19,593 -- -- 284
Center.............
Ruffin Corporate Center 45,059 1,766 5,315 -- -- (53)
Skypark Office Plaza.. 202,164 5,733 21,608 -- -- 1,907
Governor Office Plaza. 104,065 3,382 10,177 -- -- 2,038
5120 Shoreham......... 37,759 1,224 4,073 -- -- 420
Morehouse Tech........ 181,207 6,841 21,067 -- -- 2,273
Torreyanna Science Park 81,204 5,035 15,148 -- -- 313
Waples Tech Center.... 28,119 1,010 3,027 -- -- 713
10251 Vista Sorrento.. 69,386 1,839 7,202 -- -- 172
Camarillo Business 154,216 3,522 10,602 -- -- 3,462
Center.............
Centrelake Plaza...... 110,763 1,570 9,473 -- -- 2,445
Tower Plaza I......... 72,350 2,080 6,280 -- -- 987
Tower Plaza II........ 19,301 265 802 -- -- 225
Tower Plaza III....... 12,483 172 520 -- -- 149
Chicago Avenue Business
Park............... 47,482 1,223 3,687 -- -- 359
Havengate............. 80,557 1,913 5,759 -- -- 1,883
HDS Plaza............. 104,178 2,604 7,838 -- -- 855
5702 Bolsa............ 27,731 589 1,775 -- -- 56
5672 Bolsa............ 11,968 254 767 -- -- 172
5632 Bolsa............ 21,568 458 1,381 -- -- 33
Huntington Commerce
Center............. 67,551 992 2,997 -- -- 293
Savi Tech Center...... 341,446 8,280 24,911 -- -- 3,517
Yorba Linda Business 167,142 2,629 7,913 -- -- 504
Park...............
Cymer Technology Center 155,612 5,446 16,387 -- -- 2,239
Poway Industrial...... 112,000 1,876 5,646 -- -- 136
10180 Scripps Ranch... 43,560 1,165 3,507 -- -- 165
10965-93 Via Frontera. 77,920 1,792 5,391 -- -- 526
Westridge............. 48,955 1,807 5,591 -- -- 485
TOTAL COSTS
----------------------
BUILDINGS
AND ACCUMULATED YEAR BUILT
LAND IMPROVEMENTS TOTAL DEPRECIATION(1) ENCUMBRANCES RENOVATED
---- ------------ ----- --------------- ------------ ---------
1501 Hughes Way....... 1,349 7,172 8,521 574 -- 1983/97
3901 Via Oro.......... 692 3,758 4,450 659 -- 1986/97
Huntington Beach
Plaza I & II....... 1,109 3,841 4,950 355 1,509(3) 1984/96
Fountain Valley Plaza. 2,949 11,512 14,461 1,086 4,833(3) 1982
3300 Irvine Avenue.... 2,215 7,993 10,208 832 3,244(3) 1981/97
Von Karman Corporate
Center............. 11,513 42,801 54,314 3,722 19,108(3) 1981/84
South Coast Executive
Plaza.............. 1,563 5,252 6,815 387 2,262(3) 1979/97
One Venture........... 1,137 4,773 5,910 589 -- 1990/97
625 The City.......... 4,792 16,412 21,204 1,487 7,055(3) 1985/97
Orange Financial Center 10,379 40,340 50,719 3,583 18,184(3) 1985/95
Lambert Office Plaza.. 1,095 3,891 4,986 348 -- 1986/97
Carlsbad Corporate 3,722 17,687 21,409 1,426 9,327(3) 1996
Center.............
Balboa Corporate Center 2,759 8,150 10,909 686 6,050(3) 1990
Panorama Corporate 6,512 19,877 26,389 1,620 13,082(3) 1991
Center.............
Ruffin Corporate Center 1,766 5,262 7,028 440 3,610(3) 1990
Skypark Office Plaza.. 5,733 23,515 29,248 2,003 1986
Governor Office Plaza. 3,382 12,215 15,597 1,233 5,026(3) 1986
5120 Shoreham......... 1,224 4,493 5,717 635 3,147(3) 1984
Morehouse Tech........ 6,841 23,340 30,181 1,905 -- 1984
Torreyanna Science Park 5,035 15,461 20,496 1,258 9,500(3) 1980/97
Waples Tech Center.... 1,010 3,740 4,750 337 -- 1990
10251 Vista Sorrento.. 1,839 7,374 9,213 601 3,882(3) 1981/95
Camarillo Business 3,522 14,064 17,586 1,376 8,782(3) 1984/97
Center.............
Centrelake Plaza...... 1,570 11,918 13,488 1,223 -- 1989
Tower Plaza I......... 2,080 7,267 9,347 629 -- 1988
Tower Plaza II........ 265 1,027 1,292 109 -- 1983
Tower Plaza III....... 172 669 841 71 -- 1983
Chicago Avenue Business
Park............... 1,223 4,046 5,269 380 -- 1986
Havengate............. 1,913 7,642 9,555 580 -- 1985
HDS Plaza............. 2,604 8,693 11,297 812 -- 1987
5702 Bolsa............ 589 1,831 2,420 162 941(3) 1987/97
5672 Bolsa............ 254 939 1,193 89 330(3) 1987
5632 Bolsa............ 458 1,414 1,872 116 845(3) 1987
Huntington Commerce
Center............. 992 3,290 4,282 329 1,555(3) 1987
Savi Tech Center...... 8,280 28,428 36,708 2,097 14,728(3) 1989
Yorba Linda Business 2,629 8,417 11,046 727 4,170(3) 1988
Park...............
Cymer Technology Center 5,446 18,626 24,072 1,371 10,918(3) 1986
Poway Industrial...... 1,876 5,782 7,658 474 3,492(3) 1991/96
10180 Scripps Ranch... 1,165 3,672 4,837 266 1,997(3) 1978/96
10965-93 Via Frontera. 1,792 5,917 7,709 496 2,875(3) 1982/97
Westridge............. 1,807 6,076 7,883 398 2,972(3) 1984/96
F-19
72
BASIS
INITIAL COSTS STEP UP
--------------------- ------------------- COSTS
BUILDINGS BUILDINGS CAPITALIZED
SQUARE AND AND SUBSEQUENT TO
FOOTAGE LAND IMPROVEMENTS LAND IMPROVEMENTS ACQUISITION(2)
------- ---- ------------ ---- ------------ --------------
Ontario Airport
Commerce Center.... 213,127 2,398 7,194 -- -- 842
Highlands I........... 26,856 470 1,418 -- -- 185
Highlands II.......... 41,210 793 2,394 -- -- 181
Hunter Business Center 106,782 1,148 3,439 -- -- 558
Tower Plaza Retail.... 133,481 4,531 13,660 -- -- 1,162
6060 Center Drive..... 242,000 1,989 -- 2,310 -- 56,356
Howard Hughes - Spectrum 36,959 2,500 7,500 -- -- 32
11075 Santa Monica.... 35,696 1,225 3,746 -- -- 1,193
Continental Grand Plaza 235,926 7,125 40,451 -- -- 4,059
Calabasas Tech Center. 273,526 11,513 34,591 -- -- 3,168
Oceangate Tower....... 210,907 3,080 20,386 -- -- 1,976
Lyons Plaza........... 61,203 2,078 6,267 -- -- 495
Genesee Executive Plaza 155,820 6,750 20,178 -- -- 2,792
Solar Drive Business 125,132 4,250 12,770 -- -- 805
Park...............
91 Freeway Business 93,277 2,900 9,179 -- -- 1,096
Center................
601 South Glenoaks.... 72,524 2,450 7,519 -- -- 320
Tourney Pointe........ 219,991 6,047 21,334 -- -- 6,720
Mini Suites........... -- -- -- -- -- 279
Hillside Corporate 2,213 7,336 -- -- 1,600
Center................. 59,876
Westlake Gardens II.... 1,831 5,493 -- -- 1,641
48,874
Howard Hughes Tower.... 5,830 47,170 -- -- 5,547
313,833
2001 Wilshire Blvd..... 5,006 14,893 -- -- 433
101,053
Howard Hughes Land
Held for Sale........ 1,663 -- -- -- 1,402
-------- -------- ------ ------ -------
$18,658,174 $477,504 $1,767,694 $3,925 $8,607 $483,951
=========== ======== ========== ====== ====== ========
TOTAL COSTS
----------------------
BUILDINGS
AND ACCUMULATED YEAR BUILT
LAND IMPROVEMENTS TOTAL DEPRECIATION(1) ENCUMBRANCES RENOVATED
---- ------------ ----- --------------- ------------ ---------
Ontario Airport
Commerce Center.... 2,398 8,036 10,434 609 -- 1987/97
Highlands I........... 470 1,603 2,073 164 -- 1988
Highlands II.......... 793 2,575 3,368 211 -- 1990
Hunter Business Center 1,148 3,997 5,145 404 -- 1990
Tower Plaza Retail.... 4,531 14,822 19,353 1,292 -- 1970/97
6060 Center Drive..... 4,299 56,356 60,655 1,171 -- 2000
Howard Hughes - Spectrum 2,500 7,532 10,032 520 -- 1993
11075 Santa Monica.... 1,225 4,939 6,164 369 -- 1983
Continental Grand Plaza 7,125 44,510 51,635 3,802 28,199(3) 1986
Calabasas Tech Center. 11,513 37,759 49,272 2,849 -- 1990
Oceangate Tower....... 3,080 22,362 25,442 2,030 -- 1971/93/94
Lyons Plaza........... 2,078 6,762 8,840 551 -- 1990
Genesee Executive Plaza 6,750 22,970 29,720 1,854 17,246(3) 1984
Solar Drive Business 4,250 13,575 17,825 1,030 -- 1982
Park...............
91 Freeway Business 2,900 10,275 13,175 689 -- 1986/97
Center................
601 South Glenoaks.... 2,450 7,839 10,289 541 6,001(3) 1990
Tourney Pointe........ 6,047 28,054 34,101 1,009 -- 1985/98/2000
Mini Suites........... -- 279 279 26 -- N/A
Hillside Corporate 2,213 8,936 11,149 461 -- 1998
Center.................
Westlake Gardens II.... 1,831 7,134 8,965 382 -- 1999
Howard Hughes Tower.... 5,830 52,717 58,547 2,692 -- 1987
2001 Wilshire Blvd..... 5,006 15,326 20,332 598 -- 1980
Howard Hughes Land
Held for Sale........ 1,663 1,402 3,065 -- --
-------- --------- --------- ------- --------
$481,429 $2,260,252 $2,741,681 $231,499 $576,055
======== ========== ========== ======== ========
- ----------
(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 $33.0 million.
(3) All of these properties are collateral for Arden Realty's $556.8 million
mortgage financings. The encumbrance allocated to an individual property is
based on the related individual release price.
F-20
73
ARDEN REALTY, INC.
16. SCHEDULE OF COMMERCIAL PROPERTIES AND ACCUMULATED DEPRECIATION
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):
ARDEN REALTY, INC.
-----------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31
-----------------------------------------------------------
2000 1999 1998
------------------- ------------------ --------------
COMMERCIAL PROPERTIES:
Balance at beginning of period................. $ 2,453,370 $ 2,198,580 $ 1,247,701
Improvements................................... 218,812 122,127 93,205
Deletions...................................... -- (591) (44)
Disposition of property........................ (10,078) -- --
Reclassifications of properties held for sale.. (63,685) -- --
Write offs of fully depreciated assets......... (9,687) -- --
Acquisition of properties...................... -- 89,800 1,007,347
Transfers from (to) properties under development 152,949 43,454 (149,629)
------------ ------------ ------------
Balance at end of period....................... $ 2,741,681 $ 2,453,370 $ 2,198,580
============ ============ ============
ACCUMULATED DEPRECIATION:
Balance at beginning of period................. $ (157,608) $ (88,863) $ (37,591)
Depreciation for period........................ (87,126) (68,203) (51,758)
Disposition of property........................ 531 -- --
Reclassifications of properties held for sale.. 4,036 -- --
Write offs of fully depreciated assets......... 9,687 -- --
Deletions...................................... -- 591 44
Transfers to (from) properties under development (1,019) (1,133) 442
------------- ------------ ------------
Balance at end of period....................... $ (231,499) $ (157,608) $ (88,863)
============ ============= =============
F-21
74
Exhibit Number Description
- -------------- -----------
3.1* Amended and Restated Articles of Incorporation as filed as an
exhibit to Arden Realty Registration Statement on Form S-11
(No. 333-8163).
3.2* Articles Supplementary of Class A Junior Participating
Preferred Stock as filed as an exhibit to the current report
on Form 8-K, dated August 26, 1998.
3.3* Articles Supplementary of the 8 5/8 Series B Cumulative
Redeemable Preferred Stock dated September 7, 1999, filed as
an exhibit to Arden Realty's 10-K dated March 27, 2000.
3.4* By-laws of Registrant as filed as an exhibit to Arden Realty's
on Form S-11 (No. 333-8163).
3.5* Certificate of Amendment of the By-laws of Arden Realty dated
July 14, 1998, filed as an exhibit to Arden Realty's quarterly
report on Form 10-Q dated August 14, 1998.
3.6* Certificate of Amendment of the Bylaws of Arden Realty dated
March 17, 2000, filed as an exhibit on Form 10-Q dated May 11,
2000.
4.1* Rights Agreement, dated August 14, 1998, between Arden Realty
and The Bank of New York, as filed as an exhibit to Arden
Realty's current report on Form 8-K dated August 26, 1998.
4.2* Indenture between Arden Realty Limited Partnership and The
Bank of New York, as trustee, dated March 14, 2000 as filed as
an exhibit to Arden Realty Limited Partnership's registration
statement on Form S-4 (No. 333-35406).
4.3 First amendment to Rights Agreement.
10.1* 1996 Stock Option and Incentive Plan of Arden Realty, Inc.
and Arden Realty Limited Partnership as filed as an exhibit to
Arden Realty's registration statement on Form S-11 (No.
333-8163).
10.2* 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 Arden Realty's Schedule
14A filed with the Commission on June 23, 1998.
10.3* Form of Officers and Directors Indemnification Agreement as
filed as an exhibit to Arden Realty's registration statement
on Form S-11 (No. 333-8163).
75
Exhibit Number Description
- -------------- -----------
10.4* Loan Agreement dated June 8, 1998 by and between Arden Realty
Finance III, L.L.C., a Delaware 10.4* limited liability
company and Lehman Brothers Realty Corporation, a Delaware
corporation filed as an exhibit to Arden Realty's quarterly
report of Form 10-Q filed with the Commission on August 14,
1998.
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, 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 Arden Realty's quarterly report on Form 10-Q filed
with the Commission on August 14, 1998.
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 Arden Realty's quarterly report on Form 10-Q filed
with the Commission on August 14, 1998.
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 Arden Realty's quarterly report on Form 10-Q
filed with the Commission on August 14, 1998.
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 Arden Realty's
quarterly report on Form 10-Q filed with the Commission on
August 14, 1998.
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 Arden Realty's
quarterly report on Form 10-Q filed with the Commission on
August 14, 1998.
76
Exhibit Number Description
- -------------- -----------
10.13* Letter agreement between Lehman Brothers Realty Corporation,
Arden Realty Finance III, L.L.C., Arden Realty and Arden
Realty Limited Partnership, filed as an exhibit to Arden
Realty's quarterly report on Form 10-Q filed with the
Commission on August 14, 1998.
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
Arden Realty's quarterly report on Form 10-Q filed with the
Commission on August 14, 1998.
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).
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 Arden Realty's quarterly report on Form 10-Q filed
with the Commission on August 14, 1998.
10.19* Assignment of Leases and Rents 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 Arden Realty's
quarterly report on Form 10-Q filed with the Commission on
August 14, 1998.
10.20* Collateral Assignment of Management Agreement and
Subordination 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, filed as an exhibit to Arden Realty's quarterly
report on Form 10-Q filed with the Commission on August 14,
1998.
77
Exhibit Number Description
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10.21* Security Agreement is entered into as of June 8, 1998 by and
between Arden Realty Finance IV, 10.21* L.L.C., a Delaware
limited liability company ("Debtor"), and Lehman Brothers
Realty Corporation, a Delaware corporation ("Secured Party"),
filed as an exhibit to Arden Realty's quarterly report on Form
10-Q filed with the Commission on August 14, 1998.
10.22* Environmental Indemnity 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 Arden Realty's quarterly report on Form 10-Q filed
with the Commission on August 14, 1998.
10.23* Letter agreement between Lehman Brothers Realty Corporation,
Arden Realty Finance IV, L.L.C., Arden Realty and Arden Realty
Limited Partnership, filed as an exhibit to Arden Realty's
quarterly report on Form 10-Q filed with the Commission on
August 14, 1998.
10.24*# Amended and Restated Employment Agreement dated August 4,
1998, between Arden Realty and Mr. Richard S. Ziman, filed as
an exhibit to Arden Realty's quarterly report on Form 10-Q/A
filed with the Commission on December 15, 1998.
10.25*# Amended and Restated Employment Agreement dated August 4,
1998, between Arden Realty and Mr. Victor J. Coleman, filed as
an exhibit to Arden Realty's quarterly report on Form 10-Q/A
filed with the Commission on December 15, 1998.
10.26*# Amended and Restated Employment Agreement dated August 4,
1998, between Arden Realty and Mr. Herbert Porter, filed as an
exhibit to Arden Realty's quarterly report on Form 10-Q/ A
filed with the Commission on December 15, 1998.
10.27*# Amended and Restated Employment Agreement dated January 1,
1999, between Arden Realty and Mr. Robert Peddicord, filed as
a exhibit to Arden Realty's quarterly report on Form 10-Q
filed with the Commission on August 8, 2000.
10.28* Miscellaneous Rights Agreement among Arden Realty, Arden
Realty Limited Partnership, NAMIZ, Inc. and Mr. Ziman, filed
as an exhibit to Arden Realty's registration statement on Form
S- II (No. 333-8163).
10.29* Credit Facility documentation consisting of Second Amended
and Restated Revolving Credit Agreement by and among Arden
Realty Limited Partnership and a group of banks led by Wells
Fargo Bank as filed as an exhibit to Arden Realty's quarterly
report on Form 10-Q filed with the Commission on May 12, 2000.
78
Exhibit Number Description
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10.30* Mortgage Financing documentation consisting of Loan Agreement
by and between Arden Realty's 10.30* 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 Arden Realty's registration statement
of Form S-11 (No. 333-30059).
10.31* 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 Arden Realty's
current report Form 8-K filed with the Commission on April 20,
1999.
10.32* 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 Arden Realty's current report on Form
8-K filed with the Commission on April 20, 1999.
10.33* 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 Arden Realty's
current report on Form 8-K filed with the Commission on April
20, 1999.
10.34* 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 Arden
Realty's current report on Form 8-K filed with the Commission
on April 20, 1999.
10.35* 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 Arden Realty's current report on Form 8-K filed
with the Commission on April 20, 1999.
10.35* Form of Arden Realty Limited Partnership's unsecured 8.875%
senior note due 2005, dated March 17, 2000 filed as an exhibit
to Arden Realty Limited Partnership's registration statement
on Form S-4 (No. 333-35406).
10.36* Form of Arden Realty Limited Partnership's unsecured 9.150%
senior note due 2010, dated March 17, 2000 filed as an exhibit
to Arden Realty Limited Partnership's registration statement
on Form S-4 (No. 333-35406).
10.37* Senior Unsecured Credit Agreement between Arden Realty
Limited Partnership and Lehman Brothers Inc. dated July 27,
2000 filed as an exhibit to Arden Realty's quarterly report on
Form 10-Q filed with the Commission on November 12, 2000.
79
Exhibit Number Description
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10.38* Registration Rights Agreement between Arden Realty Limited
Partnership and the initial purchasers 10.38* set forth
therein dated as of March 17, 2000, filed as an exhibit to
Arden Realty Limited Partnership's registration statement on
Form S-4 (No. 333-35406).
10.39* Purchase Agreement between Arden Realty Limited Partnership
and the initial purchasers set forth therein dated as of March
14, 2000, filed as an exhibit to Arden Realty Limited
Partnership's registration statement on Form S-4 (No.
333-35406).
10.40* Registration Rights Agreement between Arden Realty Limited
Partnership and Lehman Brothers Inc. dated as of November 20,
2000 as filed as an exhibit to Arden Realty Limited
Partnership's registration statement on Form S-4 (No.
333-53376).
10.41* Purchase Agreement between Arden Realty Limited Partnership
and Lehman Brothers Inc. dated as of November 15, 2000 as
filed as an exhibit to Arden Realty Limited Partnership's
registration statement on Form S-4 (No. 333-53376).
10.42* Amended and Restated Employment Agreement dated May 27, 1999,
between Arden Realty and Mr. Randy J. Noblitt as filed as an
exhibit to Arden Realty Limited Partnership's registration
statement on Form S-4 (No. 333-53376).
10.43* Amended and Restated Employment Agreement dated July 27,
2000, by and between Arden Realty and Mr. Richard S. Ziman as
filed as an exhibit to Arden Realty Limited Partnership's
registration statement on Form S-4 (No. 333-53376).
10.44* Amended and Restated Employment Agreement dated July 27,
2000, by and between Arden Realty and Mr. Victor J. Coleman as
filed as an exhibit to Arden Realty Limited Partnership's
registration statement on Form S-4 (No. 333-53376).
10.45*# Amendment to the 1996 Stock Option and Incentive Plan of
Arden Realty, Inc. and Arden Realty Limited Partnership as
filed as an exhibit to Arden Realty's Schedule 14A filed with
the Commission on April 25, 2000.
10.46* Form of Arden Realty Limited Partnership's unsecured 8.50%
senior note due 2010, dated November 20, 2000 as filed as an
exhibit to Arden Realty Limited Partnership's registration
statement on Form S-4 (No. 333-53376).
10.47 Admission of New Partners and Amendment to Limited
Partnership Agreement entered into as of the 20th day of
December, 2000, by and between Arden Realty Limited
Partnership and the persons identified as the "New Partners"
therein.
80
Exhibit Number Description
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21.1* Subsidiaries of Arden Realty Limited Partnership as filed as
an exhibit to Arden Realty Limited Partnership's registration
statement on Form S-4 (No. 333-53376).
23.1 Consent of Ernst & Young LLP
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(*) Incorporated by reference.
(#) Management contract or compensatory plan or arrangement required to be
identified by Item 14(a)3.