Edgar Filing: ARDEN REALTY INC

e10vk

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, 2004

OR

o		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 incorporation or organization)		(I.R.S. Employer Identification No.)

11601 Wilshire Boulevard, 4th Floor

Los Angeles, California 90025-1740

(Address and zip code of principal executive offices)

Registrant’s telephone number, including area code: (310) 966-2600

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered

Common Stock, $0.01 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 o

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. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o

The aggregate market value of the shares of common stock held by non-affiliates was approximately $1.9 billion based on the closing price on the New York Stock Exchange for such shares on June 30, 2004.

The number of the Registrant’s shares of common stock outstanding was 66,364,703 as of March 10, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this report incorporates information by reference from the definitive Proxy Statement for the 2005 Annual Meeting of Stockholders.

ARDEN REALTY, INC.

TABLE OF CONTENTS


Item			Page
No.			No.

PART I
	1.	Business		1
	2.	Properties		7
	3.	Legal Proceedings		18
	4.	Submission of Matters to a Vote of Security Holders		18

PART II
	5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		19
	6.	Selected Financial Data		20
	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
	7A.	Quantitative and Qualitative Disclosure about Market Risk		40
	8.	Financial Statements and Supplementary Data		49
	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		51
	9A.	Controls and Procedures		51
	9B.	Other Information		51

PART III
	10.	Directors and Executive Officers of the Registrant		52
	11.	Executive Compensation		52
	12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		52
	13.	Certain Relationships and Related Transactions		52
	14.	Principal Accountant Fees and Services		52

PART IV
	15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		53
		Signatures		58
EX-10.49
EX-12.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I

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 SEC 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 1.	*Business*


(a)	GENERAL

The terms “Arden Realty”, “us”, “we” and “our” as used in this report refer to Arden Realty, Inc. We were incorporated in Maryland in May 1996 and 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, 2004, we owned approximately 97.5% 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 primarily in one industry segment, the operation of commercial real estate located in Southern California. The financial information contained in this report relates primarily to this industry segment.


(c)	DESCRIPTION OF BUSINESS

We are a full-service real estate organization managed by 6 senior executive officers who have experience in the real estate industry ranging from 14 to 35 years and who collectively have an average of 20 years of experience. We perform all property management, construction management, accounting, finance and acquisition and disposition activities and a majority of our leasing transactions for our portfolio with our staff of approximately 300 employees.

As of December 31, 2004, we were Southern California’s largest publicly traded office landlord as measured by total net rentable square feet owned. As of December 31, 2004, our portfolio of primarily suburban office properties consisted of 120 properties and 197 buildings containing approximately 18.2 million net rentable square feet and our operating portfolio was 91.2% occupied.


	Portfolio Management

We perform all portfolio management activities, including on-site property management, management of all lease negotiations, construction management of tenant improvements or tenant build-outs, property renovations and capital expenditures for our portfolio. We directly manage these activities from approximately 40 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 consistent 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 First Vice President 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, referred to as our Regional Service Teams. By maintaining a regionally focused organizational structure led 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 59% of our portfolio’s net rentable space using our in-house staff. We employ outside brokers who are monitored by our Regional Service Teams for the remainder of our net rentable space. Our in-house 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, control operating expenses and maximize income from ancillary operations and services. When market conditions permit, we may also selectively develop, renovate or acquire new properties in submarkets that add value and fit strategically into our portfolio. We may also sell existing properties and use the net proceeds to repay outstanding indebtedness or place into investments that we believe will generate higher long-term value.

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


	•	using integrated decision making to provide proactive solutions to the space needs of tenants in the markets where we have extensive real estate expertise and relationships;

	•	emphasizing quality service, tenant satisfaction and retention;

	•	employing intensive property marketing and leasing programs; and

	•	implementing cost control management techniques and systems that capitalize on economies of scale and concentration arising from the size and geographic focus of our portfolio and our technical expertise in reducing energy consumption expenses.

We believe the implementation of these operating practices has been instrumental in maximizing the operating results of our portfolio.

Integrated Decision Making

We use a multidisciplinary approach to our decision making by having our regional management, leasing, construction management, acquisition, disposition and finance teams coordinate their activities to enhance responsiveness to market opportunities and to provide proactive solutions to the space needs of tenants 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 Regional Service Teams interact and resolve 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. We believe providing quality service leads to enhanced tenant retention.

Proactive Marketing and Leasing

The concentration of many of our properties within particular office submarkets and our relationships with a broad array of businesses and outside brokers enables us to pursue proactive marketing and leasing strategies, to effectively monitor the demand for office space in our existing submarkets, to efficiently identify the office space requirements of existing and prospective tenants and to offer tenants a variety of space alternatives across our portfolio.

Cost Control and Operating Efficiencies

The size and geographic focus of our portfolio provides us with the opportunity 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 through the ownership and management of multiple properties within particular submarkets and the maintenance of standardized processes and systems for cost control at each of our properties. These cost controls and operating efficiencies allowed us to achieve a 67.3% ratio of property operating results to total property revenues in 2004.

Operating Strategies

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


	•	the broad diversification and balance of the Southern California economy and our tenant base minimizes our dependence on any one industry segment or limited group of tenants;

	•	the relative resiliency of the Southern California real estate market, as measured by lower vacancy rates compared to the national average and a lower decline in rental rates in our key submarkets than the average decreases in rates reported for the nation since the beginning of the office real estate sector downturn in 2001; and

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

Internal Operating Strategy

We believe that opportunities exist to increase cash flow from our existing portfolio. We intend to pursue this internal growth by:


	•	stabilizing occupancy throughout our portfolio and increasing rental rates, as market conditions permit;

	•	maintaining or increasing the retention rate of expiring leases;

	•	capitalizing on economies of scale and concentration due to the size and geographic focus of our portfolio;

	•	controlling operating expenses through active cost control management techniques and systems; and

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

Stabilizing Occupancy and Increasing Rental Rates

Various published reports noted that Southern California achieved approximately 6.7 million square feet of positive net absorption in 2004 with average rental rates increasing approximately 3-4%. 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 management staff and by providing alternatives within our portfolio to

accommodate their changing space requirements. We strive to achieve growth in rental revenues by negotiating annual or mid-term increases in rental rates in a majority of our leases.

Retaining Existing Tenants

We also seek to retain our existing tenants when leases expire. Retention of existing tenants reduces the costs of lease rollover by eliminating the down-time required to find a replacement tenant and reducing build-out costs required for new tenants. We believe that we have been successful in attracting and retaining a diverse tenant base by actively managing our properties with an emphasis on tenant satisfaction and retention. During 2004, we retained approximately 64% of our leases that were scheduled to expire.

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, each of our Regional Service Teams is responsible for several properties, which spreads administrative and maintenance costs over those properties and reduces per square foot expenses. In addition, contracting in bulk for parking operations, construction materials, building services and supplies on a portfolio-wide basis also reduces our overall operating expenses.

Cost Control Management Techniques 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 purchasing and expense recovery technologies when appropriate. These system enhancements include:


	•	lighting retrofits;

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

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

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

	•	online competitive bid purchasing of supplies, building materials and construction services;

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

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

Sourcing Additional Revenue While Providing High Quality Services to Tenants

We operate one of the most energy efficient office portfolios in the country. We have invested in energy enhancement programs within our portfolio with the aim of reducing energy consumption, enhancing efficiency and lowering operating costs. We also participate annually in the Environmental Protection Agency’s, or the EPA, Energy Star Program. This program involves top commercial real estate landlords throughout the United States and rigorous bench-marking procedures that track individual building energy efficiency. Currently, of the 906 total Energy Star designated office buildings awarded nationally during 2004, 125 were awarded in California; of those, we had 62 EPA Energy Star Certified buildings in our portfolio.

We have formed a taxable REIT subsidiary, Next>edge, to market our expertise in energy solutions and facilities management. Next>edge has begun to assist companies in increasing their energy efficiency and reducing costs by employing the latest technologies and the most energy-efficient operational strategies developed to date. These technologies include lighting, heating, ventilation and air conditioning retrofits, energy management system installations, on-site distributed generation and cogeneration projects and solar energy systems.


	*External Operating Strategy*

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

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


	•	low vacancy rates;

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

	•	a minimal amount of developable land; and

	•	significant barriers to entry due to constraints on new development, including strict entitlement processes, height and density restrictions or other governmental requirements.

Competition

We compete with other owners of office properties to attract tenants to our properties, to acquire new properties and to 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 significantly higher costs in some areas over the past few seasons. All of our properties are currently located in areas served by utilities that either produce their own electricity, or that have procured long-term, fixed-rate contracts with commercial electrical providers. While we have no information suggesting that any future service interruptions are expected, we believe that higher utility costs may continue as price increases are allowed by the California Public Utility Commission or other regulatory agencies.

Approximately 26% of our properties and 19% of the total 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. See “Risk Factors — Rising energy costs and power outages in California may have an adverse effect on our operations and revenue.”

We are also working with other companies to provide our properties with new applications of distributed generation, or on-site energy systems, such as solar photovoltaic panels, micro-turbine units, 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.

Employees

As of December 31, 2004, we had approximately 300 full-time employees that perform all of our property and construction management, accounting, finance, acquisition and disposition activities and a majority of our leasing transactions.

Available Information

We file with the Securities and Exchange Commission, or SEC, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, proxy

statements and registration statements. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may also obtain public information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet site at www.sec.gov that contains reports, proxy and information regarding registrants, including us, that file electronically. This annual report on Form 10-K and other periodic and current reports, and amendments to those reports, filed or furnished with the SEC, are also available, free of charge, by viewing the SEC filings available in the Investor Information section of our website at www.ardenrealty.com as soon as reasonably practicable after we file or furnish them with the SEC.


(d)	FOREIGN OPERATIONS

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


ITEM 2.	*Properties*


	Existing Portfolio

Our portfolio consists of 120 primarily office properties, containing approximately 18.2 million net rentable square feet that individually range from approximately 12,000 to 600,000 net rentable square feet. Of the 120 properties currently in service in our portfolio, 119, or 99%, are office properties. All of 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, 2004:



																			Property Operating
																			Results(2),(3)

														Approximate Net
				Number of					Number of					Rentable Square					For the Year Ended
				Properties(1)					Buildings(1)					Feet(1)					December 31, 2004

						% of					% of					% of					% of
Location				Total		Total			Total		Total			Total		Total			Total		Total


																			($000’s and
																			unaudited)
Los Angeles County
	West(4)				30		25	%		32		16	%		5,044,621		28	%	$	107,688		39	%
	North				28		23	%		44		22	%		3,468,768		19	%		44,962		16	%
	South				13		11	%		17		9	%		2,851,215		15	%		37,052		14	%

		Subtotal			71		59	%		93		47	%		11,364,604		62	%		189,702		69	%
Orange County					20		17	%		51		26	%		3,255,079		18	%		39,602		14	%
San Diego County					23		19	%		35		18	%		2,695,678		15	%		36,418		13	%
Ventura/ Kern Counties					6		5	%		17		9	%		795,299		4	%		9,831		4	%

		Subtotal			120		100	%		196		100	%		18,110,660		99	%	$	275,553		100	%
Renovation Building(5)					—		—			1		—			99,119		1	%		5		—

			Total		120		100	%		197		100	%		18,209,779		100	%	$	275,558		100	%


(1)	Includes one property with approximately 167,000 net rentable square feet held for disposition.

(2)	Property Operating Results is a non-GAAP measure of performance. Property Operating Results is used by investors and our management to evaluate and compare the performance of our office properties and to determine trends in earnings and to compute the fair value of our properties as it is not affected by (1) the cost of funds of the property owner, (2) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with Generally Accepted Accounting Principles, or GAAP, or (3) general and administrative expenses and other specific costs such as permanent impairments to carrying costs. The cost of funds is eliminated from net income because it is specific to the particular financing capabilities and constraints of the owner. The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital which may have changed or may change in the future. Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our office properties that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased in value as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale which will usually change from period to period. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly timed purchases or sales. We believe that eliminating these costs from net income is useful because the resulting measure captures the actual revenue generated and actual expenses incurred in operating our office properties as well as trends in occupancy rates, rental rates and operating costs.

However, the usefulness of Property Operating Results is limited because it excludes general and administrative costs, interest expense, interest income, depreciation and amortization expense and gains or losses from the sale of properties, changes in value in our real estate properties that result from use or permanent impairment to carrying costs as stipulated by GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. Property Operating Results may fail to capture significant trends in these components of net income which further limits its usefulness.


	Property Operating Results is a measure of the operating performance of our office properties but does not measure our performance as a whole. Property Operating Results is therefore not a substitute for net income as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income computed in accordance with GAAP and discussions elsewhere in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the components of net income that are eliminated in the calculation of Property Operating Results. Other companies may use different methods for calculating Property Operating Results or similarly entitled measures and, accordingly, our Property Operating Results may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do.

	The following is a reconciliation of Property Operating Results to net income computed in accordance with GAAP (in thousands):



		Year Ended December 31,

		2004			2003			2002

Net Income		$	73,775		$	58,509		$	70,175
Add:
	General and administrative expense		19,503			16,931			12,581
	Interest expense		88,856			93,093			87,827
	Depreciation and amortization		121,687			111,952			100,317
	Minority interest		5,255			5,375			5,816
	Interest and other loss		508			401			—
	Impairment on investment in securities		2,700			—			—
Less:
	Interest and other income		—			—			(2,063	)
	Gain on sale of discontinued properties		(30,473	)		(5,937	)		—
	Discontinued operations, net of minority interest		(6,253	)		(12,538	)		(15,570	)
	Gain on sale of operating properties		—			—			(1,967	)

Property Operating Results		$	275,558		$	267,786		$	257,116


(3)	Excludes the operating results of two properties sold during the first quarter of 2004, one property sold during the third quarter of 2004, nine properties sold during the fourth quarter of 2004 and one property classified as held for disposition. The operating results for these properties are reported as part of discontinued operations in our consolidated statements of income.

(4)	Includes a retail property with approximately 37,000 net rentable square feet.

(5)	Comprised of one building in a business park containing a total of four buildings. After completion of the renovation, the total square footage of this building will expand to 130,000 square feet.

The following is a summary of our occupancy and in-place rents as of December 31, 2004:



								Annualized Base Rent Per
								Leased Square Foot(1)

		Percent			Percent			Portfolio		Full Service
Location		Occupied			Leased			Total		Gross Leases(2)

Los Angeles County
	West		93.5	%		94.8	%	$	27.80	$	27.81
	North		91.9	%		94.7	%		22.26		22.96
	South		89.5	%		91.0	%		19.03		20.15

	Subtotal/ Weighted Average		92.0	%		93.8	%		23.96		24.67
Orange County			90.0	%		91.3	%		18.69		22.31
San Diego County			87.8	%		88.5	%		19.87		24.26
Ventura/ Kern Counties			95.0	%		96.1	%		18.84		19.61

	Subtotal/ Weighted Average		91.2	%		92.7	%		22.21		24.08
Renovation Building			—			100.0	%		17.40		—

	Total/ Weighted Average		90.5	%		92.7	%	$	22.18	$	24.08


(1)	Based on monthly contractual base rent under existing leases as of December 31, 2004, 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 31 properties and approximately 3.5 million square feet under triple net and modified gross leases.


	Renovation Summary

The following table summarizes information about the building under renovation as of December 31, 2004:

Estimated

Year 1

Estimated

Stabilized

Year 1

Construction

Cash Property

Annual

Square

Costs Incurred

Estimated

Percent

Completion

Operating

Cash

GAAP

Building

Feet

To Date

Total Cost(1)

Leased

Date

Results(2)

Yield

Yield(3)

(in thousands)

22745 Savi Ranch Parkway

130,000

7,659

9,705

100

1st Qtr 2005

1,881

9.6

11.2


(1)	Estimated total cost includes capital expenditures, tenant improvements, leasing commissions and carrying costs during renovation.

(2)	We consider stabilized Cash Property Operating Results 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. Property Operating Results are discussed in greater detail in Note (2) to the Existing Portfolio summary table above.

(3)	Estimated Year 1 Annual GAAP Yield includes an adjustment for straight-line rents.

This renovation was completed on February 15, 2005.

In addition to the renovation building above, we have preliminary architectural designs completed for an additional 475,000 net rentable square feet of office space at the Howard Hughes Center in Los Angeles, California. We also have construction entitlements at the Howard Hughes Center for up to 600 hotel rooms. Build-to-suit projects 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 or multi-tenant projects at the Howard Hughes Center until development plans and budgets are finalized 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 also have a 5-acre developable land parcel in Torrance, California that we intend to market for a build-to-suit building. We currently do not intend to commence construction on these projects until build-to-suit tenant leases are signed with terms allowing us to achieve yields commensurate with the project’s development risk.

We expect to finance our development/renovation activities over the next 24 months through net cash provided by operating activities, proceeds from asset sales, proceeds from our lines of credit or other secured borrowings.


	*Dispositions*

The following table summarizes our disposition activity during 2004:

Property

Square

Gross Sales

Property

County

Submarket

Date of Sale

Type

Feet

Price

($000’s)

Tower Plaza Retail

Riverside

Temecula

February 4, 2004

Retail

133,481

17,050

Univision — 5999 Center Drive

Los Angeles

Culver City/Fox Hills

March 16, 2004

Office

161,650

52,500

10251 Vista Sorrento

San Diego

Sorrento Mesa

August 24, 2004

Office

69,386

9,250

Waples Tech Center

San Diego

Sorrento Mesa

December 29, 2004

Office

28,119

(A)

Morehouse Center

San Diego

Sorrento Mesa

December 29, 2004

Office

181,207

(A)

91 Freeway Center

Los Angeles

Artesia

December 29, 2004

Office

93,277

(A)

Norwalk

Los Angeles

Norwalk

December 29, 2004

Office

122,175

(A)

1501 Hughes Way

Los Angeles

Suburban Long Beach

December 29, 2004

Office

77,060

(A)

3901 Via Oro

Los Angeles

Suburban Long Beach

December 29, 2004

Office

53,195

(A)

Glendale Corporate Center

Los Angeles

Glendale

December 29, 2004

Office

108,209

(A)

Whittier

Los Angeles

Whittier

December 29, 2004

Office

135,415

(A)

South Bay Tech

Los Angeles

190th Corridor

December 29, 2004

Office

104,815

(A)

Sub-total

1,267,989

78,800

(A) Portfolio sale

—

126,000

1,267,989

204,800


	*Acquisitions*

The following table summarizes our acquisition activity during 2004:

Gross

Property

Square

Purchase

Property

County

Submarket

Date of Purchase

Type

Feet

Price

($000’s)

Homestore

Los Angeles

Westlake Village

October 4, 2004

Office

137,762

32,300

Warner Corporate Center

Los Angeles

Woodland Hills

October 11, 2004

Office

253,000

64,500

390,762

96,800

The following table presents specific information regarding our 120 properties as of December 31, 2004:


																	Annualized
							Percentage of										Base Rent
							Total										per Leased
			Year(s)		Approximate		Portfolio Net						Annualized				Net Rentable
Property			Built/		Net Rentable		Rentable			Percent			Base Rent		Number		Square
Name	Major Area	Submarket	Renovated		Square Feet		Square Feet			Leased			($000s)		of Leases		Feet(1)

Los Angeles County
Los Angeles West
145 South Fairfax	Hollywood/Wilshire Corridor	Miracle Mile		1984		54,398		0.3	%		95.5	%	$	1,032		13	$	19.86
6100 Wilshire	Hollywood/Wilshire Corridor	Miracle Mile		1986		202,675		1.1			100.0			5,051		57		24.43
120 S. Spalding	West Los Angeles	Beverly Hills Triangle		1984		64,877		0.4			97.5			2,700		15		42.67
8383 Wilshire	West Los Angeles	Beverly Hills		1971/93		424,588		2.3			91.7			10,100		134		25.93
9100 Wilshire	West Los Angeles	Beverly Hills		1971/90		328,697		1.8			92.7			8,300		76		27.25
9665 Wilshire	West Los Angeles	Beverly Hills Triangle		1972/92-93		159,645		0.9			100.0			6,140		24		38.34
Beverly Atrium	West Los Angeles	Beverly Hills		1989		59,582		0.3			96.6			1,718		15		29.85
Wilshire Pacific Plaza	West Los Angeles	Brentwood		1976/87		101,229		0.6			99.6			2,561		43		25.39
World Savings Center(2)	West Los Angeles	Brentwood		1983		473,581		2.6			86.4			12,440		54		30.41
10350 Santa Monica	West Los Angeles	West Los Angeles		1979		42,696		0.2			92.5			902		17		22.84
10351 Santa Monica	West Los Angeles	West Los Angeles		1984		96,899		0.5			87.3			1,998		14		23.63
Century Park Center	West Los Angeles	West Los Angeles		1972/94		235,178		1.3			100.0			5,606		98		23.33
400 Corporate Pointe	West Los Angeles	Culver City/Fox Hills		1987		165,487		0.9			85.9			2,732		19		19.23
600 Corporate Pointe	West Los Angeles	Culver City/Fox Hills		1989		275,113		1.5			95.1			5,523		19		21.10
6060 Center Drive	West Los Angeles	Culver City/Fox Hills		1999		256,665		1.4			99.1			8,280		8		32.55
6080 Center Drive	West Los Angeles	Culver City/Fox Hills		2001		286,568		1.6			93.2			9,643		15		36.11
6100 Center Drive	West Los Angeles	Culver City/Fox Hills		2002		284,798		1.6			99.4			7,278		24		25.72
Bristol Plaza	West Los Angeles	Culver City/Fox Hills		1982		84,033		0.5			95.3			1,640		28		20.47
Howard Hughes Spectrum Club	West Los Angeles	Culver City/Fox Hills		1993		36,959		0.2			100.0			967		1		26.16
Howard Hughes Tower	West Los Angeles	Culver City/Fox Hills		1987		316,014		1.7			87.0			7,541		33		27.44
Northpoint	West Los Angeles	Culver City/Fox Hills		1991		105,145		0.6			94.1			2,638		7		26.67
1919 Santa Monica	West Los Angeles	Santa Monica		1991		43,766		0.2			85.2			947		7		25.41
2001 Wilshire Blvd.	West Los Angeles	Santa Monica		1980		99,565		0.5			100.0			2,805		23		27.47
2730 Wilshire	West Los Angeles	Santa Monica		1985		55,531		0.3			100.0			1,553		26		27.57
2800 28th Street	West Los Angeles	Santa Monica		1979		106,481		0.6			95.9			2,456		42		24.06
10780 Santa Monica	West Los Angeles	West Los Angeles		1984		93,211		0.5			97.0			2,193		33		24.26
1950 Sawtelle	West Los Angeles	West Los Angeles		1988/95		104,171		0.6			98.0			2,367		42		23.17
11075 Santa Monica	West Los Angeles	West Los Angeles		1983		35,996		0.2			99.1			877		8		24.57
Westwood Center	West Los Angeles	Westwood		1965/2000		314,366		1.7			99.6			11,366		45		36.30
Westwood Terrace	West Los Angeles	West Los Angeles		1988		136,707		0.8			98.3			3,549		22		26.41


																		Annualized
								Percentage of										Base Rent
								Total										per Leased
				Year(s)		Approximate		Portfolio Net						Annualized				Net Rentable
Property				Built/		Net Rentable		Rentable			Percent			Base Rent		Number		Square
Name		Major Area	Submarket	Renovated		Square Feet		Square Feet			Leased			($000s)		of Leases		Feet(1)

Subtotal/Weighted Average — Los Angeles West							5,044,621		27.7	%		94.8	%	$	132,903		962	$	27.80
Los Angeles North
303 Glenoaks		Glendale/Tri-Cities	Burbank		1983/96		177,898		1.0	%		99.4	%	$	4,028		28	$	22.78
333 N. Glenoaks		Glendale/Tri-Cities	Burbank		1978		82,939		0.5			98.0			1,921		17		23.62
601 S. Glenoaks		Glendale/Tri-Cities	Burbank		1990		74,745		0.4			87.4			1,206		18		18.45
Burbank Executive Plaza		Glendale/Tri-Cities	Burbank		1983		63,320		0.3			99.0			1,437		19		22.92
425 West Broadway		Glendale/Tri-Cities	Glendale		1984		72,317		0.4			94.9			1,456		14		21.21
535 N. Brand Blvd.		Glendale/Tri-Cities	Glendale		1973/92/99		109,104		0.6			96.6			2,233		44		21.19
5161 Lankershim		Glendale/Tri-Cities	North Hollywood		1985/97		180,940		1.0			99.4			3,964		9		22.05
70 South Lake		Glendale/Tri-Cities	Pasadena		1982/94		101,236		0.5			99.9			2,627		19		25.97
150 East Colorado Boulevard		Glendale/Tri-Cities	Pasadena		1979/97		61,657		0.3			100.0			1,447		20		23.47
299 N. Euclid		Glendale/Tri-Cities	Pasadena		1983		74,573		0.4			100.0			1,890		4		25.30
Calabasas Commerce Center		San Fernando Valley	Calabasas		1990		126,771		0.7			100.0			2,323		12		18.32
Calabasas Tech		San Fernando Valley	Calabasas		1990/2001		283,692		1.5			90.3			4,837		17		18.89
16000 Ventura		San Fernando Valley	Encino		1980/96		175,275		1.0			93.2			3,628		45		22.21
15250 Ventura		San Fernando Valley	Sherman Oaks		1970/90-91		112,142		0.6			93.1			2,438		41		23.35
Noble Professional Center		San Fernando Valley	Sherman Oaks		1985/93		52,599		0.3			92.8			1,129		18		23.11
Sunset Pointe Plaza		San Fernando Valley	Valencia		1988		59,186		0.3			99.7			1,500		27		25.42
Tourney Pointe		San Fernando Valley	Valencia		1985/98-2000		219,673		1.2			92.1			4,196		38		20.74
Homestore		San Fernando Valley	Westlake Village		2000		137,762		0.8			100.0			3,036		1		22.04
Westlake — 5601 Lindero		San Fernando Valley	Westlake Village		1989		106,144		0.6			95.3			1,894		5		18.73
Clarendon Crest		San Fernando Valley	Woodland Hills		1990		43,222		0.2			97.9			887		18		20.95
Warner Corporate Center		San Fernando Valley	Woodland Hills		1988		253,000		1.4			98.9			6,433		34		25.71
Woodland Hills		San Fernando Valley	Woodland Hills		1972/95		229,616		1.3			93.0			4,874		73		22.82
Los Angeles Corporate Center		San Gabriel Valley	Monterey Park		1984/86		389,615		2.1			90.6			7,552		45		21.40
Conejo Business Center		Ventura	Newbury Park/Thousand Oaks		1991		69,425		0.4			92.9			1,375		29		21.32
Hillside Corporate Center		Ventura	Newbury Park/Thousand Oaks		1998		61,000		0.3			97.3			1,564		10		26.36
Marin Corporate Center		Ventura	Newbury Park/Thousand Oaks		1986		51,776		0.3			64.9			778		27		23.14
Westlake Gardens		Ventura	Westlake Village		1998		50,267		0.3			94.0			1,288		19		27.27
Westlake Gardens II		Ventura	Westlake Village		1999		48,874		0.3			93.1			1,229		4		27.02

	Subtotal/ Weighted Average — Los Angeles North						3,468,768		19.0	%		94.7	%	$	73,170		655	$	22.26
Los Angeles South South Bay Centre		South Bay	190th Corridor		1984		204,197		1.1	%		100.0	%	$	4,150		36	$	20.30
Pacific Gateway		South Bay	190th Corridor		1982/90		225,805		1.2			97.4			4,617		40		20.99
Gateway Towers		South Bay	190th Corridor		1984/86		433,545		2.4			95.3			9,448		74		22.88


																		Annualized
								Percentage of										Base Rent
								Total										per Leased
				Year(s)		Approximate		Portfolio Net						Annualized				Net Rentable
Property				Built/		Net Rentable		Rentable			Percent			Base Rent		Number		Square
Name		Major Area	Submarket	Renovated		Square Feet		Square Feet			Leased			($000s)		of Leases		Feet(1)

100 West Broadway		South Bay	Downtown Long Beach		1987/96		191,371		1.1			68.8			2,537		39		19.26
Oceangate Tower		South Bay	Downtown Long Beach		1971/93-94		218,554		1.2			79.7			3,067		40		17.62
Continental Grand Plaza		South Bay	El Segundo		1986		237,494		1.3			93.6			5,310		37		23.90
Grand Avenue Plaza		South Bay	El Segundo		1980		82,872		0.5			88.2			1,334		16		18.26
5200 West Century		South Bay	LAX		1982/98-99		312,700		1.7			93.0			5,325		30		18.30
Skyview Center		South Bay	LAX		1981/87/95		398,261		2.2			81.6			5,175		53		15.92
Long Beach Airport Bldg D(2)		South Bay	Suburban Long Beach		1987/95		121,610		0.7			100.0			1,211		1		9.96
Long Beach Airport Bldg F & G(2)		South Bay	Suburban Long Beach		1987/95		150,403		0.8			100.0			1,354		1		9.00
5000 East Spring(2)		South Bay	Suburban Long Beach		1989/95		168,967		0.9			96.9			3,693		44		22.55
Mariner Court		South Bay	Torrance		1989		105,436		0.6			98.7			2,150		38		20.67

	Subtotal/ Weighted Average — Los Angeles South						2,851,215		15.7	%		91.0	%	$	49,371		449	$	19.03
Orange County
1370 Valley Vista		LA Central	Diamond Bar		1988		81,962		0.4	%		100.0	%	$	1,814		13	$	21.39
Anaheim City Centre(2)		Orange County	Central County		1986/91		177,266		1.0			100.0			3,569		27		19.72
City Centre I		Orange County	Central County		1985/97		141,903		0.8			100.0			2,849		33		19.85
Orange Financial Center		Orange County	Central County		1985/95		307,920		1.7			94.4			6,522		38		22.43
Fountain Valley City Centre		Orange County	Greater Airport		1982		303,267		1.7			63.4			4,591		18		23.86
Fountain Valley Plaza		Orange County	Greater Airport		1982		107,313		0.6			37.9			843		4		20.73
Irvine Corporate Center		Orange County	Greater Airport		1980/88		126,781		0.7			100.0			1,446		5		11.34
Newport Irvine Center		Orange County	Greater Airport		1981/97		75,184		0.4			88.6			1,642		28		24.65
South Coast Executive Center		Orange County	Greater Airport		1979/97		61,292		0.3			94.3			1,068		25		18.48
Von Karman Corporate Center		Orange County	Greater Airport		1981/84		452,378		2.5			86.8			8,419		31		21.44
Centerpointe La Palma		Orange County	North County		1986/88/90		603,582		3.3			97.8			11,074		98		18.76
Savi Tech Center		Orange County	North County		1989		242,327		1.3			100.0			2,538		3		10.47
Yorba Linda Business Park		Orange County	North County		1988		165,710		0.9			98.3			1,483		60		9.10
Crown Cabot Financial Center		Orange County	South County		1989		174,222		1.0			97.4			4,829		41		28.46
5632 Bolsa		Orange County	West County		1987		21,568		0.1			100.0			184		1		8.52
5672 Bolsa		Orange County	West County		1987		12,110		0.1			100.0			103		1		8.52
5702 Bolsa		Orange County	West County		1987/97		27,731		0.1			100.0			227		2		8.17
5832 Bolsa		Orange County	West County		1985		49,355		0.3			100.0			829		1		16.80
Huntington Beach Plaza County		Orange County 1984/96	West 53,459		0.3		89.6		850			18			17.75


																		Annualized
								Percentage of										Base Rent
								Total										per Leased
				Year(s)		Approximate		Portfolio Net						Annualized				Net Rentable
Property				Built/		Net Rentable		Rentable			Percent			Base Rent		Number		Square
Name		Major Area	Submarket	Renovated		Square Feet		Square Feet			Leased			($000s)		of Leases		Feet(1)

Huntington Commerce Center		Orange County	West County		1987		69,749		0.4			98.4			638		23		9.29

Subtotal/ Weighted Average — Orange County							3,255,079		17.9	%		91.3	%	$	55,518		470	$	18.69
San Diego County
Carlsbad Corporate Center		San Diego County	Carlsbad		1996		129,000		0.7	%		100.0	%	$	445		1	$	3.45
Carmel Valley Center		San Diego County	Del Mar Heights		1987/89		109,518		0.6			93.8			3,410		17		33.20
701 B Street(2)		San Diego County	Downtown		1982/96		548,310		3.0			87.3			11,023		70		23.04
5120 Shoreham		San Diego County	Governor Park		1984		37,813		0.2			100.0			842		7		22.24
Governor Executive Centre		San Diego County	Governor Park		1988		52,828		0.3			85.1			1,175		10		26.12
Governor Executive Centre II		San Diego County	Governor Park		1989		101,433		0.6			100.0			3,006		17		29.64
Governor Park Plaza		San Diego County	Governor Park		1986		104,441		0.6			94.0			2,485		19		25.31
10180 Scripps Ranch		San Diego County	Scripps Ranch		1978/96		43,560		0.2			0			0		0		0
Activity Business Center		San Diego County	Miramar		1987		167,170		0.9			72.3			1,652		41		13.66
Balboa Corporate Center		San Diego County	Kearney Mesa		1990		70,987		0.4			75.8			777		2		14.44
Panorama Corporate Center		San Diego County	Kearney Mesa		1991		130,396		0.7			99.6			2,392		3		18.42
Ruffin Corporate Center		San Diego County	Kearney Mesa		1990		45,059		0.2			100.0			378		1		8.40
Skypark Office Plaza		San Diego County	Kearney Mesa		1986		203,946		1.1			96.9			4,423		24		22.39
Crossroads		San Diego County	Mission Valley		1979		134,477		0.7			65.8			2,093		8		23.64
Poway Industrial		San Diego County	Rancho Bernardo/Poway		1991/96		112,000		0.6			100.0			672		1		6.00
Bernardo Regency		San Diego County	Rancho Bernardo/Poway		1986		48,052		0.3			93.3			1,145		16		25.54
Carmel View Office Plaza		San Diego County	Rancho Bernardo/Poway		1985		77,672		0.4			84.1			1,497		16		22.92
Cymer Technology Center		San Diego County	Rancho Bernardo/Poway		1986		155,612		0.9			100.0			1,923		2		12.36
Foremost Professional Plaza		San Diego County	Rancho Bernardo/Poway		1992		60,311		0.3			73.6			1,113		29		25.06
Via Frontera		San Diego County	Rancho Bernardo/Poway		1982/97		77,920		0.4			100.0			914		6		11.60
Westridge		San Diego County	Sorrento Mesa		1984/96		48,955		0.3			82.4			551		3		13.65
Torreyana Science Park		San Diego County	Torrey Pines		1980/97		81,204		0.5			100.0			2,008		1		24.72
Genesee Executive Plaza		San Diego County	University Towne Centre		1984		155,014		0.9			87.5			3,493		23		25.75

	Subtotal/ Weighted Average — San Diego County						2,695,678		14.8	%		88.5	%	$	47,417		317	$	19.87


																			Annualized
									Percentage of										Base Rent
									Total										per Leased
					Year(s)		Approximate		Portfolio Net						Annualized				Net Rentable
Property					Built/		Net Rentable		Rentable			Percent			Base Rent		Number		Square
Name			Submarket	Location	Renovated		Square Feet		Square Feet			Leased			($000s)		of Leases		Feet(1)

Ventura & Kern Counties
4900 California			Kern County	Bakersfield		1983		155,791		0.9	%		95.6	%	$	2,385		23	$	16.01
Parkway Center I			Kern County	Bakersfield		1992/95		61,289		0.3			90.8			1,038		11		18.64
Camarillo Business Park			Ventura	Camarillo		1984/97		154,298		0.8			97.5			3,134		29		20.83
1000 Town Center			Ventura	Oxnard		1989		108,508		0.6			99.8			2,379		10		21.96
Solar Drive Business Center			Ventura	Oxnard		1982		138,341		0.8			98.0			2,494		36		18.39
Center Promenade			Ventura	Ventura		1988		177,072		1.0			93.4			2,969		61		17.96

	Subtotal/ Weighted Average — Ventura & Kern Counties							795,299		4.4	%		96.1	%	$	14,399		170	$	18.84
Renovation Building
Savi Tech Center(3)			Orange County	North County		1989		99,119		0.5	%		100.0	%	$	2,262		1	$	17.40
		Portfolio Total/ Weighted Average						18,209,779		100.0	%		92.7	%	$	375,040		3,024	$	22.18


(1)	Calculated as monthly contractual base rent under existing leases as of December 31, 2004, multiplied by 12 and divided by leased net rentable square feet, for those leases where rent has not yet commenced or which are in a free rent period, the first month in which rent is to be received is used to determine annualized base rent.

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

(3)	Comprised of one building in a business park containing a total of four buildings. After completion of the renovation, the total square footage of this building will expand to 130,000 square feet. The annualized base rent and the annualized base rent per leased net rentable square feet amounts are calculated based on the expanded square footage of 130,000 square feet.


	Tenant Information

As of December 31, 2004, we had approximately 3,000 tenants with no one tenant representing more than 2.2% of the aggregate annualized base rent of our properties and only 2 tenants individually representing more than 1.0% of our aggregate annualized base rent. Our properties are leased to local, national and international 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 to ten years. Leases typically contain provisions permitting tenants to renew expiring leases at prevailing market rates. Approximately 81% of our total 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 of 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 to our buildings.

The following table presents information as of December 31, 2004 derived from our ten largest tenants based on the percentage of aggregate portfolio annualized base rent:


				Weighted		Percentage of			Percentage of
				Average		Aggregate			Aggregate
				Remaining		Portfolio			Portfolio					Annualized
		Number of		Lease Term		Leased			Annualized			Net Rentable		Base Rent
Tenant		Locations		in Months		Square Feet			Base Rent(1)			Square Feet		(in thousands)

Vivendi Universal			2		64		1.38	%		2.14	%		231,681	$	7,980
State of California			18		51		1.63			1.61			274,065		5,992
University of Phoenix			6		52		0.99			1.00			166,195		3,733
Ceridian Corporation			2		64		0.91			0.99			152,612		3,706
Atlantic Richfield			1		21		0.86			0.93			143,885		3,465
Pepperdine University			1		167		0.68			0.87			113,488		3,251
Homestore.com, Inc.			1		37		0.82			0.82			137,762		3,036
Walt Disney Pictures and Television			1		43		0.76			0.78			128,258		2,894
Haight, Brown & Bonesteel, LLP			2		77		0.38			0.73			63,262		2,736
Westfield Corporation			1		100		0.58			0.73			96,876		2,725

	Total/ Weighted Average(2)		35		63		8.99	%		10.60	%		1,508,084	$	39,518


(1)	Annualized base rent is calculated as monthly contractual base rent under existing leases as of December 31, 2004, multiplied by 12; for those leases where rent has not yet commenced or which are in a free rent period, the first month in which rent is to be received is used to determine annualized base rent.

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

The following table presents the diversification of the tenants occupying space in our portfolio by industry as of December 31, 2004:


						Percentage of
						Total
		NAICS		Occupied		Occupied
North American Industrial Classification System Description (NAICS)		Code		Square Feet		Portfolio

Professional, Scientific, and Technical Services			541		4,278,468		25.91	%
Finance and Insurance			521-525		2,838,317		17.19
Information			511-519		1,625,403		9.84
Manufacturing			311-339		1,282,143		7.77
Health Care and Social Assistance			621-624		1,107,178		6.71
Educational Services			611		750,882		4.55
Administrative and Support and Waste Management and Remediation Services			561-562		742,831		4.50
Real Estate, Rental and Leasing			531-533		709,020		4.29
Public Administration			921-928		638,857		3.87
Wholesale Trade			423-425		564,150		3.42
Construction			236-238		334,098		2.02
Transportation and Warehousing			481-493		319,070		1.93
Other Services (except Public Administration)			811-814		295,987		1.79
Arts, Entertainment, and Recreation			711-713		287,027		1.74
Accommodation and Food Services			721-722		180,608		1.09
Retail Trade			441-454		112,738		0.68
Mining			211-213		41,291		0.25
Management of Companies and Enterprises			551		34,410		0.21
Utilities			221		8,975		0.05
Agriculture, Forestry, Fishing and Hunting			111-115		6,261		0.04
Other — Uncategorized			—		352,346		2.15

	Total Square Feet Occupied				16,510,060		100.00	%


	Lease Distribution

The following table presents information relating to the distribution of the leases for our 120 properties, based on leased net rentable square feet, as of December 31, 2004:


									Percent of			Annualized				Percent of
							Total		Aggregate			Base Rent		Avg. Base		Aggregate
				Percent			Leased		Portfolio			of		Rent per		Portfolio
		Number		of All			Square		Leased			Leases(1)		Leased		Annualized
Square Feet Under Lease		of Leases		Leases			Feet		Square Feet			(000’s)		Square Foot		Base Rent

2,500 and under			1,490		49.29	%		2,114,663		12.60	%	$	50,567	$	23.91		12.42	%
2,501 - 5,000			704		23.29			2,447,176		14.58			60,844		24.86		14.95
5,001 - 7,500			299		9.89			1,813,171		10.80			46,939		25.89		11.53
7,501 - 10,000			164		5.43			1,432,241		8.54			36,027		25.15		8.85
10,001 - 20,000			241		7.97			3,405,929		20.30			85,663		25.15		21.04
20,001 - 40,000			78		2.58			2,118,322		12.62			51,036		24.09		12.54
40,001 and over			47		1.55			3,451,173		20.56			76,002		22.02		18.67

	Total/ Weighted Average		3,023		100.00	%		16,782,675		100.00	%	$	407,078	$	24.26		100.00	%


(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 120 properties for leases in place at December 31, 2004. This table assumes that none of the tenants exercise renewal options or termination rights, if any, at or prior to the scheduled expirations:


												Average
												Annualized
										Annualized		Base Rent		Percentage
					Square		Percentage of			Base Rent of		per Square		of Aggregate
			Number of		Footage of		Aggregate			Expiring		Foot of		Portfolio
			Leases		Expiring		Leased			Leases(1)		Expiring		Annualized
Year of Lease Expiration			Expiring		Leases		Square Feet			($000s)		Leases		Base Rent

Month-to-Month				113		499,517		2.98	%	$	8,878	$	17.77		2.18	%
Q1 2005				136		465,009		2.77			9,421		20.26		2.31
Q2 2005				160		623,578		3.72			13,792		22.12		3.39
Q3 2005				167		624,148		3.72			14,522		23.27		3.57
Q4 2005				188		802,859		4.78			17,347		21.61		4.26

	2005 Sub-Total(2)			651		2,515,594		14.99			55,082		21.90		13.53
2006				596		2,513,849		14.98			59,551		23.69		14.63
2007				529		2,416,185		14.40			56,854		23.53		13.97
2008				392		2,355,397		14.03			58,662		24.91		14.41
2009				344		2,139,029		12.74			51,137		23.91		12.56
2010				159		1,615,217		9.62			39,338		24.35		9.66
2011				53		704,942		4.20			22,102		31.35		5.43
2012				54		855,313		5.10			20,291		23.72		4.98
2013				34		411,142		2.45			12,195		29.66		3.00
2014+				98		756,490		4.51			22,988		30.39		5.65

		Total/ Weighted Average		3,023		16,782,675		100.00	%	$	407,078	$	24.26		100.00	%


(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.

(2)	Excludes month-to-month leases.


ITEM 3.	*Legal Proceedings*

We are presently subject to various lawsuits, claims and proceedings arising in the ordinary course of business none of which if determined unfavorably to us is expected to have a material adverse effect on our cash flows, financial condition or results of operations during the year ended December 31, 2004.


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, 2004.

PART II


ITEM 5.	*Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities*

Our common stock is traded on the New York Stock Exchange, or NYSE, under the symbol “ARI.” On March 10, 2005, the last reported sales price per share of common stock on the NYSE was $35.41 and there were approximately 226 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.


					Per Share
					Common Stock
					Dividends
	High		Low		Declared

2003
First Quarter	$	23.69	$	20.18	$	0.505
Second Quarter	$	26.23	$	22.68	$	0.505
Third Quarter	$	27.92	$	26.15	$	0.505
Fourth Quarter	$	30.34	$	27.49	$	0.505
2004
First Quarter	$	32.75	$	29.30	$	0.505
Second Quarter	$	32.86	$	26.89	$	0.505
Third Quarter	$	33.15	$	29.54	$	0.505
Fourth Quarter	$	37.72	$	32.66	$	0.505

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, capital requirements and annual distribution requirements under the REIT provisions of the Internal Revenue Code and such other factors our Board of Directors deem relevant.


ITEM 6.	*Selected Financial Data*

You should read the following consolidated financial and operating data for Arden Realty together with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included elsewhere in this Form 10-K.



		Year Ended December 31,

		2004			2003			2002			2001			2000


		(in thousands, except ratio and per share amounts)
Operating Data:
Property revenues		$	409,193		$	393,765		$	374,135		$	382,839		$	351,924
Interest and other (loss) income			(508	)		(401	)		2,063			2,135			3,290
Property operating expenses			(133,635	)		(125,979	)		(117,019	)		(110,421	)		(100,574	)
General and administrative expense			(19,503	)		(16,931	)		(12,581	)		(11,496	)		(9,103	)
Depreciation and amortization			(121,687	)		(111,952	)		(100,317	)		(92,613	)		(78,672	)
Interest expense			(88,856	)		(93,093	)		(87,827	)		(85,949	)		(78,495	)

Income from continuing operations before gain on sale of operating properties, impairment on investment in securities, and minority interest			45,004			45,409			58,454			84,495			88,370
Gain on sale of operating properties(1)			—			—			1,967			4,591			2,132

Income from continuing operations before impairment on investment securities and minority interest			45,004			45,409			60,421			89,086			90,502
Impairment on investment in securities			(2,700	)		—			—			—			—
Minority interest			(5,255	)		(5,375	)		(5,816	)		(7,046	)		(7,158	)

Income from continuing operations			37,049			40,034			54,605			82,040			83,344
Discontinued operations, net of minority interest			6,253			12,538			15,570			15,719			13,366
Gain on sale of discontinued properties			30,473			5,937			—			—			—

Net income		$	73,775		$	58,509		$	70,175		$	97,759		$	96,710

Basic net income per common share:
	Income from continuing operations	$	0.57		$	0.63		$	0.85		$	1.28		$	1.32
	Income from discontinued operations		0.56			0.29			0.24			0.25			0.21

Net income per common share-basic		$	1.13		$	0.92		$	1.09		$	1.53		$	1.53

Weighed average number of common shares-basic			65,372			63,553			64,151			63,754			63,408

Diluted net income per common share:
	Income from continuing operations	$	0.56		$	0.63		$	0.85		$	1.28		$	1.31
	Income from discontinued operations		0.56			0.29			0.24			0.25			0.21

Net income per common share-diluted		$	1.12		$	0.92		$	1.09		$	1.53		$	1.52

Weighed average number of common shares- diluted		$	65,740		$	63,815		$	64,351		$	64,014		$	63,598

Cash dividends declared per common share		$	2.02		$	2.02		$	2.02		$	1.96		$	1.86

Other Data:
Cash provided by operating activities		$	184,907		$	181,482		$	199,922		$	204,667		$	192,152
Cash used in investing activities		$	(11,241	)	$	(20,355	)	$	(213,002	)	$	(115,854	)	$	(216,024	)
Cash (used in) provided by financing activities		$	(165,333	)	$	(160,483	)	$	(19,898	)	$	(57,204	)	$	22,248
Funds from Operations(2)		$	171,777		$	174,458		$	181,549		$	198,240		$	185,146

Selected financial data continues on next page.



	Year Ended December 31,

	2004		2003		2002		2001		2000

Balance Sheet Data:
Net investment in real estate	$	2,551,981	$	2,646,699	$	2,741,624	$	2,622,980	$	2,603,566
Total assets	$	2,659,997	$	2,741,433	$	2,832,409	$	2,761,443	$	2,705,597
Total indebtedness	$	1,326,084	$	1,349,781	$	1,402,304	$	1,251,483	$	1,177,769
Other liabilities(3)	$	83,713	$	76,638	$	76,350	$	62,685	$	56,885
Minority interests	$	20,414	$	72,194	$	74,571	$	78,661	$	86,176
Total stockholders’ equity	$	1,196,292	$	1,210,285	$	1,247,377	$	1,337,206	$	1,355,171


(1)	Beginning with the adoption of the Statement of Financial Accounting Standard No. 144 in 2002, the operating results and gains and losses of real estate properties classified as held for disposition are included in discontinued operations.

(2)	We believe that funds from operations, or FFO, is a useful supplemental measure of our operating performance. We compute FFO in accordance with standards established by the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT, in April 2002. The white paper defines FFO as net income or loss computed in accordance with generally accepted accounting principles, or 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 believe that FFO, by excluding depreciation costs, the gains or losses from the sale of operating real estate properties and extraordinary items as defined by GAAP, provides an additional perspective on our operating results. However, because these items have real economic effect, FFO is a limited measure of performance.

	FFO captures trends in occupancy rates, rental rates and operating costs. FFO excludes depreciation and amortization costs and it does not capture the changes in value in our properties that result from use or changes in market conditions or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. Therefore, its ability to measure performance is limited.

	Because FFO excludes significant economic components of net income determined in accordance with GAAP, FFO should be used as an adjunct to net income and not as an alternative to net income. FFO should also not be used as an indicator of our financial performance, or as a substitute for cash flow from operating activities determined in accordance with GAAP or as a measure of our liquidity. FFO is not by itself indicative of funds available to fund our cash needs, including our ability to pay dividends or service our debt. Therefore, FFO only provides investors with an additional performance measure that when combined with measures computed in accordance with GAAP such as net income, cash flow from operating activities, investing activities and financing activities provides investors with an indication of our ability to service debt and to fund acquisitions and other expenditures.

	FFO is used by investors to compare our performance with other REITs. Other REITs may use different methodologies for calculating FFO and, accordingly, our FFO may not be comparable to other REITs. See a reconciliation of FFO to Net income in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report.


(3)	Excludes dividends payable.


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 6 senior executive officers who have experience in the real estate industry ranging from 14 to 35 years and who collectively have an average of 20 years of experience. We perform all property management, construction management, accounting, finance, acquisition and disposition activities and a majority of our leasing transactions with our staff of approximately 300 employees.

As of December 31, 2004, we were 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 120 primarily suburban office properties and 197 buildings containing approximately 18.2 million net rentable square feet. As of December 31, 2004, our operating portfolio was 91.2% occupied.

Our primary business strategy is to actively manage our portfolio to achieve gains in rental rates and occupancy, control operating expenses and 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 properties and use the net proceeds to repay outstanding indebtedness or place into investments that we believe will generate higher long-term value.


	Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting periods. Certain accounting policies are considered to be critical accounting estimates, as they require management to make assumptions about matters that are highly uncertain at the time the estimate is made and changes in the accounting estimate are reasonably likely to occur from period to period. Management believes the following critical accounting policies reflect the Company’s more significant judgments and estimates used in the preparation of the consolidated financial statements. For a summary of all the Company’s significant accounting policies see note 2 to the Company’s consolidated financial statements included elsewhere in this report. We periodically evaluate our estimates and assumptions used in the preparation of our financial statements including our reported operating results. Because over 97% of our assets as of December 31, 2004 and 2003, respectively, consists of investments in real estate and amounts due from tenants, our primary evaluations consist of recoverability of amounts invested in real estate properties and collectability of amounts due from tenants.

Revenue Recognition

We recognize minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related lease. The amount by which straight-line rental income differs from cash rents billed under the lease is included in deferred rents.

Allowance for Rents and Other Receivables

We periodically evaluate the collectability of amounts due from particular tenants based on a variety of factors including the tenant’s payment history, our observation of space utilization, periodic discussions with the tenants regarding the tenant’s short and long-term business plan for the space under contract, the overall financial health of the business and/or parent company, available financial and other information regarding the tenant or its parent company and the amount of lease security on hand. Based on these factors, unless collection is reasonably assured, we fully reserve amounts due that are in excess of the lease security we hold. All of our allowances are tenant specific.

As of December 31, 2004 and 2003 we had a total of $5.7 million and $6.3 million in our allowance for doubtful accounts and other reserves, respectively, representing approximately 10% and 12% of the total rent and deferred rent balance outstanding at each respective balance sheet date. Including security deposits and existing letters of credit, as of December 31, 2004 and 2003, we had a total of $39.3 million and $33.5 million of total lease security available, respectively. For the years ended December 31, 2004, 2003 and 2002 our bad debt expense related to losses for uncollected rents, deferred rents, tenants reimbursements and other uncollectible charges were approximately 0.3%, 0.6% and 1.4% of total gross revenue, respectively, for each of those years. Our allowances have historically proved to be adequate; however, due to the uncertainty inherent in the tenant specific evaluation process, our allowance for doubtful accounts may not prove to be sufficient in all future periods.

Commercial Properties


	*Impairment of Assets*

The recoverability of amounts invested in real estate properties is highly dependent on the assumptions we use. For properties we intend to hold and operate, we recognize a write-down to estimated fair value whenever a property’s estimated undiscounted future cash flows are less than its depreciated cost. For properties we intend to sell, we recognize a write-down to estimated fair value whenever a property’s estimated sales price less costs to sell are less than its depreciated costs.

We determine fair value of our properties using methods similar to those used by independent appraisers, including comparison of carrying costs on a per square foot basis to sales price on a per square foot basis on recently transacted properties that are similar in quality and location and also by comparing carrying costs to acquisition offers from prospective buyers. Based on our assessment, no write-downs to estimated fair value were necessary as of December 31, 2004 and 2003.

Due to the availability of comparable sales information in most of our sub-markets, historically our fair value estimates have proven to be accurate. However, our estimates may vary from actual values, especially for real estate assets located in sub-markets where quoted per square foot market prices for comparable properties may not be readily available or real estate assets that become impaired due to non-recurring circumstances such as previously unknown environmental issues or casualty losses that result in damages in excess of our insurance coverage amount.


	*Property Acquisitions*

The amounts paid for properties acquired are allocated between the tangible and intangible assets. Tangible assets include land, building and tenant improvements. Intangible assets include the value of in place leases. To arrive at the value of in place leases, we compare estimates of current market rents to the in place rents. We also make assumptions regarding the amount of time that currently occupied space would remain vacant if we had to replace the existing tenants under current market conditions. We also reduce the value of each lease using a discount rate that we deem to be commensurate with each tenant’s credit profile. The assumptions we use are based on available market information, from independent sources and our own market knowledge and experience.

The fair market value that we assign to acquired leases is amortized over the remaining lease terms. The tangible assets assigned to building improvements are depreciated over a much longer period of time, normally forty years. Consequently, the assumptions we use in this allocation have a significant impact on the operating results that we will report in future periods. We cannot guarantee that the initial assumptions that we use to any property’s purchase price will prove to be accurate. We also would not revise these estimates in future periods if our initial amounts were proven to be inaccurate.

Qualification as a REIT

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. 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, numerous requirements established under highly technical and complex Internal Revenue Code provisions subject to interpretation.

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. For additional information see “Risk Factors — We may suffer adverse tax consequences and be unable to attract capital if we fail to qualify as a REIT,” and “Our operating partnership intends to qualify as a partnership, but we cannot guarantee that it will qualify,” elsewhere in this Form 10-K.

Off-Balance Sheet Arrangements

There are no off-balance sheet transactions, arrangements or obligations (including contingent obligations) that have, or are reasonably likely to have a current or future material effect on our financial condition, changes in the financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.


	Results Of Operations

Our financial position and operating results are primarily comprised of our portfolio of 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 development, acquisitions and dispositions.

Comparison of the year ended December 31, 2004 to the year ended December 31, 2003

(in thousands, except number of properties and percentages)



			Year Ended December 31,
												Percent
			2004			2003			Change			Change

Revenue from rental operations:
	Scheduled cash rents		$	351,465		$	339,009		$	12,456			4	%
	Straight-line rents			2,020			915			1,105			121
	Tenant reimbursements			20,129			23,355			(3,226	)		(14	)
	Parking, net of expense			23,816			21,635			2,181			10
	Other rental operations			11,763			8,851			2,912			33

		Total revenue from rental operations		409,193			393,765			15,428			4

Property expenses:
	Repairs and maintenance			44,281			40,738			3,543			9
	Utilities			32,835			32,497			338			1
	Real estate taxes			30,569			28,156			2,413			9
	Insurance			7,506			7,909			(403	)		(5	)
	Ground rent			746			961			(215	)		(22	)
	Administrative			17,698			15,718			1,980			13

		Total property expenses		133,635			125,979			7,656			6

Property operating results(1)				275,558			267,786			7,772			3
	General and administrative			19,503			16,931			2,572			15
	Interest			88,856			93,093			(4,237	)		(5	)
	Depreciation and amortization			121,687			111,952			9,735			9
	Interest and other loss			508			401			107			27

	Income from continuing operations before gain on sale of properties and minority interest		$	45,004		$	45,409		$	(405	)		(1	)%

	Discontinued operations, net of minority interest		$	6,253		$	12,538		$	(6,285	)		(50	)%

Number of properties:
	Acquired during period			2			1
	Completed and placed in service during period			1			—
	Disposed of during period			(12	)		(8	)
	Owned at end of period			120			129
Net rentable square feet:
	Acquired during period			391			101
	Completed and placed in service during period			283			—
	Expansion space placed in service			168			—
	Disposed of during period			(1,268	)		(598	)
	Owned at end of period			18,210			18,636
Same Property Portfolio(2):
	Revenue from rental operations		$	397,842		$	394,449		$	3,393			1	%
	Property expenses			129,822			125,953			3,869			3

			$	268,020		$	268,496		$	(476	)		—	%

	Straight-line rents		$	315		$	592

	Number of properties			116
	Number of buildings			192
	Average occupancy			90.0	%		89.3	%
	Net rentable square feet			17,334

(1)

The components outlined above comprise our Property Operating Results. Property Operating Results is a non-GAAP measure of performance. Property Operating Results is used by investors and our management to evaluate and compare the performance of our office properties and to determine trends in earnings. Property Operating Results is also employed by investors as one of the components used to estimate the value of our properties. Property Operating Results is used for the purposes noted above because it is not affected by (1) the cost of funds of the property owner, (2) the impact of depreciation and amortization expense as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with Generally Accepted Accounting Principles, or GAAP or (3) general and administrative expenses and other specific costs such as permanent impairments to carrying costs. The cost of funds is eliminated from net income because it is specific to the particular financing capabilities and constraints of the owner. The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital, which may have changed or may change in the future. Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our office properties that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased in value as a result of changes in overall economic conditions as well as the actual use of the property or the passage of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale which will usually change from period to period. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly timed purchases and subsequent sales. General and administrative expenses and other owner specific costs such as impairment losses are eliminated because these costs are also in large part specific to the ownership structure and timing of purchases of the owner. We believe that eliminating these costs from net income is useful because the resulting measure captures the actual revenue generated and actual expenses incurred in operating our office properties as well as trends in occupancy rates, rental rates and operating costs.


	However, the usefulness of Property Operating Results is limited because it excludes general and administrative costs, interest expense, interest income, depreciation and amortization expense and gains or losses from the sale of properties, changes in value in our real estate properties that result from use or permanent impairment to carrying costs as stipulated by GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. Property Operating Results may fail to capture significant trends in these components of net income which further limits its usefulness.

	Property Operating Results is a measure of the operating performance of our office properties but does not measure our performance as a whole. Property Operating Results is therefore not a substitute for net income as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income computed in accordance with GAAP and discussions elsewhere in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the components of net income that are eliminated in the calculation of Property Operating Results. Other companies may use different methods for calculating Property Operating Results or similarly entitled measures and, accordingly, our Property Operating Results may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do.


	The following is a reconciliation of Property Operating Results to net income computed in accordance with GAAP (in thousands):



		Year Ended December 31,

		2004			2003			2002

Net Income		$	73,775		$	58,509		$	70,175
Add:
	General and administrative expense		19,503			16,931			12,581
	Interest expense		88,856			93,093			87,827
	Depreciation and amortization		121,687			111,952			100,317
	Minority interest		5,255			5,375			5,816
	Interest and other loss		508			401			—
	Impairment on investment in securities		2,700			—			—
Less:
	Interest and other income		—			—			(2,063	)
	Gain on sale of discontinued properties		(30,473	)		(5,937	)		—
	Discontinued operations, net of minority interest		(6,253	)		(12,538	)		(15,570	)
	Gain on sale of operating properties		—			—			(1,967	)

Property Operating Results		$	275,558		$	267,786		$	257,116


(2)	Consists of non-development/renovation properties classified as part of continuing and discontinued operations that were owned for the entirety of the periods presented.

Variances for Results of Operations

Our Property Operating Results for the year ended December 31, 2004 compared to 2003 were primarily affected by our acquisitions and development activities since January 1, 2003.

As a result of these changes within our portfolio of properties since January 1, 2003, we do not believe the Property Operating Results presented above are comparable from period to period. Therefore, in the table above, we have also presented the Property Operating Results for our same property portfolio.

Revenue from Rental Operations

Revenue from rental operations increased approximately $15.4 million, or 4%, for the year ended December 31, 2004 compared to 2003. This increase was primarily due to our December 2003 acquisition of a 101,000 square foot office property in San Diego County in December of 2003, revenues from our 6100 Center Drive development property which was placed in service during the second quarter of 2004, two office properties acquired in Los Angeles County in October of 2004 totaling approximately 391,000 square feet, an 0.8% point overall occupancy gain in 2004.

Revenue from rental operations for the same store portfolio increased by approximately $3.4 million, or 1%, in 2004 as compared to 2003. The increase was due to an approximate $2.9 million increase in scheduled cash rents, a $2.9 million increase in other rental operations and a $1.6 million increase in parking income, all of which were partially offset by an approximate $3.7 million decrease in tenant reimbursements. The increase in scheduled cash rents was primarily attributable to scheduled rent increases in existing leases and by the 0.7% increase in average occupancy for these properties. Other rental operations increased primarily due to higher lease termination fees in 2004 and lower bad debt expense as a result of a reduced level of defaults in 2004. Parking income increased in 2004 primarily due to an increase in occupancy in 2004 and higher special event parking. Tenant reimbursements decreased primarily due to the resetting of base years for new leases in 2004.

Property Expenses

Property expenses increased approximately $7.7 million, or 6%, for the year ended December 31, 2004 compared to 2003. This increase was partially due to our acquisition and development activities, gains in occupancy and increases in operating expenses for the same property portfolio described below.

Property expenses for the same store portfolio increased by approximately $3.9 million, or 3%, in 2004 as compared to 2003. The increase was primarily due to an approximate $2.9 million increase in repairs and maintenance, a $1.6 million increase in real estate taxes and a $1.3 million increase in property administrative expenses, all of which were partially offset by a $1.2 million decrease in utilities expense and a $0.5 million decrease in insurance expense. The increase in repairs and maintenance expense was primarily due to higher costs for contracted services and the timing of certain projects. The increase in real estate taxes was primarily due to the timing of reassessments and property tax refunds received in 2003 as well as new property tax measures implemented in Los Angeles County. The increase in property administrative expense was primarily due to higher employee compensation costs and higher property legal expenses. The decrease in utilities expense was primarily due to lower than anticipated usage in 2004 as a result of a mild summer, partially offset by an increase in occupancy. The decrease in insurance expense was primarily due to lower premiums on a new insurance policy which began in March 2004.

General and Administrative

General and administrative expenses increased approximately $2.6 million in 2004 as compared to 2003. This increase was primarily related to higher personnel costs associated with annual merit increases, non-cash compensation expense associated with restricted stock grants issued in 2004 and 2003 and Section 404 implementation costs in 2004.

Interest Expense

Interest expense decreased approximately $4.2 million, or 5%, in 2004 as compared to 2003. This decrease was primarily due to a lower cost of debt in 2004 due to the refinancing of a $175 million, 7.52% secured loan with proceeds from property dispositions and from the issuance of $200 million, 5.20% (5.45% effective rate) unsecured senior notes in August 2004, partially offset by lower capitalized interest in 2004. Capitalized interest was lower in 2004 as we stopped capitalizing interest on our 6100 Center Drive development property in May 2003.

Depreciation and Amortization

Depreciation and amortization expense increased by approximately $9.7 million, or 9%, in 2004 as compared to 2003. The increase was primarily due to depreciation related to a property acquired in December 2003, two properties acquired in October 2004, a development property place in service in the second quarter of 2004 and depreciation related to capital expenditures, tenant improvements and leasing commissions placed in service in 2003 and 2004.

Discontinued Operations

Financial Accounting Standards No. 144, (SFAS 144), requires, among other things, that the operating results of real estate properties classified as held for disposition subsequent to January 1, 2002 be included in discontinued operations in the statements of income for all periods presented.

The results of operations for the properties disposed of or held for disposition during the years ended December 31, 2004 and 2003 are as follows (in thousands, except number of properties):



		Year Ended
		December 31,
										Percent
		2004			2003		Change			Change

Discontinued Operations:
	Revenues	$	20,533		$	33,794	$	(13,261	)		(39	)%
	Property operating expenses		7,781			11,711		(3,930	)		(34	)

			12,752			22,083		(9,331	)		(42	)
	Depreciation and amortization		4,895			8,372		(3,477	)		(42	)
	Interest expense		659			674		(15	)		(2	)
	Interest and other income		(2	)		—		(2	)		100
	Minority interest		947			499		448			90

	Discontinued operations, net of minority interest	$	6,253		$	12,538	$	(6,285	)		(50	)%

	Gain on sale of discontinued properties	$	30,473		$	5,937	$	24,536			413	%

	Properties sold		12			8
	Properties held for disposition at end of period		1			2

Comparison of the year ended December 31, 2003 to the year ended December 31, 2002

(in thousands, except number of properties and percentages)



			Year Ended December 31,
												Percent
			2003			2002			Change			Change

Revenue from rental operations:
	Scheduled cash rents		$	339,009		$	320,505		$	18,504			6	%
	Straight-line rents			915			4,629			(3,714	)		(80	)
	Tenant reimbursements			23,355			21,161			2,194			10
	Parking, net of expense			21,635			20,350			1,285			6
	Other rental operations			8,851			7,490			1,361			18

		Total revenue from rental operations		393,765			374,135			19,630			5

Property expenses:
	Repairs and maintenance			40,738			35,294			5,444			15
	Utilities			32,497			32,338			159			0
	Real estate taxes			28,156			27,290			866			3
	Insurance			7,909			7,291			618			8
	Ground rent			961			895			66			7
	Administrative			15,718			13,911			1,807			13

		Total property expenses		125,979			117,019			8,960			8

Property operating results(1)				267,786			257,116			10,670			4
	General and administrative			16,931			12,581			4,350			35
	Interest			93,093			87,827			5,266			6
	Depreciation and amortization			111,952			100,317			11,635			12
	Interest and other loss (income)			401			(2,063	)		(2,464	)		(119	)

	Income from continuing operations before gain on sale of properties and minority interest		$	45,409		$	58,454		$	(13,045	)		(22	)%

	Discontinued operations, net of minority interest		$	12,538		$	15,570		$	(3,032	)		(19	)%

Number of properties:
	Acquired during period			1			5
	Completed and placed in service during period			—			1
	Disposed of during period			(8	)		(3	)
	Owned at end of period			129	(2)		136
Net rentable square feet:
	Acquired during period			101			803
	Completed and placed in service during period			—			287
	Disposed of during period			(597	)		(205	)
	Owned at end of period			18,636	(2)		19,132
Same Store Portfolio(3):
	Revenue from rental operations		$	391,960		$	386,826		$	5,134			1	%
	Property expenses			126,041			121,112			4,929			4

			$	265,919		$	265,714		$	205			—	%

	Straight-line rents		$	721		$	4,312

	Number of properties			122			122
	Average occupancy			90.2	%		91.3	%
	Net rentable square feet			17,444			17,444


(1)	The components outlined above comprise our Property Operating Results. Property Operating Results is a non-GAAP measure of performance. Property Operating Results is used by investors and our management to evaluate and compare the performance of our office properties and to determine trends in earnings. Property Operating Results is also employed by investors as one of the components used to estimate the value of our properties. Property Operating Results is used for the purposes noted above because it is not affected by (1) the cost of funds of the property owner, (2) the impact of depreciation and amortization expense as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with Generally Accepted Accounting Principles, or GAAP or (3) general and administrative expenses and other specific costs such as permanent impairments to carrying costs. The cost of funds is eliminated from net income because it is specific to the particular financing capabilities and constraints of the owner. The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital, which may have changed or may change in the future. Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our office properties that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased in value as a result of changes in overall economic conditions as well as the actual use of the property or the passage of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale which will usually change from period to period. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly timed purchases and subsequent sales. General and administrative expenses and other owner specific costs such as impairment losses are eliminated because these costs are also in large part specific to the ownership structure and timing of purchases of the owner. We believe that eliminating these costs from net income is useful because the resulting measure captures the actual revenue generated and actual expenses incurred in operating our office properties as well as trends in occupancy rates, rental rates and operating costs.

	However, the usefulness of Property Operating Results is limited because it excludes general and administrative costs, interest expense, interest income, depreciation and amortization expense and gains or losses from the sale of properties, changes in value in our real estate properties that result from use or permanent impairment to carrying costs as stipulated by GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. Property Operating Results may fail to capture significant trends in these components of net income which further limits its usefulness.

	Property Operating Results is a measure of the operating performance of our office properties but does not measure our performance as a whole. Property Operating Results is therefore not a substitute for net income as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income computed in accordance with GAAP and discussions elsewhere in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the components of net income that are eliminated in the calculation of Property Operating Results. Other companies may use different methods for calculating Property Operating Results or similarly entitled measures and, accordingly, our Property Operating Results may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do.

	The following is a reconciliation of Property Operating Results to net income computed in accordance with GAAP (in thousands):


		2003			2002			2001

Net Income		$	58,509		$	70,175		$	97,759
Add:
	General and administrative expense		16,931			12,581			11,496
	Interest expense		93,093			87,827			85,949
	Depreciation and amortization		111,952			100,317			92,613
	Interest and other loss		401			—			—
	Minority interest		5,375			5,816			7,046
Less:
	Interest and other income		—			(2,063	)		(2,135	)
	Discontinued operations, net of minority interest		(12,538	)		(15,570	)		(15,719	)
	Gain on sale of discontinued properties		(5,937	)		—			—
	Gain on sale of operating properties		—			(1,967	)		(4,591	)

Property Operating Results		$	267,786		$	257,116		$	272,418


(2)	Excludes one development property containing approximately 283,000 net rentable square feet under lease-up.

(3)	Consists of non-development/renovation properties classified as part of continuing and discontinued operations that were owned for the entirety of the periods presented.

Variances for Results of Operations

Our Property Operating Results for the year ended December 31, 2003 compared to 2002 were primarily affected by our acquisitions and development activities since January 1, 2002.

As a result of these changes within our portfolio of properties since January 1, 2002, we do not believe the Property Operating Results presented above are comparable from period to period. Therefore, in the table above, we have also presented the Property Operating Results for our same property portfolio.

Revenue from Rental Operations

Revenue from rental operations increased approximately $19.6 million, or 5%, for the year ended December 31, 2003 compared to 2002. This increase was primarily due to our August 2002 acquisitions of a 430,00 square foot office property in Los Angeles County and four office properties in San Diego County totaling approximately 370,000 square feet and a December 2003 acquisition of a 101,000 square foot office property in San Diego County and the placement in service of our 6080 Center Drive development property in December of 2002.

Revenue from rental operations for the same store portfolio increased by approximately $5.1 million, or 1%, in 2003 as compared to 2002. The increase was due to an approximate $6.0 million increase in scheduled cash rents, a $2.3 million increase in tenant reimbursements and a $0.9 million increased in parking income, all of which were partially offset by an approximate $3.6 million decrease in straight-line rents and a $0.5 million decrease in other rental operations. The increase in scheduled cash rents was primarily attributable to scheduled rent increases in existing leases that were partially offset by the 1.1% decrease in average occupancy for these properties. Tenant reimbursement increased primarily due to recovery billings for higher operating expenses in 2003 as discussed below. Parking income increased primarily due to an increase in demand for monthly parking in 2003 in some of our buildings. Straight-line rents decreased primarily due to the decline in occupancy and the scheduled reversal of straight-line rents for certain older leases. Other rental operations decreased primarily due to decreases in lease termination settlements in 2003.

Property Expenses

Property expenses increased approximately $9.0 million, or 8%, for the year ended December 31, 2003 compared to 2002. This increase was partially due our acquisition and development activities described above.

Property expenses for the same store portfolio increased by approximately $4.9 million, or 4%, in 2003 as compared to 2002. The increase was primarily due to an approximate $3.6 million increase in repairs and maintenance, a $1.6 million increase in property administrative expenses and a $0.4 million increase in insurance expense, partially offset by a $0.8 million decrease in real estate taxes. The increase in repairs and maintenance expense was primarily due to higher contractual costs for janitorial and other contract services as well as the timing of certain projects. The increase in property administrative expense was primarily due to higher employee compensation costs, higher property legal expenses and costs associated with training programs implemented in 2003. The increase in insurance expense was due to increases in industry-wide rates and premiums related to a $100 million terrorism insurance policy entered into in the second quarter of 2002. Real estate taxes decreased due to the timing of final reassessments of some properties in 2002.

General and Administrative

General and administrative expenses increased approximately $4.4 million or, 35% in 2003 as compared to 2002. This increase was primarily due to employee compensation costs, including employee separation costs in the current year and non-cash compensation costs associated with annual restricted stock grants issued in 2003 as well as higher corporate governance costs in 2003.

Interest Expense

Interest expense increased approximately $5.3 million, or 6%, in 2003 as compared to 2002. This increase was primarily due to an increase in borrowings in the last half of 2002 for property acquisitions, lower interest capitalized in 2003 and costs associated with interest rate swaps entered into at the end of 2002 to fix

approximately $175 million of floating rate debt. Capitalized interest in 2003 was lower as we ceased capitalizing interest on our 6100 Center Drive property in May 2003.

Depreciation and Amortization

Depreciation and amortization expense increased by approximately $11.6 million, or 12%, in 2003 as compared to 2002. The increase was primarily due to depreciation related to five properties acquired in August 2002, the placement in service of our 6080 Center Drive development property in the fourth quarter of 2002 and depreciation related to capital expenditures, tenant improvements and leasing commissions placed in service in 2002 and 2003.

Interest and Other Loss (Income)

Interest and other loss (income) decreased by approximately $2.5 million, or 119%, in 2003 as compared to 2002, primarily due to the repayment by the borrower of a $13.7 million mortgage note receivable in the fourth quarter of 2002 and the reclassification of the operating results for Next>edge, our taxable REIT subsidiary that provides energy consulting services, into interest and other income for the years ended December 31, 2003 and 2002.

Discontinued Operations

SFAS 144, effective January 1, 2002, requires, among other things, that the operating results of real estate properties classified as held for disposition subsequent to January 1, 2002 be included in discontinued operations in the statements of income for all periods presented.

The results of operations for the properties disposed of or held for disposition during the years ended December 31, 2003 and 2002 are as follows (in thousands, except number of properties):



		Year Ended
		December 31,
									Percent
		2003		2002		Change			Change

Discontinued Operations:
	Revenues	$	33,794	$	41,978	$	(8,184	)		(19	)%
	Property operating expenses		11,711		14,199		(2,488	)		(18	)

			22,083		27,779		(5,696	)		(21	)
	Depreciation and amortization		8,372		11,100		(2,728	)		(25	)
	Interest expense		674		689		(15	)		(2	)
	Minority interest		499		420		79			19

	Discontinued operations, net of minority interest	$	12,538	$	15,570	$	(3,032	)		(19	)%

	Gain on sale of discontinued properties	$	5,937	$	—	$	5,937			100	%

Properties sold			8		3
Properties held for disposition at end of period			2		1

Liquidity and Capital Resources


	Cash Flows

Cash provided by operating activities increased by approximately $3.4 million to $184.9 million in 2004 as compared to $181.5 million in 2003. This increase was primarily due to lower financing costs in 2004 as a result of a $175 million 7.52% loan and a $50 million, 8.675% preferred equity issuance that were refinanced at lower carrying costs. In addition, our cash flow from operations was affected by the timing of our acquisitions and dispositions in 2004. Although during 2004 we had net property sales, $126 million of our $204.8 million in dispositions occurred in December of 2004.

Cash used in investing activities decreased by approximately $9.2 million to $11.2 million in 2004 as compared to $20.4 million in 2003. The decrease was primarily due to higher net selling activities in 2004. In 2004, our cash flow used in investing activities was also affected by a higher level of tenant improvement and leasing commission expenditures as a result of approximately 485,000 square feet of additional leasing completed in 2004 over 2003.

Cash used in financing activities increased by approximately $4.8 million to $165.3 million in 2004 as compared to $160.5 million in 2003. This increase was primarily due to higher net debt repayments in 2004 with proceeds generated from our capital recycling program.


	Cash Balances and Available Borrowings

As of December 31, 2004, we had approximately $27.8 million in cash and cash equivalents, including $14.8 million in restricted cash. Restricted cash consisted of $9.7 million in interest bearing cash deposits required by four of our mortgage loans and $5.1 million in cash impound accounts for real estate taxes and insurance as required by several of our mortgage loans.

Through our Operating Partnership, we have access to a total of $330 million under two unsecured lines of credit. As of December 31, 2004, $121.5 million was outstanding and $208.5 million was available under these unsecured lines of credit.


	Capital Recycling Program

Under our capital recycling program, we evaluate our existing portfolio of properties and current market opportunities to determine if the sale or purchase of properties would improve the overall quality or return on invested capital of our existing portfolio. Proceeds from sales of properties may be used to pay down our borrowings until we identify attractive properties to purchase, renovate or develop. During 2004, we sold twelve properties totaling approximately 1.3 million square feet for approximately $204.8 million in gross sales proceeds. In October 2004, we acquired two office properties consisting of approximately 391,000 square feet for approximately $96.8 million. For additional information regarding the properties acquired and sold, see the accompanying notes to our financial statements elsewhere in this report.


	Debt Summary

Following is a summary of scheduled principal payments for our total outstanding indebtedness as of December 31, 2004 (in thousands):


Year		Amount

2005		$	216,871
2006			251,101
2007			158,035
2008			230,726
2009			112,291
2010			150,307
2011			200,538
2012			768
2013			845
2014			914
Thereafter			3,688

	Total	$	1,326,084

Following is other information related to our indebtedness as of December 31, 2004 (in thousands, except percentage and interest rate data):

Unsecured and Secured Debt:


						Weighted Average			Weighted Average
	Balance		Percent			Interest Rate(1)			Maturity (in years)

	(000’s)
Unsecured Debt	$	943,445		71	%		6.79	%		3.2
Secured Debt		382,639		29			7.16			3.8

Total Debt	$	1,326,084		100	%		6.90			3.4

Floating and Fixed Rate Debt:


						Weighted Average			Weighted Average
	Balance		Percent			Interest Rate(1)			Maturity (in years)

	(000’s)
Floating Rate Debt(2)	$	171,500		13	%		5.88	%		2.1
Fixed Debt(3)		1,154,584		87			7.05			3.5

Total Debt	$	1,326,084		100	%		6.90	%		3.4


(1)	Includes amortization of prepaid financing costs.

(2)	Includes $100 million of fixed rate debt that has been converted to floating rate through interest rate hedge agreements.

(3)	Includes $175 million of floating rate debt that has been fixed through interest rate hedge agreements.

Interest Incurred:



	Year Ended December 31,

	2004			2003			2002

Total interest incurred(1)	$	90,451		$	96,263		$	94,162
Amount capitalized		(936	)		(2,496	)		(5,646	)

Amount expensed(1)	$	89,515		$	93,767		$	88,516


(1)	Includes interest expense for a property currently classified as “held for disposition”.


	Consolidated Income Available for Debt Service and Compliance with Principal Financial Covenants

Consolidated Income Available for Debt Service is a non-GAAP measurement of our performance and liquidity. Consolidated Income Available for Debt Service is presented below because this data is used by investors and our management as a supplemental measure to (a) evaluate our operating performance and compare it to other real estate companies, (b) determine trends in earnings, (c) determine our ability to service debt and (d) determine our ability to fund future capital expenditure requirements. As discussed more fully below, Consolidated Income Available for Debt Service is also used in several financial covenants we are required to satisfy each quarter under the terms of our principal debt agreements.

Consolidated Income Available for Debt Service permits investors and management to view income from our operations on an unleveraged basis before the effects of non-cash depreciation and amortization expense. By excluding interest expense, Consolidated Income Available for Debt Service measures our operating performance independent of our capital structure and indebtedness and, therefore, allows for a more meaningful comparison of our operating performance between quarters as well as annual periods and to compare our operating performance to that of other companies, and to more readily identify and evaluate trends in earnings.

The usefulness of Consolidated Income Available for Debt Service is limited because it does not reflect interest expense, taxes, gains or losses on sales of property, losses on valuations of derivatives, asset impairment losses, cumulative effect of a change in accounting principle, extraordinary items as defined by GAAP and depreciation and amortization costs. These costs have been or may in the future be incurred by us, each of which affects or could effect our operating performance and ability to finance our investments at competitive borrowing costs, successfully maintain our REIT status, and acquire and dispose of real estate properties at favorable prices to us. Some of these costs also reflect changes in value in our properties that result from use or changes in market conditions and the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties. Due to the significance of the net income components excluded from Consolidated Income Available for Debt Service, this measure should not be considered an alternative to (and should be considered in conjunction with) net income, cash flow from operations, and other performance or liquidity measures prescribed by GAAP. This measure should also be analyzed in conjunction with discussions elsewhere in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the items eliminated in the calculation of Consolidated Income Available for Debt Service.

The reader is cautioned that Consolidated Income Available for Debt Service, as calculated by us, may not be comparable to similar measures reported by other companies (under names such as or similar to Consolidated Income Available for Debt Service, EBITDA or adjusted EBITDA) that do not define this measure exactly the same as we do.

We calculate Consolidated Income Available for Debt Service as follows:



		Year Ended December 31,

		2004			2003			2002			2001			2000

Net cash provided by operating activities		$	184,907		$	181,482		$	199,922		$	204,667		$	192,152
Add:
	Interest expense		88,856			93,093			87,827			85,949			78,495
	Interest expense from discontinued operations		659			674			689			(1,754	)		(89	)
	Gain on repayment on mortgage note receivable		—			—			750			—			—
Less:
	Amortization of loan costs and fees		(3,801	)		(3,972	)		(3,807	)		(3,568	)		(3,568	)
	Straight-line rent		(1,841	)		(1,732	)		(5,465	)		(9,208	)		(8,077	)
Changes in operating assets and liabilities:
	Rent and other receivables		2,265			771			(6,768	)		(3,775	)		1,080
	Deferred rent		1,015			557			4,657			7,401			7,656
	Prepaid financing costs, expenses and other assets		4,783			1,494			2,997			4,366			7,480
	Accounts payable and accrued expenses		(3,338	)		2,365			(9,729	)		(4,388	)		(11,359	)
	Security deposits		(3,285	)		(1,676	)		(962	)		(213	)		(3,397	)

Consolidated Income Available for Debt Service		$	270,220		$	273,056		$	270,111		$	279,477		$	260,373



	Year Ended December 31,

	2004		2003		2002		2001		2000

Net Income	$	73,775	$	58,509	$	70,175	$	97,759	$	96,710
Add:

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