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(ARDEN LOGO)
 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2005
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OR 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 check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ Yes o No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No
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. þ Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (Check one):
         
Large accelerated filer þ
  Accelerated filer o   Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes þ No
The aggregate market value of the shares of common stock held by non-affiliates was approximately $2.4 billion based on the closing price on the New York Stock Exchange for such shares on June 30, 2005.
The number of the Registrant’s shares of common stock outstanding was 67,331,215 as of March 15, 2006.
 
 

 


 

ARDEN REALTY, INC.
TABLE OF CONTENTS
             
ITEM NO.       PAGE NO.
 
  PART I        
  Business     3  
  Risk Factors     7  
  Unresolved Staff Comments     15  
  Properties     16  
  Legal Proceedings     28  
  Submission of Matters to a Vote of Security Holders     28  
 
 
  PART II        
  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     29  
  Selected Financial Data     30  
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     32  
  Quantitative and Qualitative Disclosure about Market Risk     49  
  Financial Statements and Supplementary Data     50  
  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     51  
  Controls and Procedures     51  
  Other Information     51  
 
 
  PART III        
  Directors and Executive Officers of the Registrant     52  
  Executive Compensation     55  
  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     60  
  Certain Relationships and Related Transactions     63  
  Principal Accountant Fees and Services     63  
 
 
  PART IV        
  Exhibits and Financial Statement Schedules     64  
 
  Signatures     72  
 Exhibit 10.64
 Exhibit 12.1
 Exhibit 23.1
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2

 


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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 of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, pertaining to, among other things, our future results of operations, cash available for distribution, acquisitions, lease renewals, property development, property renovation, capital requirements and general business, industry and economic conditions applicable to us. Also, documents we subsequently file with the Securities and Exchange Commission, or 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, 2005, 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 15 to 36 years and who collectively have an average of 21 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, 2005, we were Southern California’s largest publicly traded office landlord as measured by total net rentable square feet owned. As of December 31, 2005, our portfolio of primarily suburban office properties consisted of 116 properties and 192 buildings containing approximately 18.5 million net rentable square feet and our operating portfolio was 91.9% occupied.
Proposed Merger
     On December 21, 2005, we, along with Arden Realty Limited Partnership, our operating partnership, and Atlas Partnership Merger Sub, Inc., referred to throughout as the partnership merger sub, a wholly-owned subsidiary of ours, entered into a definitive Agreement and Plan of Merger, referred to throughout as the merger agreement, with General Electric Capital Corporation, also referred to as GECC, Atlas Merger Sub, Inc., referred to as REIT merger sub, a wholly-owned subsidiary of GECC, Trizec Properties, Inc., and Trizec Holdings Operating LLC. Pursuant to the merger agreement, GECC will acquire us and our subsidiaries through a series of transactions including the merger of our company into the REIT Merger Sub, referred to as the REIT merger, as well as a merger of the Partnership Merger Sub into our operating partnership, referred to as the partnership merger.
     In the REIT merger, we will be merged with and into REIT merger sub, with REIT merger sub surviving, and shares of our common stock converted into the right to receive merger consideration of $45.25, plus an amount equal to a prorated portion of our normal $0.505 quarterly dividend. In the partnership merger, partnership merger sub will be merged with and into our operating partnership, and holders of our OP units, subject to certain eligibility requirements, may elect to either participate in the redemption and exchange of OP units for class B units of Trizec Holdings Operating LLC, plus an amount equal to a prorated portion of our $0.505 quarterly distribution, or have their OP units converted into the right to receive merger consideration of $45.25, plus an amount equal to a prorated portion of our $0.505 quarterly distribution.
     In connection with the mergers, we will sell to Trizec Operating Company a portfolio of certain of our properties, comprised of 13 office properties totaling 4.1 million square feet, certain undeveloped land parcels and other assets. Following the

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consummation of the transactions, GECC or its affiliates will own or control the entity or entities which will succeed to the ownership of the remaining properties owned by us.
     Our board has unanimously approved the merger agreement and has recommended it for approval by our common stockholders. The parties expect to close the transaction in the second quarter of 2006. The closing of the merger is subject to, among other things, a number of customary conditions, including the approval by the affirmative vote of two-thirds of the holders of shares of our common stock. The transaction is not subject to any financing condition.
  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 48 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 such proceeds into investments that we believe will generate higher long-term value.
     Through our corporate 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.

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     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 compared to 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 66.4% ratio of property operating results to total property revenues in 2005.
  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 flat or increasing rental rates in our key submarkets compared to 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
     Our internal operating strategy seeks growth by:
    stabilizing occupancy throughout our portfolio and by 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 10.5 million square feet of positive net absorption in 2005 with average rental rates increasing approximately 6.5%. Our in-house leasing teams, working with outside leasing brokers, continuously monitor each submarket to identify prospective tenants who are in need of new or additional space and to obtain the most favorable lease terms. We also strive to achieve growth in rental revenues by negotiating annual or mid-term increases in rental rates in a majority of our leases.

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        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 2005, we retained approximately 67% of our leases prior to lease expiration.
        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 strive to control our operating expenses through active management at all of our properties. We continuously monitor the operating performance of our properties and employ bulk or competitive purchasing techniques, energy-enhancing and expense recovery technologies when appropriate. These system enhancements include:
    lighting retrofits;
 
    replacement of inefficient heating, ventilation and air conditioning systems;
 
    computer-driven energy management systems that monitor and react to the climatic requirements of individual properties;
 
    automated 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 have invested in energy enhancement programs within our portfolio with the aim of reducing energy consumption, enhancing efficiency and lowering operating costs. We have also participated 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 efficiencies. Currently, of the 881 total Energy Star designated office buildings awarded nationally during 2005, 291were awarded in California; of those, we had 58 EPA Energy Star Certified buildings in our portfolio.
     We have a taxable REIT subsidiary, next>edge, that markets our expertise in energy solutions and facilities management. next>edge now assists companies outside of our portfolio 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, and on-site power generation such as cogeneration projects and solar photovoltaic systems.
     External Operating Strategy
     We believe in the diversity and balance of the Southern California economy and the commercial real estate market. We have 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, acquisition and disposition opportunities.
     Subject to capital availability and market conditions, our approach has been 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;

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    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.
     Approximately 22% of our properties and 16% 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.’’
  Employees
     As of December 31, 2005, 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 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 1A. RISK FACTORS
     In addition to the other information contained or incorporated by reference in this Form 10-K, readers should carefully consider the following risk factors.
Risks Related to the Proposed Merger
     On December 21, 2005, we, entered into a merger agreement with GECC and Trizec pursuant to which GECC will acquire us through the process set forth under the heading “Proposed Merger” in Item 1 above. In connection with the proposed merger, we have filed a definitive proxy statement with the SEC. The proxy statement contains important information about us, the proposed merger and other related matters. We urge all of our stockholders to read the proxy statement. In relation to the proposed merger, we are subject to certain risks including, but not limited to, those set forth below.
  Failure to complete the merger could negatively impact our stock price and our future business and financial results.
     Completion of the proposed merger is subject to the satisfaction or waiver of various conditions, including the receipt of approval from our stockholders, receipt of various approvals and authorizations, and the absence of any order, injunction or decree preventing the completion of the proposed merger. There is no assurance that all of the various conditions will be satisfied or waived.

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If the proposed merger is not completed for any reason, we will be subject to several risks, including the following:
    being required, under certain circumstances, including if we sign a definitive agreement with respect to a superior proposal from another potential buyer, to pay a termination fee of $100.0 million;
 
    being required, under certain circumstances, including if we breach the merger agreement, to reimburse GECC for up to $10.0 million of its costs and expenses in connection with the merger agreement;
 
    having incurred certain costs relating to the proposed merger that are payable whether or not the merger is completed, including legal, accounting, financial advisor and printing fees; and
 
    having had the focus of management directed toward the proposed merger and integration planning instead of on our core business and other opportunities that could have been beneficial to us.
     In addition, we would not realize any of the expected benefits of having completed the proposed merger. If the proposed merger is not completed, we cannot assure our stockholders that these risks will not materialize or materially adversely affect our business, financial results, financial condition and stock price.
  Provisions of the merger agreement may deter alternative business combinations and could negatively impact our stock price if the merger agreement is terminated in certain circumstances.
     Restrictions in the merger agreement on solicitation generally prohibit us from soliciting any acquisition proposal or offer for a merger or business combination with any other party, including a proposal that might be advantageous to our stockholders when compared to the terms and conditions of the proposed merger. If the merger is not completed, we may not be able to conclude another merger, sale or combination on as favorable terms, in a timely manner, or at all. If the merger agreement is terminated, we, in certain specified circumstances, may be required to pay a termination fee of up to $100.0 million to GECC. In addition, under certain circumstances, we may be required to pay GECC an expense fee of $10.0 million. These provisions may deter third parties from proposing or pursuing alternative business combinations that might result in greater value to our stockholders than the merger.
  Our stock price and businesses may be adversely affected if the merger is not completed.
     If the merger is not completed, the trading price of our common stock may decline, to the extent that the current market prices reflect a market assumption that the merger will be completed. In addition, our businesses and operations may be harmed to the extent that tenants, vendors and others believe that we cannot effectively operate in the marketplace on a stand-alone basis, or there is tenant or employee uncertainty surrounding the future direction of the strategy of our company on a stand-alone basis.
  Uncertainty regarding the merger may cause tenants, vendors and others to delay or defer decisions concerning their business with our company, which may harm our results of operations going forward if the merger is not completed.
     Because the merger is subject to several closing conditions, including the approval of the merger by our stockholders, uncertainty exists regarding the completion of the merger. This uncertainty may cause tenants, vendors and others to delay or defer decisions concerning their business with our company, which could negatively affect our business and results of operations.
  If the planned merger were not completed, we could suffer a number of consequences that may adversely affect our business, results of operations and stock price, including the following:
    activities relating to the merger and related uncertainties may lead to a loss of revenue that we may not be able to regain if the merger does not occur;
 
    the market price of our common stock could decline following an announcement that the merger has been abandoned, to the extent that the current market price reflects a market assumption that the merger will be completed;
 
    we would remain liable for our costs related to the merger, such as legal fees and a portion of the investment banking fees;
 
    we may not be able to continue our present level of operations and therefore would have to scale back our present level of business and consider additional reductions; and
 
    we may not be able to take advantage of alternative business opportunities or effectively respond to competitive pressures.

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Real Estate Investment Risks
  An inability to retain tenants or rent space upon lease expirations may adversely affect our revenues and our ability to service our debt.
     Through 2010, 2,667 leases, including month-to-month leases, comprising approximately 75% of our leased net rentable square footage and approximately 72% of our annualized base rents at December 31, 2005 are scheduled to expire as follows:
                         
            Percentage of     Percentage of  
    Number of     Aggregate Portfolio     Aggregate Portfolio  
Year   Leases Expiring     Leased Square Feet     Annualized Base Rent  
Month-to-Month
    135       2.1 %     1.8 %
2006
    593       14.0 %     13.4 %
2007
    576       14.3 %     13.4 %
2008
    593       17.4 %     17.2 %
2009
    395       13.1 %     12.6 %
2010
    375       14.3 %     13.9 %
     If we are unable to promptly renew or relet leases for all or a substantial portion of this space, or if the rent upon renewal or reletting are significantly lower than expected, our cash flow and business could be adversely affected which would limit our ability to service our debt.
     Lack of non-farm job growth in Southern California or a deterioration of the local and national economy will adversely affect our operating results.
     All of our properties are located in Southern California. In 2005, the Southern California economy experienced a 1.3% increase in job growth representing approximately 86,000 non-farm jobs. We believe non-farm job growth to be a leading indicator of office demand for the region. During 2006, a total of approximately 2.8 million square feet of occupied space, representing approximately 16.0% of our total net rentable space, including month-to-month leases, will expire. Negative non-farm job growth in our submarkets or a deterioration of the local and/or national economy may result in a decline in occupancy and rental rates and may cause tenant concessions to increase and would most likely negatively affect our operating performance and property values.
  Competition affects occupancy levels, rents and cost of land which could adversely affect our revenues.
     Many office properties compete with our properties in attracting tenants to lease space. Some of the competing properties may be newer, better located or owned by parties better capitalized than we are. Although ownership of these competing properties is currently diversified among many different types of owners, from publicly traded companies and institutional investors to small enterprises and individual owners, and no one or group of owners currently dominate or significantly influence the market, consolidation of owners could create efficiencies and marketing advantages for the consolidated group that could adversely affect us. These competitive advantages, the number of competitors and the number of competitive commercial properties in a particular area could have a material adverse effect on the rents we can charge, our ability to lease space in our existing properties or at newly acquired or developed properties and the prices we have to pay for developable land.
  The financial condition and solvency of our tenants may reduce our cash flow.
     Tenants may experience a downturn in their business which may cause them to miss rental payments when due or to seek the protection of bankruptcy laws, which could result in rejection and termination of their leases or a delay in recovering possession of their premises. Although we have not experienced material losses from tenant bankruptcies, we cannot assure you that tenants will not file for bankruptcy protection in the future or, if any tenants file, that they will affirm their leases and continue to make rental payments in a timely manner.
  Because real estate investments are illiquid, we may not be able to sell properties when appropriate.
     Equity real estate investments are relatively illiquid. That illiquidity may tend to limit our ability to sell properties promptly in response to changes in economic or other conditions. In addition, the Internal Revenue Code of 1986, as amended, may under specified circumstances impose a 100% prohibited transaction tax on the profits derived from our sale of properties held for fewer than four years, which could affect our ability to sell our properties.
  Rising energy costs and power outages in California may have an adverse effect on our operations and revenue.
     Problems associated with deregulation of the electric industry in California have resulted in significantly higher costs in some areas. 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

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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 22% of our buildings and 16% of the total rentable square footage of our portfolio are subject to leases that require our tenants to pay all utility costs. The remainder of our leases provide that tenants will reimburse us for utility costs in excess of a base year amount.
     Although we have not experienced any material losses resulting from electric deregulation, it is possible that some or all of our tenants will not fulfill their lease obligations and reimburse us for their share of any significant electric rate increases and that we will not be able to retain or replace our tenants if energy problems in California continue.
  Increases in taxes and regulatory compliance costs may reduce our revenue.
     Except for our triple net leases, we may not be able to pass all real estate tax increases through to some or all of our tenants. Therefore, any tax increases may adversely affect our cash flow and our ability to pay or refinance our debt obligations. Our properties are also subject to various federal, California and local regulatory requirements, such as requirements of the Americans with Disabilities Act, and California and local fire and life safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. We believe that our properties are currently in substantial compliance with these regulatory requirements. We cannot assure you, however, that these requirements will not be changed or that new requirements will not be imposed that would require significant unanticipated expenditures by us and could have an adverse effect on our cash flow, the amounts available for distributions and on our business.
  We may acquire properties through partnerships or joint ventures with third parties that could result in financial dependency and management conflicts.
     We may participate with other entities in property ownership through joint ventures or partnerships in the future. Depending on the characteristics and business objectives of the joint venture or partnership, we may not have voting control over the joint venture or partnership. Partnership or joint venture investments may, under certain circumstances, involve risks not otherwise present, including:
    our partners or co-venturers might become bankrupt;
 
    our partners or co-venturers might at any time have economic or other business interests or goals which are inconsistent with our business interests or goals; and
 
    our partners or co-venturers may be in a position to take action contrary to our instructions or requests contrary to our policies or objectives.
     Neither the partnership agreement of our operating partnership nor our governing documents prevent us from participating in joint ventures with our affiliates. Because a joint venture with an affiliate may not be negotiated in a traditional arm’s length transaction, terms of the joint venture may not be as favorable to us as we could obtain if we entered into a joint venture with an outside third party.
  We may not be able to successfully integrate or finance our acquisitions.
     As we acquire additional properties, we will be subject to risks associated with managing new properties, including building systems not operating as expected, delay in or failure to lease vacant space and tenants failing to renew leases as they expire. In addition, our ability to manage our growth effectively will require us to successfully integrate our new acquisitions into our existing accounting systems and property management structure. We cannot assure you that we will be able to succeed with that integration or effectively manage additional properties or that newly acquired properties will perform as expected. Changing market conditions, including competition from other purchasers of suburban office properties, may diminish our opportunities for attractive additional acquisitions. Moreover, acquisition costs of a property may exceed original estimates, possibly making the property uneconomical.
  Our acquisitions and renovations may not perform as expected.
     Although we currently have no plans to significantly expand or renovate our properties, we may do so in the future, subject to certain restrictions contained in the merger agreement. Expansion and renovation projects may inconvenience and displace existing tenants, require us to engage in time consuming up-front planning and engineering activities and expend capital, and require us to obtain various government and other approvals, the receipt of which cannot be assured. While our policies with respect to expansion and renovation activities are intended to limit some of the risks otherwise associated with these activities, we will nevertheless incur risks, including expenditures of funds on, and devotion of our time to, projects that may not be completed.

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     Our development activities may be more expensive than anticipated and may not yield our anticipated results.
          We have preliminary architectural designs completed for an additional 475,000 net rentable square feet at the Howard Hughes Center in Los Angeles, California and have completed preliminary designs on a build-to-suit office building at our Long Beach Airport Business Park. We have entitlements for up to 600 hotel rooms at the Howard Hughes Center. We also have a 5-acre developable land parcel in Torrance, California that we are also marketing for a build-to-suit building. Certain restrictions contained in the merger agreement limit our ability to move forward on these developments without the approval of GECC. We also intend to review, from time to time, other opportunities for developing and constructing office buildings and other commercial properties in accordance with our development and underwriting policies.
          We expect to finance our development activities over the next 24 months, subject to certain restrictions contained in the merger agreement, through net cash provided by operating activities, proceeds from asset sales, proceeds from our lines of credit or other secured borrowings.
          Risks associated with our development activities may include:
    abandonment of development opportunities due to a lack of financing or other reasons;
 
    construction costs of a property exceeding original estimates, possibly making the property uneconomical;
 
    occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable;
 
    construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs; and
 
    development activities would also be subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations.
     We are not subject to any limit on the amount or percentage of our assets that may be invested in any single property or any single geographic area.
          Our governing documents do not restrict the amount or percentage of our assets that we may invest in a single property or geographic area. All of our properties are currently in Southern California and we have no immediate plans to invest outside of Southern California. Although the overall Southern California economy is diverse and well balanced, the geographic concentration of our portfolio may make us more susceptible to changes affecting the Southern California economy and real estate markets or damages from regional events such as earthquakes.
     We may not be able to expand into new markets successfully.
          While our business is currently limited to the Southern California market, it is possible that we will in the future expand our business to new geographic markets. We will not initially possess the same level of familiarity with new markets outside of Southern California, which could adversely affect our ability to manage, lease, develop or acquire properties in new localities.
Financing Risks
     Our amount of debt could limit our operational flexibility or otherwise adversely affect our financial condition.
          As of December 31, 2005, we had total debt of approximately $1.6 billion, consisting of approximately $419.6 million in secured debt and approximately $1.2 billion of unsecured debt. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”
          Our indebtedness could:
    require us to dedicate a substantial portion of our cash flow to pay our debt, thereby reducing the availability of our cash flow to fund distributions, working capital, capital expenditures, acquisition and development activity and other business purposes;
 
    make it more difficult for us to satisfy our debt obligations;
 
    limit our ability to refinance our debt and obtain additional debt financing; and
 
    increase our vulnerability to general adverse economic and real estate industry conditions and limit our flexibility in planning for, or reacting to, changes in our business and the real estate industry.

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          Despite current indebtedness levels, we may still be able to incur substantially more debt in the future, which would increase the risks associated with our substantial leverage. Neither the partnership agreement of our operating partnership nor our governing documents limit the amount or the percentage of indebtedness that we may incur. We may borrow up to a maximum of $330 million under our two lines of credit. As of December 31, 2005, we had the ability to borrow an additional $70.5 million under these two lines of credit. If new debt is added to our current debt levels, the related risks that we now face could intensify and could increase the risk of default on our indebtedness.
     Scheduled debt payments could adversely affect our financial condition.
          Our cash flow could be insufficient to meet required payments of principal and interest when due. In addition, we may not be able to refinance existing indebtedness, which in virtually all cases requires substantial principal payments at maturity, and, if we can refinance, the terms of the refinancing might not be as favorable as the terms of our existing indebtedness. If principal payments cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our cash flow will not be sufficient in all years to repay all maturing debt and continue to service and repay our debt obligations.
     Rises in interest rates could adversely affect our financial condition.
          An increase in prevailing interest rates would have an immediate effect on the interest rates charged on our variable rate debt which rise and fall upon changes in interest rates. At December 31, 2005, approximately 14% of our debt was variable rate debt. Increases in interest rates would also impact the refinancing of our fixed rate debt. If interest rates are higher when our fixed debt becomes due, we may be forced to borrow at the higher rates. If prevailing interest rates or other factors result in higher interest rates, the increased interest expense would adversely affect our cash flow and our ability to service our debt. As a protection against rising interest rates, we may enter into agreements such as interest rate hedges, caps, floors and other interest rate exchange contracts. These agreements, however, increase our risks as to the other parties to the agreements not performing or that the agreements could be unenforceable.
     Many of our properties are subject to mortgage financing which could result in foreclosure if we are unable to pay or refinance the mortgages when due.
          We currently have four outstanding mortgage financings totaling approximately $358.2 million that are secured by 46 of our properties. The properties in each of these financings are fully cross-collateralized and cross-defaulted. To the extent two or more mortgages are cross-defaulted, a default in one mortgage will trigger a default in the other mortgages. The cross-defaults can give the lender a number of remedies depending on the circumstances such as the right to increase the interest rate, demand additional collateral, accelerate the maturity date of the mortgages or foreclose on and sell the properties. To the extent two or more mortgages are cross-collateralized, a default in one mortgage will allow the mortgage lender to foreclose upon and sell the properties that are not the primary collateral for the loan in default. Three additional properties are subject to single property mortgages totaling approximately $61.5 million at December 31, 2005. If we are unable to meet our obligations under these mortgages, we could be forced to pay higher interest rates or provide additional collateral or the properties subject to the mortgages could be foreclosed upon and sold, which could have a material adverse effect on us and our ability to pay or refinance our debt obligations.
Tax Risks
     Our desire to qualify as a REIT restricts our ability to accumulate cash that might be used in future periods to make debt payments or to fund future growth.
          In order to qualify as a REIT and avoid federal income tax liability, we must distribute to our stockholders at least 90% of our net taxable income, excluding net capital gain, and to avoid income taxation, our distributions must not be less than 100% of our net taxable income, including capital gains. To avoid excise tax liability, our distributions to our stockholders for the year must exceed the sum of 85% of its ordinary income, 95% of its capital gain net income, and any undistributed taxable income from prior years. As a result of these distribution requirements, we do not expect to accumulate significant amounts of cash. Accordingly, these distributions could significantly reduce the cash available to us in subsequent periods to make payments on our debt obligations and to fund future growth.
     Our operating partnership intends to qualify as a partnership, but we cannot guarantee that it will qualify.
          Our operating partnership intends to qualify as a partnership for federal income tax purposes. However, if our operating partnership were a “publicly traded partnership,” it would be treated as a corporation instead of a partnership for federal income tax purposes unless at least 90% of its income is qualifying income as defined in the Internal Revenue Code. The income requirements applicable to REITs and the definition of “qualifying income” for purposes of this 90% test are similar in most respects. Qualifying income for the 90% test generally includes passive income, such as specified types of real property rents, dividends and interest. We believe that our operating partnership would meet this 90% test, but we cannot guarantee that it would. If our operating partnership

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were to be taxed as a corporation, it would incur substantial tax liabilities and we would fail to qualify as a REIT for federal income tax purposes.
     We may suffer adverse tax consequences and be unable to attract capital if we fail to qualify as a REIT.
          We believe that since our taxable year ended December 31, 1996, we have been organized and operated, and intend to continue to operate, so as to qualify for taxation as a REIT under the Internal Revenue Code. Although we believe that we have been and will continue to be organized and have operated and will continue to operate so as to qualify for taxation as a REIT, we cannot assure you that we have been or will continue to be organized or operated in a manner so as to qualify or remain so qualified. For us to qualify as a REIT, we must satisfy numerous requirements established under highly technical and complex Internal Revenue Code provisions for which there are only limited judicial and administrative interpretations and tests regarding various factual matters and circumstances not entirely within our control. The complexity of these provisions and of the applicable Treasury Regulations that have been promulgated under the Internal Revenue Code is greater in the case of a REIT, like us, that holds its assets through an investment in a partnership. No assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not significantly change the tax laws with respect to our qualification as a REIT or the federal income tax consequences of qualification. We are, however, not aware of any pending legislation that would adversely affect our ability to qualify as a REIT. Our qualification and taxation as a REIT depends on our ability to meet, through actual annual operating results, asset diversification, distribution levels and diversity of stock ownership, the various qualification tests imposed under the Internal Revenue Code, the results of which have not been and will not be reviewed by our tax counsel.
          If we failed to qualify as a REIT in any taxable year, we would be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. Moreover, unless entitled to relief under specific statutory provisions, we also would be disqualified as a REIT for the four taxable years following the year during which qualification was lost. If we were disqualified as a REIT, our ability to raise additional capital could be significantly impaired. This could reduce the funds we would have available to pay distributions to our stockholders and to service our debt.
          Even if we qualify for and maintain our REIT status, we will be subject to certain federal, state and local taxes on our income and property. For example, if we have net income from a prohibited transaction, specifically sales or other taxable dispositions of property held primarily for sale to customers in the ordinary course of business, that income will be subject to a 100% tax.
Other Risks
     We are subject to agreements and policies that may deter change in control offers that might be attractive to our stockholders.
          Certain provisions of our charter and bylaws may delay, defer or prevent a third party from making offers to acquire us or assume control over us. For example, such provisions may:
    deter tender offers for our common stock, which offers may be attractive to the stockholders; and
 
    deter purchases of large blocks of common stock, thereby limiting the opportunity for stockholders to receive a premium for their common stock over then-prevailing market prices.
          Our charter contains a provision designed to prevent a concentration of ownership among our stockholders that would cause us to fail to qualify as a REIT. Under the Internal Revenue Code, not more than 50% in value of our outstanding shares of common stock may be owned, actually or constructively, by five or fewer individuals, including specific kinds of entities, at any time during the last half of our taxable year. In addition, if we, or an owner of 10% or more of our common stock, actually or constructively owns 10% or more of a tenant of ours, or a tenant of any partnership in which we are a partner, the rent received by us from that tenant will not be qualifying income for purposes of the REIT gross income tests. In order to protect us against the risk of losing REIT status, the ownership limit included in our charter limits actual or constructive ownership of our outstanding shares of common stock by any single stockholder to 9.0%, by value or by number of shares, whichever is more restrictive, of the then outstanding shares of common stock. Actual or constructive ownership of shares of common stock in excess of the ownership limit will cause the violative transfer or ownership to be void with respect to the transferee or owner as to that number of shares in excess of the ownership limit and such shares will be automatically transferred to a trust for the exclusive benefit of one or more qualified charitable organizations. That transferee or owner will have no right to vote such shares or be entitled to dividends or other distributions with respect to such shares.
          Although our Board of Directors presently has no intention of doing so, except as described below, our Board of Directors could waive this restriction with respect to a particular stockholder if it were satisfied, based upon the advice of counsel or a ruling from the Internal Revenue Service, that ownership by such stockholder in excess of the ownership limit would not jeopardize our status as a REIT and our Board of Directors otherwise decided such action would be in our best interests. Our Board of Directors has waived our ownership limit with respect to Mr. Ziman, our Chairman and CEO, and certain family members and affiliates and has permitted these parties to actually and constructively own up to 13.0% of the outstanding shares of common stock.

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          Our charter authorizes our Board of Directors to cause us to issue authorized but unissued shares of common stock or preferred stock and to reclassify any unissued shares of common stock or classify any unissued and reclassify any previously classified but unissued shares of preferred stock and, with respect to the preferred stock, to set the preferences, rights and other terms of such classified or unclassified shares. Although our Board of Directors has no such intention at the present time, it could establish a series of preferred stock that could, depending on the terms of such series, delay, defer or prevent a transaction or a change in control that might involve a premium price for the common stock or otherwise be in the best interest of our stockholders.
          Our Board of Directors is divided into three classes of directors. Directors of each class are chosen for three-year terms upon the expiration of their current terms and each year one class of directors will be elected by the stockholders. The staggered terms of directors may reduce the possibility of a tender offer or an attempt to change control even though a tender offer or change in control might be in the best interest of our stockholders.
     Losses in excess of our insurance coverage or uninsured losses could adversely affect our cash flow.
          We carry comprehensive liability, fire, extended coverage, terrorism and rental loss insurance policies which currently cover all of our properties with specifications and insured limits that we believe are adequate and appropriate under the circumstances. Some losses, however, are generally not insured against because it is not economically feasible to do so. Should an uninsured loss or a loss in excess of insured limits occur, we could lose our capital invested in the property, as well as the anticipated future revenue from the property and, in the case of debt which is recourse to us, we would remain obligated for any mortgage debt or other financial obligations related to the property. Any loss would adversely affect our cash flow with respect to the property subject to the loss. Moreover, we would generally be liable for any unsatisfied obligations other than non-recourse obligations with respect to the property subject to the loss.
     Lack of availability of insurance coverage for biological, chemical or nuclear terrorist attacks could adversely affect our financial condition.
          Our current terrorism insurance policy, which has been extended to March 2007, specifically excludes biological, chemical or nuclear terrorist acts. We have been notified by our insurance broker that in the aftermath of the September 11th attacks, insurance carriers will continue to exclude these types of attacks from terrorism insurance policies or offer coverage for biological, chemical or nuclear attacks coverages at prohibitive costs. Although we did not derive more than 3.5% of our 2005 net operating income from any one of the properties in our portfolio, a biological, chemical or nuclear terrorist attack damaging several of our properties or negatively impacting the financial condition of our tenants could materially deteriorate our operating results and overall financial condition.
     An earthquake could adversely affect our business.
          All of our properties are located in Southern California, which is a high risk geographical area for earthquakes. Depending upon its magnitude, an earthquake could severely damage our properties which would adversely affect our business. We maintain earthquake insurance for our properties and the resulting business interruption. We cannot assure you that our insurance will be sufficient if there is a major earthquake.
     Our properties may be subject to environmental liabilities.
          Under federal, state and local environmental laws, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at the property and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs in connection with the contamination. These laws typically impose clean-up responsibility and liability without regard to whether the owner knew of or caused the presence of the contaminants, and the liability under these laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. These costs may be substantial, and the presence of these substances, or the failure to remediate the contamination on the property, may adversely affect the owner’s ability to sell or rent the property or to borrow against the property. Finally, third parties may have claims against the owner of the site based on damages and costs resulting from environmental contamination emanating from that site.
          Specific federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos-containing materials when those materials are in poor condition or in the event of construction, remodeling, renovation or demolition of a building. These laws may impose liability for release of asbestos-containing material and may provide for third parties to seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials. In connection with the ownership and operation of our properties, we may be potentially liable for those costs.
          In the past few years, independent environmental consultants have conducted or updated Phase I environmental assessments and other environmental investigations as appropriate at some of our properties. The environmental site assessments and investigations have identified 38 properties in our portfolio, representing approximately 43% of the total rentable square feet in the portfolio, affected by environmental concerns. These environmental concerns include properties that may be impacted by known or

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suspected (a) contamination caused by third party sources or (b) soil and/or groundwater contamination which has been remediated, and (c) those containing underground storage tanks or asbestos.
          Of these properties, four are believed to be affected by contamination caused by third party sources and two of these also house an underground storage tank, two contain friable asbestos, twenty contain non-friable asbestos, and twelve house underground storage tanks only. The properties affected by contamination are primarily affected by petroleum and solvent substances, and in each case a third party has indemnified us for any and all problems associated with this contamination. With regard to those properties affected by asbestos, asbestos does not pose a health hazard if it is not disturbed in such a way to cause an airborne release of asbestos. Asbestos is friable when it can be crumbled, pulverized or reduced to powder by hand pressure, and non-friable when hand pressure cannot release encapsulated asbestos fibers. Friable asbestos is more likely to be released into the air than non-friable asbestos. We manage all asbestos in ways that minimize its potential to become airborne or otherwise threaten human health. Regarding underground storage tanks, subsurface leakage of the materials contained within the tank constitutes the primary risk posed by these devices. Of the fourteen underground storage tanks, two are currently being removed and no known UST-related regulatory violations or outstanding compliance issues exist with the remainder. We have also implemented a program to ensure appropriate double-wall construction, testing protocols, placement of tanks within bermed areas, and the installation of leak and spill detection equipment at relevant sites.
          Environmental site assessments and investigations completed to date have not, however, revealed any environmental liability that we believe would have a material adverse effect on our business, assets or results of operations taken as a whole, nor are we aware of any material environmental liability. Nevertheless, it is possible that our environmental site assessments do not reveal all environmental liabilities or that there are material environmental liabilities of which we are unaware.
          We believe that our properties are in compliance in all material respects with all federal, state and local laws regarding hazardous or toxic substances or petroleum products, except as noted above. We have not been notified by any governmental authority, and are not otherwise aware, of any material noncompliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of our present properties, other than as noted above. It is possible that future laws will impose material environmental liabilities on us and that the current environmental condition of our properties will be affected by tenants, by the condition of land or operations in the vicinity of our properties, such as the presence of underground storage tanks, or by third parties unrelated to us.
     We may incur increased costs as a result of enacted and proposed changes in laws and regulations.
          Enacted and proposed changes in the law and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules proposed by the SEC and by the New York Stock Exchange has resulted in significant increased compliance costs to us as we evaluate the implications of any new rules and comply to their requirements. The new rules could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. The compliance with and the provisions of the Sarbanes-Oxley Act in future years will result in significant continuing costs to us.
ITEM 1B. UNRESOLVED STAFF COMMENTS
          None.

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ITEM 2. PROPERTIES
     Existing Portfolio
          As of December 31, 2005, our portfolio consists of 116 primarily office properties containing approximately 18.5 million net rentable square feet, which individually range from approximately 12,000 to 600,000 net rentable square feet. Of the 116 properties currently in service in our portfolio, 115, 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, 2005:
                                                                 
                                                    Property Operating  
                                                    Results(1), (2)  
    Number of                     Approximate Net     For the Year Ended  
Location   Properties     Number of Buildings     Rentable Square Feet     December 31, 2005  
                                                    ($000’s and unaudited)  
    Total     % of Total     Total     % of Total     Total     % of Total     Total     % of Total  
Los Angeles County:
                                                               
West(3)
    30       26 %     32       16 %     5,415,813       29 %   $ 115,240       39 %
North
    29       25 %     46       24 %     3,573,218       20 %     53,883       18 %
South
    11       9 %     15       8 %     2,454,951       13 %     30,978       11 %
 
                                               
Subtotal
    70       60 %     93       48 %     11,443,982       62 %     200,101       68 %
 
                                                               
Orange County
    18       16 %     50       26 %     3,215,415       17 %     38,133       13 %
San Diego County
    24       21 %     36       19 %     3,308,843       18 %     47,480       16 %
Ventura County
    4       3 %     13       7 %     576,260       3 %     7,556       3 %
 
                                               
 
                                                               
Total
    116       100 %     192       100 %     18,544,500       100 %   $ 293,270       100 %
 
                                               
 
(1)   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.

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The following is a reconciliation of Property Operating Results to net income computed in accordance with GAAP (in thousands):
                         
    Year Ended December 31,  
    2005     2004     2003  
Net Income
  $ 65,499     $ 73,775     $ 58,509  
Add:
                       
General and administrative expense
    33,571       19,503       16,931  
Interest expense
    98,184       88,502       92,736  
Depreciation and amortization
    137,385       115,806       106,893  
Minority interest
    570       5,159       5,231  
Interest and other loss
    1,593       509       403  
Impairment on investment in securities
          2,700        
Loss from debt defeasance related to sale of discontinued properties
    835              
Less:
                       
Gain on sale of discontinued properties
    (40,653 )     (30,473 )     (5,937 )
Discontinued operations, net of minority interest
    (3,714 )     (10,304 )     (18,310 )
 
                 
Property Operating Results
  $ 293,270     $ 265,177     $ 256,456  
 
                 
 
(2)   Excludes the operating results of one property sold during the first quarter of 2005, one property sold during the second quarter of 2005 and six properties sold during the third quarter of 2005. The operating results for these properties are reported as part of discontinued operations in our consolidated statements of income.
 
(3)   Includes a retail property with approximately 37,000 net rentable square feet.
     The following is a summary of our occupancy and in-place rents as of December 31, 2005:
                                 
    Percent     Percent     Annualized Base Rent  
Location   Occupied     Leased     Per Leased Square Foot(1)  
                    Portfolio     Full Service  
                    Total     Gross Leases(2)  
Los Angeles County:
                               
West
    95.0 %     95.8 %   $ 28.25     $ 28.27  
North
    92.4 %     95.1 %     22.79       23.46  
South
    90.6 %     92.3 %     19.24       20.75  
 
                       
Subtotal/Weighted Average
    93.3 %     94.8 %     24.66       25.42  
 
                               
Orange County
    93.5 %     95.0 %     19.80       22.48  
San Diego County
    85.0 %     86.3 %     22.84       25.44  
Ventura County
    94.3 %     94.3 %     19.32       19.32  
 
                       
 
                               
Total/Weighted Average
    91.9 %     93.3 %   $ 23.33     $ 24.76  
 
                       
 
(1)   Based on monthly contractual base rent under existing leases as of December 31, 2005, 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 26 properties and approximately 2.9 million square feet under triple net and modified gross leases.
          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/residential units. The merger agreement limits our ability to make any expenditures, transactions or agreements in connection with the Howard Hughes Center development except in accordance with a development plan and budget that we provide to GECC, which is subject to their reasonable approval.
          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 five-acre developable land parcel in Torrance, California that we intend to market for a build-to-suit building. The merger agreement limits our ability to commence, commit to or enter into any construction or development, other than construction or development that is in the ordinary course of business and has a cost that, in the aggregate, is not in excess of $5,000,000.
          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. The merger agreement limits our ability to sell any assets without the written consent of GECC.

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     Dispositions
          The following table summarizes our disposition activity during 2005:
                                                 
                                            Gross Sales  
                    Date of                   Price  
Property   County   Submarket   Sale   Property Type   Square Feet     ($000’s)  
Activity Business Center
  San Diego   Miramar   January 5, 2005   Office     167,170     $ 16,650  
5832 Bolsa
  Orange   West County   June 29, 2005   Office     49,355       8,670  
4900 California
  Kern   Bakersfield   August 4, 2005   Office     153,181       (A )
Parkway Center
  Kern   Bakersfield   August 4, 2005   Office     60,885       (A )
100 W. Broadway
  Los Angeles   Downtown Long Beach   August 4, 2005   Office     192,975       (A )
145 S. Fairfax
  Los Angeles   Miracle Mile   August 11, 2005   Office     55,181       12,000  
Irvine Corporate Center
  Orange   Greater Airport   September 28, 2005   Office     127,561       17,840 (1)
Oceangate Tower
  Los Angeles   Downtown Long Beach   September 28, 2005   Office     211,620       38,000 (1)
 
                                           
Sub-total
                                    1,017,928       93,160  
(A) Portfolio sale
                                          55,600 (2)
 
                                           
 
                                    1,017,928     $ 148,760  
 
                                           
 
(1)   The net proceeds from these dispositions of approximately $54.6 million are currently held in escrow accounts for potential like-kind exchanges and are included as part of “restricted cash” in our consolidated balance sheet at December 31, 2005.
 
(2)   Approximately $22.5 million of this amount was used to acquire Agoura Hills Business Park as part of a like-kind exchange.
     Acquisitions
          The following table summarizes our acquisition activity during 2005:
                                                 
                                            Gross  
                                            Purchase  
                    Date of                   Price  
Property   County   Submarket   Purchase   Property Type   Square Feet     ($000’s)  
707 Broadway
  San Diego   Downtown   January 5, 2005   Office     169,536     $ 48,000 (1)
Arden Towers at Sorrento
  San Diego   Sorrento Mesa   March 22, 2005   Office/Retail     608,253       184,850  
5670 Wilshire Boulevard
  Los Angeles   Miracle Mile   April 8, 2005   Office     409,118       92,650 (2)
Agoura Hills Business Park
  Los Angeles   Agoura Hills   August 5, 2005   Office     115,227       23,175  
 
                                           
 
                                    1,302,134     $ 348,675  
 
                                           
 
(1)   Approximately $2.0 million of the acquisition price was funded through the issuance of 54,950 OP units at an average price of $37.27 per unit.
 
(2)   The gross acquisition price includes the assumption of a $51.5 million mortgage loan payable secured by the property. In addition, approximately $12.5 million of the acquisition price was funded from an escrow account to complete a like-kind exchange for a property sold in December 2004. This amount has been included as part of “restricted cash” in our consolidated balance sheet at December 31, 2004.

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     The following table presents specific information regarding our 116 properties as of December 31, 2005:
                                                                 
                                                            Annualized  
                            Percentage                             Base Rent  
                            of Total                             per Leased  
            Year(s)     Approximate     Portfolio Net             Annualized             Net Rentable  
            Built/     Net Rentable     Rentable     Percent     Base Rent     Number of     Square  
Property Name   Major Area   Submarket   Renovated     Square Feet     Square Feet     Leased     ($000s)     Leases     Feet(1)  
Los Angeles County
                                                               
Los Angeles West
                                                               
6100 Wilshire
  Hollywood/Wilshire Corridor   Miracle Mile     1986       207,658       1.1 %     97.0 %   $ 4,957       51     $ 24.62  
5670 Wilshire Boulevard
  Hollywood/Wilshire Corridor   Miracle Mile     1964/91       409,118       2.2       91.5     $ 9,898       65       26.44  
120 S. Spalding
  West Los Angeles   Beverly Hills Triangle     1984       63,276       0.3       100.0       2,784       15       44.00  
9665 Wilshire
  West Los Angeles   Beverly Hills Triangle     1972/92-93       160,502       0.9       100.0       5,861       21       36.52  
8383 Wilshire
  West Los Angeles   Beverly Hills     1971/93       417,459       2.2       91.1       10,085       131       26.51  
9100 Wilshire
  West Los Angeles   Beverly Hills     1971/90       327,697       1.8       96.2       8,729       77       27.68  
Beverly Atrium
  West Los Angeles   Beverly Hills     1989       59,542       0.3       91.8       1,688       12       30.89  
Wilshire Pacific Plaza
  West Los Angeles   Brentwood     1976/87       103,529       0.6       100.0       2,694       45       26.03  
World Savings Center (2)
  West Los Angeles   Brentwood     1983       469,710       2.5       98.6       14,686       64       31.72  
400 Corporate Pointe
  West Los Angeles   Culver City/Fox Hills     1987       165,989       0.9       90.0       2,796       14       18.71  
600 Corporate Pointe
  West Los Angeles   Culver City/Fox Hills     1989       276,516       1.5       96.2       5,736       22       21.56  
6060 Center Drive
  West Los Angeles   Culver City/Fox Hills     2000       256,739       1.4       99.1       8,467       8       33.28  
6080 Center Drive
  West Los Angeles   Culver City/Fox Hills     2001       286,210       1.5       90.0       9,573       16       37.18  
6100 Center Drive
  West Los Angeles   Culver City/Fox Hills     2002       285,516       1.5       99.5       8,376       25       29.49  
Bristol Plaza
  West Los Angeles   Culver City/Fox Hills     1982       84,565       0.5       98.3       1,746       29       21.00  
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       317,729       1.7       99.2       8,695       38       27.60  
Northpoint
  West Los Angeles   Culver City/Fox Hills     1991       103,015       0.6       100.0       2,520       9       24.46  
1919 Santa Monica
  West Los Angeles   Santa Monica     1991       43,628       0.2       100.0       1,158       9       26.53  
2001 Wilshire Blvd.
  West Los Angeles   Santa Monica     1980       104,528       0.6       96.7       2,601       23       25.73  
2730 Wilshire
  West Los Angeles   Santa Monica     1985       57,141       0.3       96.8       1,545       25       27.93  
2800 28th Street
  West Los Angeles   Santa Monica     1979       108,007       0.6       95.4       2,674       42       25.96  
Westwood Center
  West Los Angeles   Westwood     1965/2000       313,304       1.7       99.7       11,100       43       35.52  
10350 Santa Monica
  West Los Angeles   West Los Angeles     1979       42,967       0.2       90.8       926       16       23.75  
10351 Santa Monica
  West Los Angeles   West Los Angeles     1984       97,169       0.5       90.2       2,109       14       24.07  
Century Park Center
  West Los Angeles   West Los Angeles     1972/94       245,381       1.3       89.1       5,142       93       23.53  
10780 Santa Monica
  West Los Angeles   West Los Angeles     1984       93,257       0.5       100.0       2,361       34       25.31  
1950 Sawtelle
  West Los Angeles   West Los Angeles     1988/95       103,673       0.6       98.6       2,443       42       23.90  
11075 Santa Monica
  West Los Angeles   West Los Angeles     1983       35,822       0.2       95.0       852       7       25.04  
Westwood Terrace
  West Los Angeles   West Los Angeles     1988       139,207       0.8       94.8       3,412       28       25.87  
 
                                                   
Subtotal/Weighted Average – Los Angeles West
                5,415,813       29.2 %     95.8 %   $ 146,581       1,019     $ 28.25  

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                                                            Annualized  
                            Percentage                             Base Rent  
                            of Total                             per Leased  
            Year(s)     Approximate     Portfolio Net             Annualized     Number     Net Rentable  
            Built/     Net Rentable     Rentable     Percent     Base Rent     of     Square  
Property Name   Major Area   Submarket   Renovated     Square Feet     Square Feet     Leased     ($000s)     Leases     Feet(1)  
Los Angeles North
                                                               
303 Glenoaks
  Glendale/Tri-Cities   Burbank     1983/96       176,675       1.0 %     98.1 %   $ 4,041       27     $ 23.32  
601 S. Glenoaks
  Glendale/Tri-Cities   Burbank     1990       74,654       0.4       94.8       1,474       19       20.84  
Burbank Executive Plaza
  Glendale/Tri-Cities   Burbank     1983       62,717       0.3       100.0       1,457       19       23.24  
333 N. Glenoaks
  Glendale/Tri-Cities   Burbank     1978/83       84,263       0.5       88.9       1,685       17       22.49  
425 West Broadway
  Glendale/Tri-Cities   Glendale     1984       72,426       0.4       98.4       1,526       14       21.41  
535 N. Brand Blvd.
  Glendale/Tri-Cities   Glendale     1973/92/99       106,657       0.6       99.7       2,269       44       21.33  
5161 Lankershim
  Glendale/Tri-Cities   North Hollywood     1985/97       181,757       1.0       100.0       4,056       9       22.31  
150 East Colorado Boulevard
  Glendale/Tri-Cities   Pasadena     1979/97       61,803       0.3       100.0       1,467       20       23.73  
299 N. Euclid
  Glendale/Tri-Cities   Pasadena     1983/99       74,689       0.4       100.0       1,908       4       25.54  
70 South Lake
  Glendale/Tri-Cities   Pasadena     1982/94       102,726       0.6       95.4       2,596       22       26.49  
Agoura Hills Business Park
  San Fernando Valley   Agoura Hills     1988       115,227       0.6       95.8       2,589       12       23.47  
Calabasas Commerce Center
  San Fernando Valley   Calabasas     1990       126,771       0.7       100.0       2,396       10       18.90  
Calabasas Tech
  San Fernando Valley   Calabasas     1990/2001       284,822       1.5       87.1       4,856       18       19.58  
16000 Ventura
  San Fernando Valley   Encino     1980/96       175,242       0.9       98.2       3,974       46       23.08  
Noble Professional Center
  San Fernando Valley   Sherman Oaks     1985/93       52,929       0.3       93.1       1,157       19       23.48  
15250 Ventura
  San Fernando Valley   Sherman Oaks     1970/90-91       112,838       0.6       100.0       2,525       43       22.38  
Sunset Pointe Plaza
  San Fernando Valley   Valencia     1988       59,258       0.3       75.6       1,185       27       26.46  
Tourney Pointe
  San Fernando Valley   Valencia     1985/98-2000       212,021       1.1       96.6       4,410       37       21.53  
Westlake – 5601 Lindero
  San Fernando Valley   Westlake Village     1989       105,854       0.6       95.5       1,774       5       17.54  
Homestore
  San Fernando Valley   Westlake Village     2000       137,762       0.7       100.0       3,158       1       22.92  
Clarendon Crest
  San Fernando Valley   Woodland Hills     1990       44,317       0.2       100.0       949       18       21.42  
Woodland Hills Financial Center
  San Fernando Valley   Woodland Hills     1972/95       228,687       1.2       95.9       5,108       73       23.29  
Warner Corporate Center
  San Fernando Valley   Woodland Hills     1988       253,032       1.4       99.0       6,644       33       26.53  
Los Angeles Corporate Center
  San Gabriel Valley   Monterey Park     1984/86       390,028       2.1       88.3       7,898       46       22.94  
Conejo Business Center
  Ventura   Newbury Park/Thousand Oaks     1991       68,328       0.4       95.5       1,469       28       22.52  
Hillside Corporate Center
  Ventura   Newbury Park/Thousand Oaks     1998       60,803       0.3       100.0       1,654       11       27.21  
Marin Corporate Center
  Ventura   Newbury Park/Thousand Oaks     1986       50,656       0.3       70.1       842       25       23.68  
Westlake Gardens
  Ventura   Westlake Village     1998       47,440       0.3       100.0       1,302       19       27.45  
Westlake Gardens II
  Ventura   Westlake Village     1999       48,836       0.3       100.0       1,104       5       22.61  
 
                                                   
Subtotal/Weighted Average — Los Angeles North
                3,573,218       19.3 %     95.1 %   $ 77,473       671     $ 22.79  

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                                                            Annualized  
                            Percentage                             Base Rent  
                            of Total                             per Leased  
            Year(s)     Approximate     Portfolio Net             Annualized             Net Rentable  
            Built/     Net Rentable     Rentable     Percent     Base Rent     Number of     Square  
Property Name   Major Area   Submarket   Renovated     Square Feet     Square Feet     Leased     ($000s)     Leases     Feet(1)  
Los Angeles South
                                                               
Pacific Gateway
  South Bay   190th Corridor     1982/90       229,505       1.2 %     94.6 %   $ 4,579       36     $ 21.08  
South Bay Centre
  South Bay   190th Corridor     1984       204,617       1.1       96.3       4,079       31       20.71  
Gateway Towers
  South Bay   190th Corridor     1984/86       439,084       2.4       94.7       9,702       75       23.32  
Continental Grand Plaza
  South Bay   El Segundo     1986       235,246       1.3       100.0       5,773       41       24.55  
Grand Avenue Plaza
  South Bay   El Segundo     1980/98       81,593       0.4       96.0       1,574       18       20.10  
5200 West Century
  South Bay   LAX     1982/98-99       321,608       1.7       77.2       4,418       34       17.79  
Skyview Center
  South Bay   LAX     1981/87/95       399,318       2.1       84.0       5,331       65       15.89  
Long Beach Airport Bldg D (2)
  South Bay   Suburban Long Beach     1987/95       121,610       0.7       100.0       1,167       1       9.60  
Long Beach Airport Bldg F & G (2)
  South Bay   Suburban Long Beach     1987/95       150,403       0.8       100.0       1,047       1       6.96  
5000 East Spring (2)
  South Bay   Suburban Long Beach     1989/95       167,149       0.9       97.2       3,744       44       23.05  
Mariner Court
  South Bay   Torrance     1989       104,818       0.6       100.0       2,197       38       20.96  
 
                                                   
Subtotal/Weighted Average — Los Angeles South
                    2,454,951       13.2 %     92.3 %   $ 43,611       384     $ 19.24  

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                                                            Annualized  
                            Percentage                             Base Rent  
                            of Total                             per Leased  
            Year(s)     Approximate     Portfolio Net             Annualized             Net Rentable  
            Built/     Net Rentable     Rentable     Percent     Base Rent     Number of     Square  
Property Name   Major Area   Submarket   Renovated     Square Feet     Square Feet     Leased     ($000s)     Leases     Feet(1)  
Orange County
                                                               
1370 Valley Vista
  LA Central   Diamond Bar     1988       86,298       0.5 %     100.0 %   $ 1,859       14     $ 21.54  
City Centre I
  Orange County   Central County     1985/97       146,698       0.8       100.0       2,996       34       20.42  
Anaheim City Centre (2)
  Orange County   Central County     1986/91       182,521       1.0       100.0       3,607       28       19.76  
Orange Financial Center
  Orange County   Central County     1985/95       310,020       1.7       99.8       6,953       42       22.48  
Fountain Valley City Centre
  Orange County   Greater Airport     1982       303,072       1.6       99.0       6,747       25       22.48  
Fountain Valley Plaza
  Orange County   Greater Airport     1982       107,498       0.6       66.6       1,468       7       20.52  
Newport Irvine Center
  Orange County   Greater Airport     1981/97       73,310       0.4       98.2       1,800       31       25.00  
South Coast Executive Center
  Orange County   Greater Airport     1979/97       61,994       0.3       95.8       1,194       25       20.10  
Von Karman Corporate Center
  Orange County   Greater Airport     1981/84       444,968       2.4       96.2       9,325       37       21.78  
Centerpointe La Palma
  Orange County   North County     1986/88/90       602,516       3.2       98.9       11,582       97       19.43  
Savi Tech Center
  Orange County   North County     1989/2005       372,119       2.0       80.5       4,532       4       15.13  
Yorba Linda Business Park
  Orange County   North County     1988       165,772       0.9       95.8       1,508       63       9.50  
Crown Cabot Financial Center
  Orange County   South County     1989       174,173       0.9       98.3       4,941       42       28.86  
5632 Bolsa
  Orange County   West County     1987       21,568       0.1       100.0       189       1       8.76  
5672 Bolsa
  Orange County   West County     1987       12,110       0.1       100.0       106       1       8.76  
5702 Bolsa
  Orange County   West County     1987/97       27,731       0.1       100.0       232       2       8.38  
Huntington Beach Plaza
  Orange County   West County     1984/96       54,254       0.3       78.9       787       16       18.39  
Huntington Commerce Center
  Orange County   West County     1987       68,793       0.4       100.0       662       22       9.63  
 
                                                   
Subtotal/Weighted Average — Orange County
                    3,215,415       17.3 %     95.0 %   $ 60,488       491     $ 19.80  

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                                                            Annualized  
                            Percentage                             Base Rent  
                            of Total                             per Leased  
            Year(s)     Approximate     Portfolio Net             Annualized             Net Rentable  
            Built/     Net Rentable     Rentable     Percent     Base Rent     Number of     Square  
Property Name   Major Area   Submarket   Renovated     Square Feet     Square Feet     Leased     ($000s)     Leases     Feet(1)  
San Diego County
                                                               
Carlsbad Corporate Center
  San Diego County   Carlsbad     1996       126,280       0.7 %     42.0 %   $ 554       1     $ 10.44  
Carmel Valley Center
  San Diego County   Del Mar Heights     1987/89       107,076       0.6       100.0       3,529       19       32.96  
701 B Street (2)
  San Diego County   Downtown     1982/96       548,370       3.0       86.5       11,714       79       24.68  
707 Broadway(2)
  San Diego County   Downtown     1961/2001       169,536       0.9       98.5       3,652       28       21.88  
5120 Shoreham
  San Diego County   Governor Park     1984       38,060       0.2       79.7       708       6       23.36  
Governor Executive Centre
  San Diego County   Governor Park     1988       52,910       0.3       84.4       1,177       10       26.34  
Governor Executive Centre II
  San Diego County   Governor Park     1989       103,554       0.6       78.3       2,416       17       29.81  
Governor Park Plaza
  San Diego County   Governor Park     1986       104,254       0.6       79.7       2,006       17       24.13  
10180 Scripps Ranch
  San Diego County   Scripps Ranch     1978/96       43,560       0.2       0.0                    
Balboa Corporate Center
  San Diego County   Kearney Mesa     1990       69,734       0.4       100.0       1,278       3       18.32  
Panorama Corporate Center
  San Diego County   Kearney Mesa     1991       133,149       0.7       97.5       2,469       3       19.02  
Ruffin Corporate Center
  San Diego County   Kearney Mesa     1990       45,059       0.2       100.0       405       1       9.00  
Skypark Office Plaza
  San Diego County   Kearney Mesa     1986       203,739       1.1       100.0       4,742       24       23.27  
Crossroads
  San Diego County   Mission Valley     1979       134,688       0.7       80.7       2,272       11       20.90  
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       48,026       0.3       96.8       1,217       17       26.18  
Carmel View Office Plaza
  San Diego County   Rancho Bernardo/Poway     1985       77,732       0.4       76.6       1,524       15       25.60  
Cymer Technology Center
  San Diego County   Rancho Bernardo/Poway     1986       155,612       0.8       100.0       1,981       2       12.73  
Foremost Professional Plaza
  San Diego County   Rancho Bernardo/Poway     1992       59,681       0.3       76.2       1,165       33       25.61  
Via Frontera
  San Diego County   Rancho Bernardo/Poway     1982/97       78,819       0.4       100.0       975       6       12.37  
Westridge
  San Diego County   Sorrento Mesa     1984/96       48,955       0.3       35.2       233       2       13.54  
Arden Towers at Sorrento
  San Diego County   Sorrento Mesa     1989/91/2001       608,253       3.3       82.9       14,369       68       28.49  
Torreyana Science Park
  San Diego County   Torrey Pines     1980/97       81,204       0.4       100.0       2,068       1       25.47  
Genesee Executive Plaza
  San Diego County   University Towne Centre     1984       158,592       0.9       97.9       4,045       27       26.04  
 
                                                   
Subtotal/Weighted Average — San Diego County
                    3,308,843       17.9 %     86.3 %   $ 65,171       391     $ 22.84  

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                                                            Annualized  
                            Percentage                             Base Rent  
                            of Total                             per Leased  
            Year(s)     Approximate     Portfolio Net             Annualized             Net Rentable  
            Built/     Net Rentable     Rentable     Percent     Base Rent     Number of     Square  
Property Name   Major Area   Submarket   Renovated     Square Feet     Square Feet     Leased     ($000s)     Leases     Feet(1)  
Ventura County
                                                               
Camarillo Business Park
  Ventura   Camarillo     1984/97       152,969       0.8 %     91.6 %   $ 2,961       24     $ 21.13  
1000 Town Center
  Ventura   Oxnard     1989       108,358       0.6       93.4       1,905       11       18.81  
Solar Drive Business Center
  Ventura   Oxnard     1982       137,181       0.7       98.9       2,551       36       18.80  
Center Promenade
  Ventura   Ventura     1988       177,752       1.0       93.7       3,088       63       18.54  
 
                                                   
Subtotal/Weighted Average — Ventura County
                    576,260       3.1 %     94.3 %   $ 10,505       134     $ 19.32  
 
                                                               
Portfolio Total/ Weighted Average
                    18,544,500       100.0 %     93.3 %   $ 403,829       3,090     $ 23.33  
 
                                                   
 
(1)   Calculated as monthly contractual base rent under existing leases as of December 31, 2005, 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.

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     Tenant Information
     As of December 31, 2005, no one tenant represented more than 2.0% of the aggregate annualized base rent of our properties and only three tenants individually representing more than 1.0% of our aggregate annualized base rent. Our properties are leased to local, national and 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. Our leases typically contain provisions permitting tenants to renew expiring leases at prevailing market rates. Approximately 84% 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, 2005 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)(1)  
Vivendi Universal
    2       33       1.34 %     1.98 %     231,681     $ 7,980  
State of California
    17       40       1.53       1.46       264,640       5,886  
U.S. Government
    14       46       0.90       1.08       155,240       4,360  
Ceridian Corporation
    2       52       0.88       0.95       152,612       3,833  
Atlantic Richfield
    1       9       0.83       0.88       143,885       3,551  
Pepperdine University
    1       155       0.65       0.86       113,488       3,481  
Walt Disney Pictures and
                                               
Television
    1       31       0.88       0.85       151,792       3,443  
Westfield Corporation
    1       87       0.62       0.80       107,300       3,249  
University of Phoenix
    4       61       0.81       0.80       140,839       3,235  
Homestore, Inc.
    1       25       0.80       0.78       137,762       3,158  
 
                                   
 
                                               
Total/Weighted Average(2)
    44       49       9.24 %     10.44 %     1,599,239     $ 42,176  
 
                                   
 
(1)   Annualized base rent is calculated as monthly contractual base rent under existing leases as of December 31, 2005, 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.

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The following table presents the diversification of the tenants occupying space in our portfolio by industry as of December 31, 2005:
                         
                    Percentage of  
            Occupied     Total  
    NAICS     Square     Occupied  
North American Industrial Classification System Description   Code     Feet     Portfolio  
Professional, Scientific, and Technical Services
    541       4,286,195       25.16 %
Finance and Insurance
    521-525       3,052,141       17.92 %
Information
    511-519       1,836,169       10.78 %
Manufacturing
    311-339       1,601,997       9.40 %
Health Care and Social Assistance
    621-624       1,055,317       6.19 %
Real Estate, Rental and Leasing
    531-533       1,053,944       6.19 %
Administrative and Support and Waste Management and Remediation Services
    561-562       713,069       4.19 %
Public Administration
    921-928       691,051       4.05 %
Educational Services
    611       678,313       3.99 %
Wholesale Trade
    423-425       436,419       2.56 %
Transportation and Warehousing
    481-493       319,855       1.88 %
Construction
    236-238       316,738       1.86 %
Other Services (except Public Administration)
    811-814       236,792       1.39 %
Arts, Entertainment, and Recreation
    711-713       223,423       1.31 %
Retail Trade
    441-454       207,715       1.22 %
Accommodation and Food Services
    721-722       203,712       1.20 %
Management of Companies and Enterprises
    551       54,934       0.32 %
Utilities
    221       16,490       0.10 %
Agriculture, Forestry, Fishing and Hunting
    111-115       3,582       0.02 %
Mining
    211-213       2,894       0.02 %
Other – Uncategorized
          42,954       0.25 %
 
                   
 
                       
 
            17,033,704       100.00 %
 
                   

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     Lease Distribution
     The following table presents information relating to the distribution of the leases for our 116 properties, based on leased net rentable square feet, as of December 31, 2005:
                                                         
                            Percent of                     Percent of  
                            Aggregate     Annualized     Avg. Base     Aggregate  
            Percent             Portfolio     Base Rent of     Rent per     Portfolio  
    Number     of All     Total Leased     Leased     Leases(1)     Leased     Annualized  
Square Feet Under Lease   of Leases     Leases     Square Feet     Square Feet     (000’s)     Square Foot     Base Rent(1)  
2,500 and under
    1,526       49.38 %     2,182,471       12.61 %     54,502     $ 24.97       12.40 %
2,501-5,000
    714       23.11       2,474,599       14.30       64,106       25.91       14.58  
5,001-7,500
    301       9.74       1,829,632       10.57       48,986       26.77       11.14  
7,501-10,000
    174       5.63       1,522,055       8.80       39,130       25.71       8.90  
10,001-20,000
    246       7.96       3,544,307       20.48       93,659       26.43       21.31  
20,001-40,000
    80       2.59       2,302,542       13.30       60,229       26.16       13.70  
40,001 and over
    49       1.59       3,451,072       19.94       78,975       22.88       17.97  
 
                                         
Total/Weighted Average
    3,090       100.00 %     17,306,678       100.00 %     439,587     $ 25.40       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 116 properties for leases in place at December 31, 2005. 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     Percentage of  
            Square     Percentage     Base Rent     Base Rent     Aggregate  
            Footage     of Aggregate     of Expiring     per Square Foot     Portfolio  
    Number of     of Expiring     Leased     Leases(1)     of Expiring     Annualized  
Year of Lease Expiration   Leases Expiring     Leases     Square Feet     ($000s)     Leases     Base Rent(1)  
Month-to-Month
    135       355,091       2.05 %   $ 8,073     $ 22.74       1.84 %
Q1 2006
    126       502,542       2.90       12,147       24.17       2.76  
Q2 2006
    152       583,695       3.37       12,581       21.55       2.86  
Q3 2006
    150       709,215       4.10       18,860       26.59       4.29  
Q4 2006
    165       620,783       3.59       15,392       24.79       3.50  
 
                                   
2006 Sub-Total(2)
    593       2,416,235       13.96       58,980       24.41       13.41  
2007
    576       2,466,134       14.25       58,971       23.91       13.42  
2008
    593       3,009,772       17.39       75,741       25.16       17.23  
2009
    395       2,270,358       13.12       55,478       24.44       12.62  
2010
    375       2,473,804       14.29       61,225       24.75       13.93  
2011
    136       1,073,165       6.20       29,871       27.83       6.80  
2012
    93       1,200,423       6.94       30,998       25.82       7.05  
2013
    61       727,839       4.21       21,325       29.30       4.85  
2014
    36       383,970       2.22       10,953       28.53       2.49  
2015+
    97       929,887       5.37       27,972       30.08       6.36  
 
                                   
Total/Weighted Average
    3,090       17,306,678       100.00 %   $ 439,587     $ 25.40       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.

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ITEM 3. LEGAL PROCEEDINGS
          On December 23, 2005, a purported stockholder class action lawsuit related to the merger agreement was filed in Los Angeles County Superior Court naming us and each of our directors as defendants. The lawsuit, Charter Township of Clinton Police and Fire Retirement System v. Arden Realty, Inc., et al. (Case No. BC345065), alleges, among other things, that $45.25 per share in cash to be paid to the holders of shares our common stock in connection with the merger is inadequate and that the individual defendants breached their fiduciary duties to our stockholders in negotiating and approving the merger agreement. The complaint seeks the following equitable relief: (i) declaring that the lawsuit is properly maintainable as a class action and certification of the plaintiff as a class representative; (ii) declaring that the defendants have breached their fiduciary duties owed to the plaintiff and other members of the class; (iii) enjoining the merger and, if such transaction is consummated, rescinding the transaction; (iv) enjoining the triggering of “acceleration” clauses related to stock options upon a change of control; (v) requiring the defendants to uphold their fiduciary duties and to fully insulate themselves from any conflicts of interest that interfere with such duties; and (vi) awarding attorneys’ and experts’ fees to the plaintiff.
          A second purported stockholder class action lawsuit, Dwyer v. Arden Realty, Inc., et al. (Case No. BC345468), was filed in Los Angeles County Superior Court on January 4, 2006 against the same defendants as in Charter Township. The Dwyer complaint purports to allege claims for breach of fiduciary duty, indemnification and injunctive relief. The complaint seeks the following relief: (i) declaring that the lawsuit is properly maintainable as a class action and certification of the plaintiff as a class representative; (ii) preliminarily and permanently enjoining defendants from proceeding with, consummating or closing the proposed transaction; (iii) in the event the transaction is consummated, rescinding the transaction; (iv) awarding compensatory damages against defendants; and (v) awarding plaintiff attorneys’ fees and costs.
          We believe that these lawsuits are without merit and intend to vigorously defend the actions.
          In addition to the aforementioned litigation relating to the proposed merger, 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, 2005.
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, 2005.

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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 15, 2006, the last reported sales price per share of our common stock on the NYSE was $45.51 and there were approximately 212 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
    High   Low   Divdends Declared
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  
 
                       
2005
                       
 
                       
First Quarter
  $ 37.00     $ 33.16     $ 0.505  
Second Quarter
  $ 37.28     $ 33.01     $ 0.505  
Third Quarter
  $ 41.17     $ 36.10     $ 0.505  
Fourth Quarter
  $ 47.12     $ 39.43     $ 0.505  
          Prior to entering into the merger agreement, we paid quarterly cash dividends to common stockholders at the discretion of our Board of Directors. The amount of each quarterly cash dividend depended 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 deemed relevant.
          The merger agreement for the proposed merger regulates the future payment of dividends and authorizes us to continue to declare and pay regular quarterly dividends, subject to certain limited exceptions including the dividend amount not to exceed $0.505 per share of our common stock per quarter, for each fiscal quarter that ends prior to the closing of the merger.

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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,  
    2005     2004     2003     2002     2001  
            (in thousands, except ratio and per share amounts)  
Operating Data:
                                       
Property revenues
  $ 441,903     $ 393,001     $ 376,791     $ 357,976     $ 366,125  
Interest and other (loss) income
    (1,593 )     (509 )     (403 )     2,044       2,134  
Property operating expenses
    (148,633 )     (127,824 )     (120,335 )     (111,128 )     (104,724 )
General and administrative expense
    (33,571 )     (19,503 )     (16,931 )     (12,583 )     (11,497 )
Depreciation and amortization
    (137,385 )     (115,806 )     (106,893 )     (96,156 )     (89,496 )
Interest expense
    (98,184 )     (88,502 )     (92,736 )     (87,466 )     (85,586 )
Gain on sale of operating properties
                      1,967       4,591  
Impairment on investment in securities
          (2,700 )                  
Minority interest
    (570 )     (5,159 )     (5,231 )     (5,660 )     (6,803 )
 
                             
Income from continuing operations
    21,967       32,998       34,262       48,994       74,744  
Discontinued operations, net of minority interest (1)
    3,714       10,304       18,310       21,181       23,015  
Gain on sale of discontinued properties
    40,653       30,473       5,937              
Loss from debt defeasance related to sale of discontinued properties
    (835 )                        
 
                             
 
                                       
Net income
  $ 65,499     $ 73,775     $ 58,509     $ 70,175     $ 97,759  
 
                             
 
                                       
Basic net income per common share:
                                       
Income from continuing operations
  $ 0.33     $ 0.51     $ 0.54     $ 0.76     $ 1.17  
Income from discontinued operations
    0.65       0.62       0.38       0.33       0.36  
 
                             
Net income per common share-basic
  $ 0.98     $ 1.13     $ 0.92     $ 1.09     $ 1.53  
 
                             
 
                                       
Weighed average number of common shares-basic
    66,611       65,372       63,553       64,151       63,754  
 
                             
 
                                       
Diluted net income per common share:
                                       
Income from continuing operations
  $ 0.33     $ 0.50     $ 0.54     $ 0.76     $ 1.17  
Income from discontinued operations
    0.65       0.62       0.38       0.33       0.36  
 
                             
Net income per common share-diluted
  $ 0.98     $ 1.12     $ 0.92     $ 1.09     $ 1.53  
 
                             
 
                                       
Weighed average number of common shares-diluted
    67,074       65,740       63,815       64,351       64,014  
 
                             
 
                                       
Cash dividends declared per common share
  $ 2.02     $ 2.02     $ 2.02     $ 2.02     $ 2.02  
 
                             
 
                                       
Other Data:
                                       
Cash provided by operating activities
  $ 167,281     $ 184,907     $ 181,482     $ 199,922     $ 204,667  
Cash used in investing activities
    (290,614 )     (11,237 )     (20,355 )     (213,002 )     (115,854 )
Cash (used in) provided by financing activities
    110,932       (165,337 )     (160,483 )     (19,898 )     (57,204 )
Funds from Operations(2)
    165,204       171,777       174,458       181,549       198,240  
 
Selected financial data continues on next page.

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    Year Ended December 31,
    2005   2004   2003   2002   2001
Balance Sheet Data:
                                       
Net investment in real estate
  $ 2,768,911     $ 2,551,981     $ 2,646,699     $ 2,741,624     $ 2,622,980  
Total assets
  $ 2,907,870     $ 2,659,997     $ 2,741,433     $ 2,832,409     $ 2,761,443  
Total indebtedness
  $ 1,623,821     $ 1,326,084     $ 1,349,781     $ 1,402,304     $ 1,251,483  
Other liabilities (3)
  $ 76,615     $ 83,713     $ 76,638     $ 76,350     $ 62,685  
Minority interests
  $ 20,368     $ 20,414     $ 72,194     $ 74,571     $ 78,661  
Total stockholders’ equity
  $ 1,153,152     $ 1,196,292     $ 1,210,285     $ 1,247,377     $ 1,337,206  
 
(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.

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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 15 to 36 years and who collectively have an average of 21 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, 2005, 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 116 primarily suburban office properties and 192 buildings containing approximately 18.5 million net rentable square feet. As of December 31, 2005, our operating portfolio was 91.9% 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, subject to certain restrictions contained in the merger agreement for the proposed matter. 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, subject to certain restrictions contained in the merger agreement for the proposed matter.
     Proposed Merger
          On December 21, 2005, we, along with our operating partnership and the partnership merger sub entered into the merger agreement with GECC, REIT merger sub, Trizec Properties, Inc., and Trizec Holdings Operating LLC. Pursuant to the merger agreement, GECC will acquire us and our subsidiaries through a series of transactions including the REIT merger as well as the partnership merger.
          In the REIT merger, we will be merged with and into REIT merger sub, with REIT merger sub surviving, and shares of our common stock converted into the right to receive merger consideration of $45.25, plus an amount equal to a prorated portion of our normal $0.505 quarterly dividend. In the partnership merger, partnership merger sub will be merged with and into our operating partnership, and holders of our OP units, subject to certain eligibility requirements, may elect to either participate in the redemption and exchange of OP units for class B units of Trizec Holdings Operating LLC, plus an amount equal to a prorated portion of our $0.505 quarterly distribution, or have their OP units converted into the right to receive merger consideration of $45.25, plus an amount equal to a prorated portion of our $0.505 quarterly distribution.
          In connection with the mergers, we will sell to Trizec Operating Company a portfolio of certain of our properties, comprised of 13 office properties totaling 4.1 million square feet, certain undeveloped land parcels and other assets. Following the consummation of the transactions, GECC or its affiliates will own or control the entity or entities which will succeed to the ownership of the remaining properties owned by us.
          Our board has unanimously approved the merger agreement and has recommended it for approval by our common stockholders. The parties expect to close the transaction in the second quarter of 2006. The closing of the merger is subject to, among other things, a number of customary conditions, including the approval by the affirmative vote of two-thirds of the holders of shares of our common stock. The transaction is not subject to any financing condition.
     Critical Accounting Policies
          The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 our

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company’s more significant judgments and estimates used in the preparation of the consolidated financial statements. For a summary of all our significant accounting policies see note 2 to the 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, 2005 and 2004, 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, 2005 and 2004 we had a total of $5.4 million and $5.7 million in our allowance for doubtful accounts and other reserves, respectively, representing approximately 11% and 10% 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, 2005 and 2004, we had a total of $42.9 million and $39.3 million of total lease security available, respectively. For the years ended December 31, 2005, 2004 and 2003 our bad debt expense related to losses for uncollected rents, deferred rents, tenants reimbursements and other uncollectible charges were approximately 0.7%, 0.3% and 0.6% 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, 2005 and 2004.
          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, up to a maximum of forty seven years.

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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.

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     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, 2005 to the year ended December 31, 2004
(in thousands, except number of properties and percentages)
                                 
    Year Ended December 31,             Percent  
    2005     2004     Change     Change  
Revenue from rental operations:
                               
Scheduled cash rents
  $ 381,495     $ 338,381     $ 43,114       13 %
Straight-line rents
    2,029       1,977       52       3  
Tenant reimbursements
    20,353       18,926       1,427       8  
Parking, net of expense
    27,279       23,319       3,960       17  
Other rental operations
    10,747       10,398       349       3  
 
                       
Total revenue from rental operations
    441,903       393,001       48,902       12  
 
                       
 
                               
Property expenses:
                               
Repairs and maintenance
    51,944       42,333       9,611       23  
Utilities
    35,430       31,381       4,049       13  
Real estate taxes
    32,563       29,540       3,023       10  
Insurance
    7,279       7,142       137       2  
Ground rent
    1,199       746       453       61  
Administrative
    20,218       16,682       3,536       21  
 
                       
Total property expenses
    148,633       127,824       20,809       16  
 
                       
Property operating results(1)
    293,270       265,177       28,093       11  
General and administrative
    33,571       19,503       14,068       72  
Interest expense
    98,184       88,502       9,682       11  
Depreciation and amortization
    137,385       115,806       21,579       19  
Interest and other loss
    1,593       509       1,084       213  
 
                       
Income from continuing operations before impairment on investment in securities and minority interest
  $ 22,537     $ 40,857     $ (18,320 )     (45 )%
 
                       
Discontinued operations, net of minority interest
  $ 3,714     $ 10,304     $ (6,590 )     (64 )%
 
                       
 
                               
Number of properties:
                               
Acquired during period
    4       2                  
Completed and placed in service during period
          1                  
Disposed of during period
    (8 )     (12 )                
Owned at end of period
    116       120                  
 
                               
Net rentable square feet:
                               
Acquired during period
    1,302       391                  
Completed and placed in service during period
    51       283                  
Expansion space placed in service
          168                  
Disposed of during period
    (1,018 )     (1,268 )                
Owned at end of period
    18,545       18,210                  
 
                               
Same Property Portfolio(2):
                               
Revenue from rental operations
  $ 390,003     $ 382,723     $ 7,280       2 %
Property expenses
    131,792       124,383       7,409       6  
 
                       
 
  $ 258,211     $ 258,340     $ (129 )     %
 
                       
Straight-line rents
  $ 1,536     $ 1,841                  
 
                           
Number of properties
    109       109                  
Number of buildings
    179       179                  
Average occupancy
    91.3 %     90.4 %                
Net rentable square feet
    16,436       16,436                  

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(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,  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,  
    2005     2004     2003  
Net Income
  $ 65,499     $ 73,775     $ 58,509  
Add:
                       
General and administrative expense
    33,571       19,503       16,931  
Interest expense
    98,184       88,502       92,736  
Depreciation and amortization
    137,385       115,806       106,893  
Minority interest
    570       5,159       5,231  
Interest and other loss
    1,593       509       403  
Impairment on investment in securities
          2,700        
Loss from debt defeasance related to sale of discontinued properties
    835              
Less:
                       
Gain on sale of discontinued properties
    (40,653 )     (30,473 )     (5,937 )
Discontinued operations, net of minority interest
    (3,714 )     (10,304 )     (18,310 )
 
                 
Property Operating Results
  $ 293,270     $ 265,177     $ 256,456  
 
                 
(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.

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VARIANCES FOR RESULTS OF OPERATIONS
          Our Property Operating Results for the year ended December 31, 2005 compared to 2004 were primarily affected by our acquisitions and development activities since January 1, 2004.
          As a result of these changes within our portfolio of properties since January 1, 2004, 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 $48.9 million, or 12%, for the year ended December 31, 2005 compared to 2004. This increase was primarily due to revenues from our 6100 Center Drive development property that was placed in service during the second quarter of 2004, two office properties acquired in Los Angeles County in October 2004 totaling approximately 391,000 square feet, two office properties acquired in San Diego County in January 2005 and March 2005, respectively, totaling approximately 778,000 square feet, one property acquired in Los Angeles County in April 2005 totaling approximately 409,000 square feet, one property acquired in Los Angeles County in August 2005 totaling 115,000 square feet and from overall occupancy gains and scheduled rent increases in our properties.
          Revenue from rental operations for the same store portfolio increased by approximately $7.3 million, or 2%, in 2005 as compared to 2004. The increase was due to an approximate $9.4 million increase in scheduled cash rents, partially offset by an approximate $1.7 decrease in straight-line rents and an approximate $0.4 million decrease in other rental operations. The increase in scheduled cash rents was primarily attributable to scheduled rent increases in existing leases and by a 0.9% increase in average occupancy for these properties. The decrease in straight-line rents was primarily attributable to the turning over of older leases within our same store portfolio. Other rental operations decreased primarily due to higher bad debt expense in 2005, partially offset by higher lease termination fees in 2005.
Property Expenses
          Property expenses increased approximately $20.8 million, or 16%, for the year ended December 31, 2005 compared to 2004. 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 $7.4 million, or 6%, in 2005 as compared to 2004. This increase was due to an approximate $5.0 million increase in repairs and maintenance, an approximate $1.3 million increase in property administrative expenses and an approximate $1.0 million increase in utilities expense. The increase in repairs and maintenance expense was primarily due to higher costs for contracted services and timing of certain projects. The increase in property administrative expense was primarily due to higher employee compensation costs. The increase in utilities expense was primarily due to increased usage in 2005 compared to a mild 2004 summer and increases associated with higher average occupancy in the same store portfolio in the current year.
General and Administrative
          General and administrative expenses as a percentage of total revenues, including revenues from discontinued operations, were approximately 7.4% for the year ended December 31, 2005 compared to approximately 4.5% for the same period in 2004. The approximate $14.1 million increase in general and administrative expenses over 2004 was primarily due to $1.7 million in employee separation costs, a $6.6 million increase in personnel costs, $3.7 million in costs related to the acquisition of the company by GECC, $0.4 million in dead-deal costs for a proposed fee-development project and increases due to the timing of various other matters including investor relations, travel, annual management and board retreats, contributions, board of director fees and legal fees. Personnel costs increased due to annual merit increases, costs related to our Deferred Compensation Plan, addition of resources within our capital market and investment activities and increases in non-cash compensation totaling approximately $1.8 million. Our Deferred Compensation Plan costs increased due to an expansion in the number of participants and contributions made. Non-cash compensation costs increased primarily due to restricted stock grants made since the first quarter of 2004 and costs associated with a long-term Outperformance Compensation Plan approved by the Board of Directors in April 2005 through which certain executives can receive equity or cash awards if returns generated are in excess of specified threshold amounts.
Interest Expense
          Interest expense increased approximately $9.7 million, or 11%, for the year ended December 31, 2005 compared to the same period in 2004, primarily due to higher net borrowings during 2005 as a result of our approximate $200 million in net property acquisitions year-to-date which were partially offset by lower interest costs as a result of our refinancing activities. In March 2005, we refinanced $200 million of 8.875% unsecured notes with ten-year unsecured notes at an all-in rate of 5.5%.

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Depreciation and Amortization
          Depreciation and amortization expense increased by approximately $21.6 million, or 19%, for the year ended December 31, 2005 compared to the same period in 2004, primarily due to depreciation related to a development property placed in service in the second quarter of 2004, two properties acquired in October 2004, one property acquired in January 2005, one property acquired in March 2005, one property acquired in April 2005, one property acquired in August 2005 and depreciation related to capital expenditures, tenant improvements and leasing commissions placed in service subsequent to January 1, 2004.
Interest and Other Loss
          Interest and other loss decreased by approximately $1.1 million for the year ended December 31, 2005 compared to the same period in 2004, primarily due to net income recognized from a consulting and installation project completed in 2004 by Next>edge, our taxable REIT subsidiary that provides energy consulting services and from a loss recorded on the sale of a leasehold interest in June 2005, all of which were partially offset by higher interest income earned on sales proceeds associated with potential like-kind exchanges in 2005.
Discontinued Operations
          From the beginning of 2004 to December 31, 2005, we have sold a total of 20 properties. The results of operations classified as discontinued operations for these properties for the years ended December 31, 2005 and 2004 are as follows (in thousands):
                                 
    Year Ended December 31,             Percent  
    2005     2004     Change     Change  
Discontinued Operations:
                               
Revenues
  $ 10,483     $ 36,725     $ (26,242 )     (71 )%
Property operating expenses
    (4,128 )     (13,592 )     9,464       (70 )
Depreciation and amortization
    (1,287 )     (10,776 )     9,489       (88 )
Interest expense
    (245 )     (1,013 )     768       (76 )
Minority interest
    (1,112 )     (1,043 )     (69 )     7  
Interest and other income
    3       3              
 
                       
Discontinued operations, net of minority interest
  $ 3,714     $ 10,304     $ (6,590 )     (64 )%
 
                       
Gain on sale of discontinued properties
  $ 40,653     $ 30,473     $ 10,180       33 %
 
                       

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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
  $ 338,381     $ 324,214     $ 14,167       4 %
Straight-line rents
    1,977       1,093       884       81  
Tenant reimbursements
    18,926       21,835       (2,909 )     (13 )
Parking, net of expense
    23,319       20,984       2,335       11  
Other rental operations
    10,398       8,665       1,733       20  
 
                       
Total revenue from rental operations
    393,001       376,791       16,210       4  
 
                       
 
                               
Property expenses:
                               
Repairs and maintenance
    42,333       38,847       3,486       9  
Utilities
    31,381       30,864       517       2  
Real estate taxes
    29,540       27,171       2,369       9  
Insurance
    7,142       7,526       (384 )     (5 )
Ground rent
    746       961       (215 )     (22 )
Administrative
    16,682       14,966       1,716       11  
 
                       
Total property expenses
    127,824       120,335       7,489       6  
 
                       
Property operating results(1)
    265,177       256,456       8,721       3  
General and administrative
    19,503       16,931       2,572       15  
Interest
    88,502       92,736       (4,234 )     (5 )
Depreciation and amortization
    115,806       106,893       8,913       8  
Interest and other loss
    509       403       106       26  
 
                       
Income from continuing operations before impairment on investments in securities and minority interest
  $ 40,857     $ 39,493     $ 1,364       3 %
 
                       
Discontinued operations, net of minority interest
  $ 10,304     $ 18,310     $ (8,006 )     (44 )%
 
                       
 
                               
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                          

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(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       12,583  
Interest expense
    88,502       92,736       87,466  
Depreciation and amortization
    115,806       106,893       96,156  
Interest and other loss
    509       403        
Minority interest
    5,159       5,231       5,660  
Impairment on investment in securities
    2,700              
Less:
                       
Interest and other income
                2,044  
Discontinued operations, net of minority interest
    10,304       18,310       21,181  
Gain on sale of discontinued properties
    30,473       5,937        
Gain on sale of operating properties
                1,967  
 
                 
Property Operating Results
  $ 265,177     $ 256,456     $ 246,848  
 
                 
(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.

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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 $16.2 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 and a 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 $7.5 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 $8.9 million, or 8%, 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.

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Discontinued Operations
          From the beginning of 2003 to December 31, 2004, we sold a total of 20 properties. The results of operations classified as discontinued operations for these properties for the years ended December 31, 2004 and 2003 are as follows (in thousands):
                                 
    Year Ended December 31,             Percent  
    2004     2003     Change     Change  
Discontinued Operations:
                               
Revenues
  $ 36,725     $ 50,767     $ (14,042 )     (28 )%
Property operating expenses
    (13,592 )     (17,355 )     3,763       (22 )
Depreciation and amortization
    (10,776 )     (13,431 )     2,655       (20 )
Interest expense
    (1,013 )     (1,031 )     18       (2 )
Minority interest
    (1,043 )     (643 )     (400 )     62  
Interest and other income
    3       3              
 
                       
Discontinued operations, net of minority interest
  $ 10,304     $ 18,310     $ (8,006 )     (44 )%
 
                       
Gain on sale of discontinued properties
  $ 30,473     $ 5,937     $ 24,536       413 %
 
                       

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Liquidity and Capital Resources
     Cash Flows
     Cash provided by operating activities decreased by approximately $17.6 million to $167.3 million in 2005 as compared to $184.9 million in 2004. This decrease was primarily due to the decrease in operating cash flows from twenty properties sold since the beginning of 2004 as part of our capital recycling program, higher general and administrative expenses and interest costs in 2005, all of which were partially offset by the increase in operating cash flows from six properties acquired since the beginning of 2004 and our 6100 Center Drive development property which was placed in service during the second quarter of 2004.
     Cash used in investing activities increased by approximately $279.4 million to $290.6 million in 2005 as compared to $11.2 million in 2004. This increase was primarily due to our increased acquisitions in 2005 and less proceeds from dispositions of properties in 2005. During 2005, we acquired four properties totaling approximately 1.3 million square feet. During 2004, we acquired two properties totaling approximately 400,000 square feet.
     Cash provided by financing activities increased by approximately $276.2 million to an inflow of $110.9 million in 2005 as compared to an outflow of $165.3 million in 2004. This increase was primarily driven by our increased acquisition activities described above.
     Cash Balances and Available Borrowings
          As of December 31, 2005, we had approximately $70.3 million in cash and cash equivalents, including $69.7 million in restricted cash.
          Through our operating partnership, we have access to a total of $330 million under two unsecured lines of credit. As of December 31, 2005, $259.5 million was outstanding and $70.5 million was available under these unsecured lines of credit. The merger agreement does not limit our ability to obtain advances under the credit agreements so long as the advances are used for working capital purposes in the ordinary course of business consistent with past practice.
     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. The merger agreement limits our ability to sell any assets without the written consent of GECC. Proceeds from sales of properties may be used to pay down our borrowings until we identify attractive properties to purchase, renovate or develop. During 2005, we sold eight properties totaling approximately 1.0 million square feet for approximately $148.8 million in gross sales proceeds. During 2005, we acquired four office properties consisting of approximately 1.3 million square feet for approximately $348.7 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, 2005 (in thousands):
         
Year   Amount  
2006
  $ 34,106 (1)
2007
    172,281
2008
    281,506  
2009
    358,936 (2)
2010
    149,944  
2011
    200,163  
2012
    125,393  
2013
    453  
2014
    520  
Thereafter
    300,519  
 
     
Total
  $ 1,623,821  
 
     
 
(1)   Includes $25 million outstanding on our Wells Fargo bridge loan.
 
(2)   Includes $247 million outstanding on our Wells Fargo unsecured line of credit.

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          Following is other information related to our indebtedness as of December 31, 2005 (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
  $ 1,204,171       74 %     6.00 %     7.3  
Secured Debt
    419,650       26       6.86       2.5  
 
                       
Total Debt
  $ 1,623,821       100 %     6.23 %     4.8  
 
                       
          Floating and Fixed Rate Debt:
                                 
                    Weighted Average     Weighted Average  
    Balance     Percent     Interest Rate(1)     Maturity (in years)  
    (000’s)                          
Floating Rate Debt
  $ 234,500       14 %     5.12 %     2.9  
Fixed Debt(2)
    1,389,321       86       6.30       5.1  
 
                       
Total Debt
  $ 1,623,821       100 %     6.23 %     4.8  
 
                       
 
(1)   Includes amortization of prepaid financing costs.
 
(2)   Includes $175 million of floating rate debt that has been fixed through interest rate swap agreements.
          Interest Incurred:
                         
    Year Ended December 31,  
    2005     2004     2003  
Total interest incurred(1)
  $ 98,989     $ 89,438     $ 95,232  
 
Amount capitalized
    (805 )     (936 )     (2,496 )
 
                 
Amount expensed(1)
  $ 98,184     $ 88,502     $ 92,736  
 
                 
 
(1)   Excludes interest expense for loans secured by two properties sold during 2005 which are classified as part of “discontinued operations”.
     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

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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,  
    2005     2004     2003     2002     2001  
Net cash provided by operating activities
  $ 167,281     $ 184,907     $ 181,482     $ 199,922     $ 204,667  
Add:
                                       
Interest expense
    98,184       88,502       92,736       87,466       85,586  
Interest expense from discontinued operations
    245       1,013       1,031       1,050       (1,391 )
Loss from debt defeasance related to sales of discontinued properties
    835                          
Gain on repayment on mortgage note receivable
                      750        
Less:
                                       
Amortization of loan costs and fees
    (3,389 )     (3,801 )     (3,972 )     (3,807 )     (3,568 )
Straight-line rent
    (1,536 )     (1,841 )     (1,732 )     (5,465 )     (9,208 )
Changes in operating assets and liabilities:
                                       
Rent and other receivables
    1,429       2,265       771       (6,768 )     (3,775 )
Deferred rent
    1,616       1,015       557       4,657       7,401  
Prepaid financing costs, expenses and other assets
    1,941       4,783       1,494       2,997       4,366  
Accounts payable and accrued expenses
    2,782       (3,338 )     2,365       (9,729 )     (4,388 )
Security deposits
    (948 )     (3,285 )     (1,676 )     (962 )     (213 )
 
                             
Consolidated Income Available for Debt Service
  $ 268,440     $ 270,220     $ 273,056     $ 270,111     $ 279,477  
 
                             
                                         
    Year Ended December 31,  
    2005     2004     2003     2002     2001  
Net Income
  $ 65,499     $ 73,775     $ 58,509     $ 70,175     $ 97,759  
Add:
                                       
Interest expense
    98,184       88,502       92,736       87,466       85,586  
Interest expense from discontinued operations
    245       1,013       1,031       1,050       (1,391 )
Depreciation and amortization
    137,385       115,806       106,893       96,156       89,496  
Minority interest
    570       5,159       5,231       5,660       6,803  
Minority interest from discontinued operations
    1,116       1,043       643       576       762  
Loss from debt defeasance related to sales of discontinued properties
    835                          
Non-cash compensation expense
    5,508       3,760       2,251       1,199       1,938  
Depreciation from discontinued operations
    1,287       10,776       13,431       15,261       12,323  
Impairment on investment in securities
          2,700                    
Less:
                                       
Gain on sale of discontinued properties
    (40,653 )     (30,473 )     (5,937 )            
Gain on sale of operating properties
                      (1,967 )     (4,591 )
Straight-line rent
    (1,536 )     (1,841 )     (1,732 )     (5,465 )     (9,208 )
 
                             
Consolidated Income Available for Debt Service
  $ 268,440     $ 270,220     $ 273,056       270,111     $ 279,477  
 
                             
          Consolidated Income Available for Debt Service is also presented because it is used in ratios contained in the principal financial covenants of the Indenture governing our publicly traded senior unsecured notes and our Credit Agreement with a syndicate of banks led by Wells Fargo. As of December 31, 2005, our senior unsecured notes represented approximately 49% of our total outstanding debt and amounts outstanding under our Wells Fargo unsecured line of credit represented approximately 15% of our total outstanding debt. The Consolidated Income Available for Debt Service ratios and the other ratios reported below are part of financial covenants we are required to satisfy each fiscal quarter. We believe information about these ratios is useful to (1) confirm that we are in compliance with the financial covenants of our principal loan agreements, (2) evaluate our ability to service our debt, (3) evaluate our ability to fund future capital expenditures, and (4) compare our ratios to other real estate companies, including other REITs, that present the same ratios.
          If we were to fail to satisfy these financial covenants, we would be in default under the terms of the Indenture for the senior unsecured notes and/or the Wells Fargo Credit Agreement. A default under those agreements could accelerate the obligation to repay such debt and could cause us to be in default under our other debt agreements. Depending on the circumstances surrounding such acceleration, we might not be able to repay the debt on terms that are favorable to us, or at all, which could have a material adverse affect on our financial condition and our ability to raise capital in the future.

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acceleration, we might not be able to repay the debt on terms that are favorable to us, or at all, which could have a material adverse affect on our financial condition and our ability to raise capital in the future.
     The reader is cautioned that these ratios, as calculated by us, may not be comparable to similarly entitled ratios reported by other companies that do not calculate these ratios exactly the same as we do. These ratios should not be considered as alternatives to the ratio of earnings to fixed charges.
     The following table summarizes the principal ratios contained in the financial covenants of our senior unsecured notes and Wells Fargo unsecured line of credit as of December 31, 2005 (in thousands, except percentage and covenant ratio data):
         
Net investment in real estate
  $ 2,768,911  
Cash and cash equivalents
    639  
Restricted cash
    69,703  
Accumulated depreciation and amortization
    555,191  
 
     
Total Gross Assets
  $ 3,394,444  
 
     
 
       
Gross Value of Unencumbered Assets
  $ 2,289,860  
 
     
 
       
Mortgage loans payable(1)
  $ 419,650  
Unsecured lines of credit
    259,500  
Unsecured loans
    150,000  
Unsecured senior notes, net of discount
    794,671  
 
     
Total Outstanding Debt
  $ 1,623,821  
 
     
 
       
Consolidated Income Available for Debt Service(2)
  $ 268,440  
 
     
 
       
Interest incurred(2)
  $ 99,234  
Loan fee amortization(2)
    (2,586 )
 
     
Debt Service(2)
  $ 96,648  
 
     
                 
Senior Unsecured Notes Covenant Ratios   Test   Actual
Ratio of Consolidated Income Available for Debt Servce to Debt Service
  Greater than 1.5     2.8  
Total Outstanding Debt/Total Gross Assets
  Less than 60%     48 %
Secured Debt/Total Gross Assets
  Less than 40%     12 %
Gross Value of Unencumbered Assets/Unsecured Debt
  Greater than 150%     190 %
                 
Wells Fargo Unsecured Line of Credit Covenant Ratios   Test   Actual
Ratio of Consolidated Income Available for Debt Servce to fixed charges(3)
  Greater than 1.50     2.0  
 
(1)   Represents eight secured loans that are secured by 47 properties in our portfolio.
 
(2)   Represents amounts for the most recent four consecutive quarters. Loan fee amortization excludes discount amortization on senior unsecured notes.
 
(3)   Fixed charges consist of interest costs, whether expensed or capitalized, principal payments on all debt, an amount equal to $0.3125 per quarter multiplied by the weighted average gross leaseable square feet of the portfolio at the end of the period and preferred unit distributions.
Future Capital Resources
     Depending on market conditions, we may sell assets over the next twelve to twenty-four months, subject to certain restrictions contained in the merger agreement and it is difficult to predict the actual period and amount of these potential asset sales. At the time of any such sales, depending on market conditions, sales proceeds may be placed into investments that we believe will generate higher long-term value, which may include development or redevelopment of office buildings, acquisitions of existing buildings or repurchases of our common stock. In addition, we expect to use a portion of any proceeds to pay down portions of our debt in order to maintain our conservative leverage and coverage ratios.
     We expect to continue meeting our short-term liquidity and capital requirements generally through net cash provided by operating activities, proceeds from our lines of credit or from asset sales, subject to certain restrictions contained in the merger agreement. We believe that the net cash provided by operating activities, sales proceeds and short-term borrowings, if necessary, will continue to be sufficient to pay any distributions necessary to enable us to continue qualifying as a REIT. We also believe the foregoing sources of liquidity will be sufficient to fund our short-term liquidity needs over the next twelve months, including recurring non-revenue enhancing capital expenditures, tenant improvements and leasing commissions.

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     We expect to meet our long-term liquidity and capital requirements such as scheduled principal repayments, development costs, property acquisitions, if any, and other non-recurring capital expenditures through net cash provided by operations, refinancing of existing indebtedness, proceeds from asset sales and/or the issuance of long-term debt and equity securities.
     Recurring non-revenue enhancing capital expenditures represent building improvements and leasing costs required to maintain current revenue. Recurring capital expenditures do not include immediate building improvements that were taken into consideration when underwriting the purchase of a building or which are being incurred to bring a building up to our operating standards or to reach stabilization. We consider a property to be stabilized when the property is at least 95% leased. Recurring capital expenditures consist primarily of replacement components such as new elevators, roof replacements and upgrade requirements required by new safety codes such as new fire-life-emergency systems.
     Non-recurring capital expenditures represent improvement costs incurred to improve a property to our operating standards or reach stabilization. These costs are normally taken into consideration during the underwriting process for a given property’s acquisition. Non-recurring capital expenditures include improvements such as new building expansion and renovation costs.
     We capitalize both recurring capital expenditures and non-recurring capital expenditures due to the probable benefit derived in future years from both non-recurring as well as recurring capital expenditures.
Contractual Obligations
     As of December 31, 2005, we were subject to significant contractual payment obligations as described in the table below.
                                                         
    Payments Due by Period  
    Total     2006     2007     2008     2009     2010     Thereafter  
    (in thousands)  
Contractual Obligations:
                                                       
Long-term debt:
                                                       
Mortgage debt
  $ 419,650     $ 9,839     $ 11,043     $ 282,176     $ 112,606     $ 570     $ 3,416  
Unsecured senior notes(1)
    800,000             150,000                   150,000       500,000  
Unsecured loans
    150,000       25,000                               125,000  
Unsecured line of credit
    259,500             12,500             247,000              
Ground leases
    142,534       2,187       2,212       2,212       2,212       2,212       131,499  
Operating leases
    14,880       1,240       1,240       1,240       1,240       1,240       8,680  
Capital commitments
    28,306       28,306                                
Termination fee(2)
    100,000       100,000                               100,000  
 
                                         
Total Contractual Obligations
  $ 1,914,870     $ 166,572     $ 176,995     $ 285,628     $ 363,058     $ 154,022     $ 868,595  
 
                                         
 
(1)   Excludes discount on unsecured senior notes.
 
(2)   Represents fee which will be paid to GECC under certain limited circumstances described in the merger agreement.

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Funds From Operations
     The following table reflects the calculation of our funds from operations for the years ended December 31, 2005, 2004, 2003, 2002, and 2001 (in thousands, except percentages):
                                         
    Year Ended December 31,  
    2005     2004     2003     2002     2001  
    (in thousands, except ratio and per share amounts)  
Funds from Operations(1)
                                       
Net income
  $ 65,499     $ 73,775     $ 58,509     $ 70,175     $ 97,759  
Depreciation and minority interest from discontinued operations
    2,403       11,819       14,074       15,837       13,085  
Gain on sale of discontinued properties
    (40,653 )     (30,473 )     (5,937 )            
Depreciation and amortization
    137,385       115,806       106,893       96,156       89,496  
Gain on sale of operating properties
                      (1,967 )     (4,591 )
Minority interest
    570       4,084 (2)     5,231       5,660       6,803  
Income allocated to Preferred Operating Partnership Units
          (3,234 )(2)     (4,312 )     (4,312 )     (4,312 )
 
                             
Funds from Operations (3)
    165,204       171,777       174,458       181,549       198,240  
Arden Realty’s percentage share (4)
    97.5 %     97.5 %     97.4 %     97.3 %     96.8 %
 
                             
Arden Realty’s share of Funds from Operations
  $ 161,074     $ 167,483     $ 169,922     $ 176,647     $ 191,896  
 
                             
Weighted average common shares and operating partnership units outstanding — Diluted
    68,786       67,415       65,513       66,098       66,132  
 
                             
 
(1)   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 the extraordinary items as defined by GAAP, provides an additional perspective on our operating results. However, because these excluded items have a 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 methods for calculating FFO and, accordingly, our FFO may not be comparable to other REITs.
 
(2)   Excludes approximately $1.1 million of original issuance costs expensed in conjunction with the redemption of our Preferred operating partnership units on September 28, 2004.
 
(3)   Includes approximately $5.5 million, $3.8 million, $2.2 million, $1.2 million and $1.9 million in non-cash compensation expense for the years ended December 31, 2005, 2004, 2003, 2002 and 2001, respectively.
 
(4)   Represents Arden Realty’s weighted average ownership percentage during the respective 12-month period.
Current Economic Climate
     Our short and long-term liquidity, ability to refinance existing indebtedness, ability to issue long-term debt and equity securities at favorable rates and our dividend policy are significantly impacted by the operating results of our properties, all of which are located in Southern California. Our ability to lease available space and increase rates when leases expire is largely dependent on the demand for office space in the markets where our properties are located.
     The timing and extent of future changes in the national and local economy and their effects on our properties and results of operations are difficult to accurately predict. It is possible, however, that these national and regional issues may more directly affect us and our operating results in the future, making it more difficult for us to lease and renew available space, to increase or maintain rental rates as leases expire and to collect amounts due from our tenants. For additional information, see “Risk Factors — Lack of non-farm job growth in Southern California or a deterioration of the local and national economy will adversely affect our operating results,” “— The financial condition and solvency of our tenants may reduce our cash flow,” and “— Rising energy costs and power outages in California may have an adverse effect on our operations and revenue.”

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
     Market risk is the exposure or loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary market risk to which we are exposed is interest rate risk, which is sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control.
     In order to modify and manage the interest characteristics of our outstanding debt and limit the effects of interest rates on our operations, we may use a variety of financial instruments, including interest rate hedges, caps, floors and other interest rate exchange contracts. The use of these types of instruments to hedge our exposure to changes in interest rates carries additional risks such as counter-party credit risk and legal enforceability of hedging contracts. We do not enter into any transactions for speculative or trading purposes.
     In February 2005, we settled $300 million of forward-starting swaps we entered into in 2004 in conjunction with a forecasted $300 million issuance of unsecured senior notes.
     In conjunction with the extension of our $125 million unsecured term loan in February 2005, we also entered into a series of interest rate swap agreements to fix the interest rate through the extension period. Under these interest rate swap agreements, the interest rate on this loan is effectively fixed at 5.29% from June of 2006 through May of 2007, 5.55% from June of 2007 through November of 2008, 5.76% from December of 2008 through May of 2010 and 5.99% from June of 2010 through February of 2012.
     In May and June 2005, we entered into a series of forward-starting swaps totaling $143 million that effectively fixed the ten-year Treasury rate at an average rate of approximately 4.32% for borrowings that are expected to occur in November 2007 to refinance $150 million of 7.00% unsecured senior notes.
     In June 2005, we settled $100 million of fair value swaps we entered into in 2003 to float $100 million of the fixed interest rate associated with the 7.00% senior unsecured notes due in November of 2007.
     Some of our future earnings, cash flows and fair values relating to financial instruments are dependent upon prevailing market rates of interest, such as LIBOR. Based on interest rates and outstanding balances as of December 31, 2005, a 1% increase in interest rates on our $234.5 million of floating rate debt would decrease annual future earnings and cash flows by approximately $2.3 million and would not have an impact on the fair value of the floating rate debt. A 1% decrease in interest rates on our $234.5 million of floating rate debt would increase annual future earnings and cash flows by approximately $2.3 million and would not have an impact on the fair value of the floating rate debt. The weighted average interest rate on our floating debt as of December 31, 2005 was 5.12%.
     Our fixed rate debt, including $175.0 million in floating rate debt swapped to fixed through interest rate hedges, totaled $1,389.3 million as of December 31, 2005 with a weighted average interest rate of 6.30% and a total fair value of approximately $1,405.6 million. A 1% decrease in interest rates on our $1,389.3 million of fixed rate debt would increase its fair value by approximately $57.0 million and would not have an impact on annual future earnings and cash flows. A 1% increase in interest rates on our $1,389.3 million of fixed rate debt would decrease its fair value by approximately $53.7 million and would not have an impact of annual future earnings and cash flows.
     These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. These analyses do not consider the effects of the reduced level of overall economic activity that could exist in that environment. Further, in the event of a change of this magnitude, we would consider taking actions to further mitigate our exposure to any such change. Due to the uncertainty of the specific actions that would be taken and their possible effects, however, this sensitivity analysis assumes no changes in our capital structure.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
     The financial statements and supplementary data required by Regulation S-X are included in this Report on Form 10-K commencing on page F-1.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Arden Realty, Inc.
     We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Arden Realty, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Arden Realty, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.
     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
     A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
     In our opinion, management’s assessment that Arden Realty, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Arden Realty, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.
     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2005 and 2004 and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2005 of Arden Realty, Inc. and our report dated March 9, 2006 expressed an unqualified opinion thereon.
Ernst & Young LLP
Los Angeles, California
March 9, 2006

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
     None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
     We have established disclosure controls and procedures that are designed to ensure that information required to be disclosed by our company, including our consolidated entities, in our reports under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
     As of and for the year ended December 31, 2005, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting
     Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer and effected by the board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with authorizations of management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
     Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is supported by written policies and procedures and by an appropriate segregation of responsibilities and duties. We have used the criteria set forth in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission to assess its internal control over financial reporting. Based upon this assessment, management concluded that internal control over financial reporting is operating effectively as of December 31, 2005. Ernst & Young LLP has audited our financial statements and has issued an attestation report on management’s assessment of internal control over financial reporting.
     Submitted on March 9, 2006
ITEM 9B. OTHER INFORMATION
     None.

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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
     The following is a biographical summary of the experience of our current executive and senior officers.
     Richard S. Ziman. Mr. Ziman, 63, is one of our founders and has served as our Chairman of the Board and Chief Executive Officer since our formation in October 1996. Mr. Ziman has been involved in the real estate industry for over 30 years. In 1990, Mr. Ziman formed Arden Realty Group, Inc. and served as its Chairman of the Board and Chief Executive Officer from its inception until our formation. In 1979, he co-founded Pacific Financial Group, a diversified real estate investment and development firm headquartered in Beverly Hills, of which he was the Managing General Partner. Mr. Ziman is a member of the Board of Governors of the National Association of Real Estate Investment Trusts and a member of the Board of Directors of the Real Estate Round Table. Mr. Ziman received his Bachelor’s Degree and his Juris Doctor Degree from the University of Southern California and from 1971 to 1980 practiced law as a partner at the law firm of Loeb & Loeb, specializing in transactional and financing aspects of real estate. Mr. Ziman’s term as director will expire at the 2008 annual meeting of stockholders.
     Victor J. Coleman. Mr. Coleman, 44, is one of our founders and has served as our President and Chief Operating Officer and as a director since our formation in October 1996. Mr. Coleman was a co-founder of Arden Realty Group, Inc. and was its President and Chief Operating Officer from 1990 to 1996. From 1987 to 1989, Mr. Coleman was Vice President of Los Angeles Realty Services, Inc. and earlier in his career, from 1985 to 1987, was Director of Marketing and Investment Advisor for Development Systems International and an associate at Drexel Burnham Lambert specializing in private placements with institutional and individual investors. Mr. Coleman received his Bachelor’s Degree from the University of California at Berkeley and received his Master of Business Administration Degree from Golden Gate University. Mr. Coleman’s term as director will expire at the 2008 annual meeting of stockholders.
     Richard S. Davis. Mr. Davis, 47, has served as our Executive Vice President, Chief Financial Officer since January 2005. From July 2000 to December 2004, Mr. Davis served as our Senior Vice President, Chief Financial Officer. From December 1997 to July 2000, Mr. Davis served as our Senior Vice President and Chief Accounting Officer. From 1996 to 1997, Mr. Davis was with Catellus Development Corporation where he was responsible for accounting and finance for the asset management and development divisions. From 1985 to 1996, Mr. Davis served as a member of the audit staff of both KPMG LLP and Price Waterhouse LLP, specializing in real estate. Mr. Davis is a Certified Public Accountant in the states of California and Missouri and a member of the American Institute of CPAs. Mr. Davis received his Bachelor of Science Degree in Accounting from the University of Missouri at Kansas City.
     Robert C. Peddicord. Mr. Peddicord, 44, has served as our Executive Vice President — Leasing and Property Operations since January 2005. From January 2001 to December 2004, Mr. Peddicord served as our Senior Vice President — Leasing and Property Operations. From October 1997 to December 2000, Mr. Peddicord served as our Senior Vice President — Leasing. From 1987 to 1996, Mr. Peddicord was a Managing Director in the West Los Angeles office of Julien J. Studley, representing landlords and tenants in the leasing of office space. From 1984 to 1986, Mr. Peddicord served as a branch Vice President for Great Western Financial Corporation. Mr. Peddicord received his Bachelor’s Degree in Economics from the University of California at Los Angeles.
     David A. Swartz. Mr. Swartz, 39, has served as our Senior Vice President, General Counsel and Secretary since June 2005. From August 1999 to May 2005, Mr. Swartz served as our General Counsel and Secretary. From May 1998 to August 1999, Mr. Swartz served as our Associate General Counsel. From September 1991, until his employment with us, Mr. Swartz was a real estate attorney with the law firm of Allen, Matkins, Leck, Gamble & Mallory, LLP, where he managed and negotiated commercial real estate transactions, handled litigation for major institutional clients and served as legal advisor to property owners, building and asset managers, real estate brokers and tenants. A graduate of The Wharton School of the University of Pennsylvania with a Bachelor of Science in Economics, Mr. Swartz received his Juris Doctor degree from the UCLA School of Law in 1991.
     Howard S. Stern. Mr. Stern, 44, has served as our Senior Vice President and Chief Investment Officer with oversight over our acquisition, disposition, development and new investment activities since June 2003. From August 2001 to June 2003, Mr. Stern served in various roles for us such as First Vice President of Operations and Leasing and Vice President of Strategic Planning. From 1995 to 2000, Mr. Stern served as Vice President of the Archon Group, a subsidiary of Goldman, Sachs & Co., where he was responsible for overseeing all Western Region mezzanine financing and real estate management activities. From 1990 to 1991, Mr. Stern served as Managing Director for Granite Partners, a New York — based real estate investment bank where he was responsible for overseeing all West Coast business activities. Mr. Stern received his Bachelor of Arts degree in Political Science and Economics from the University of California at Berkeley and his Masters Degree in Business Administration from the University of Southern California.

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DIRECTORS
     The following is a biographical summary of the experience of our current board of directors.
     Leslie E. Bider. Mr. Bider, 55, has served as a member of our Board of Directors since May 2004. Mr. Bider is the former Chairman and Chief Executive Officer of Warner/Chappell Music, Inc., a world-renowned music publishing company. Before joining Warner/Chappell Music, Inc., Mr. Bider started his own public accounting firm with an extensive clientele in the entertainment business. Mr. Bider serves on the Board of Overseers of Hebrew Union College, is a director of the Jewish Federation of Greater Los Angeles, the Wallis Anenberg Cultural Center of Beverly Hills and the T.J. Martell Foundation, and is Chairman of the Bogart Pediatric Cancer Research Programs and the Musicares Foundation. Mr. Bider received his Bachelor’s Degree from the University of Southern California and his Masters degree from University of Pennsylvania’s Wharton School of Business. Mr. Bider’s term as director will expire at the 2007 annual meeting of stockholders.
     Carl D. Covitz. Mr. Covitz, 66, has served as a member of our Board of Directors since our formation as a public company in October 1996. For the past 20 years, Mr. Covitz has served as the owner and President of Landmark Capital, Inc., a national real estate development and investment company involved in the construction, financing, ownership and management of commercial, residential and warehouse properties. Mr. Covitz has also previously served, from 1990 to 1993, as Secretary of the Business, Transportation & Housing Agency of the State of California as well as Under Secretary and Chief Operating Officer of the U.S. Department of Housing and Urban Development from 1987 to 1989. Mr. Covitz is on the Board of Trustees of the SunAmerica Annuity Funds. Mr. Covitz was the founding Chairman of the Board of Directors of Century Housing Corporation and is the past Chairman of the Board of several organizations including the Federal Home Loan Bank of San Francisco and the Los Angeles City Housing Authority. Mr. Covitz received his Bachelor’s Degree from the Wharton School at the University of Pennsylvania and his Master of Business Administration from the Columbia University Graduate School of Business. Mr. Covitz’s term as director will expire at the 2006 annual meeting of stockholders.
     Larry S. Flax. Mr. Flax, 63, has served as a member of our Board of Directors since December 1996. Mr. Flax is Co-Founder, Co-Chairman and Co-CEO of the Board of California Pizza Kitchen. Prior to becoming a restauranteur in 1985, Mr. Flax served in Los Angeles as Assistant U.S. Attorney from 1968 to 1972, Chief of Civil Rights from 1970 to 1971 and Assistant Chief of the Criminal Division for the United States Department of Justice from 1971 to 1972. Mr. Flax attended the University of Washington as an undergraduate and received his Juris Doctor Degree from the University of Southern California Law School in 1967. Mr. Flax received his LLM in 1969 from the University of Southern California. Mr.Flax’s term as director will expire at the 2006 annual meeting of stockholders.
     Steven C. Good. Mr. Good, 63, has served as a member of our Board of Directors since our formation as a public company in October 1996. Mr. Good is the senior partner in the firm of Good Swartz Brown & Berns LLP, an accounting firm formed in 2001 from the merger of Good Swartz & Berns and another accounting firm. Mr. Good was the senior partner in the firm of Good Swartz & Berns, an accountancy corporation reorganized in 1993, which evolved from the firm of Block, Good and Gagerman, which he founded in 1976. Prior to 1976, Mr. Good reached the level of partner at Laventhol & Horwath, a national accounting firm, and later at Freedman Morse Horowitz & Good. Mr. Good is a founder and past Chairman of CU Bancorp, where he was chairman of the bank’s operations from 1982 through 1992. Mr. Good also serves on the Board of Directors of Opto Sensors Inc.; Big Dog Holdings, Inc.; California Pizza Kitchen, Inc.; Kayne Anderson MLP Investment Company and Kayne Anderson Energy Total Return Fund, Inc. Mr. Good received his Bachelor of Science in Business Administration from the University of California at Los Angeles and attended UCLA’s Graduate School of Business. Mr. Good’s term as director will expire at the 2007 annual meeting of stockholders.
     Alan I. Rothenberg. Mr. Rothenberg, 66, has served as a member of our Board of Directors since May 2004. From 1990 until his retirement in 2000, Mr. Rothenberg was a Partner at Latham & Watkins, LLP, one of the world’s largest law firms. From 1968 to 1990, Mr. Rothenberg was a founder and Managing Partner of Manatt, Phelps, Rothenberg and Phillips, a Los Angeles law firm specializing in business and commercial litigation including practices in the sports, entertainment and financial fields. Since 2002, he has served as Chairman of the Board of Directors of 1st Century Bank, a National Banking Association, headquartered in Century City, Los Angeles. From 1990 through 1998, he served as President of the United States Soccer Federation. From 1990 through 1999, Mr. Rothenberg served as Chairman and CEO of the 1994 World Cup and the 1999 FIFA Women’s World Cup. Mr. Rothenberg serves on the boards of directors of Major League Soccer, United States Soccer Foundation, Los Angeles County Bar Association Dispute Resolution Services, Constitutional Rights Foundation, Los Angeles Convention and Visitors Bureau, LA Sports Council, Zenith National Insurance, which provides workers’ compensation insurance and participates in the worldwide reinsurance business. Mr. Rothenberg is Chairman of Premier Partnerships, a sports and entertainment marketing and consulting firm and is partner in SR Productions, the producer of the Music Center Speakers Series. Mr. Rothenberg received his Bachelor’s Degree from the University of Michigan and his Juris Doctor degree, with distinction, from the University of Michigan Law School. Mr. Rothenberg’s term as director will expire at the 2007 annual meeting of stockholders.

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AUDIT COMMITTEE
     The audit committee consists of Mr. Good, its Chairman, and Messrs. Bider and Covitz. All members of the audit committee are “independent” of our management as required by the NYSE listing standards, including with respect to the enhanced independence standards applicable to audit committees pursuant to Rule 10A-3(b)(i) under the Exchange Act, and are financially literate. As a senior partner in an accountancy corporation, Mr. Good also has significant accounting and related financial management expertise, and our Board of Directors has determined that he is an “audit committee financial expert” as defined by the SEC. The primary responsibility of the audit committee is to oversee our financial reporting process on behalf of, and report the results of its activities to our Board of Directors. Our management is responsible for preparing our financial statements, and our independent auditors are responsible for auditing those financial statements.
     The audit committee provides assistance to our Board of Directors in fulfilling its oversight responsibility to the stockholders, potential stockholders, the investment community, and others relating to our financial statements and the financial reporting process, the systems of internal accounting and financial controls, the annual independent audit of our financial statements, and the legal compliance and ethics programs as established by management and our Board of Directors. In so doing, it is the responsibility of our audit committee to maintain free and open communication between the audit committee, our independent auditors, and our management. In discharging its oversight role, the audit committee is empowered to investigate any matter brought to its attention with full access to all of our books, records, facilities, and personnel and the authority to retain outside counsel, or other experts for this purpose. Our Board of Directors has adopted an audit committee charter, a copy of which is available on our website at www.ardenrealty.com under Investor Relations—Corporate Governance. The audit committee met six times during 2005.
CODE OF ETHICS
     We have adopted a Code of Business Conduct and Ethics that applies to our directors, officers (including the Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and persons performing similar functions), employees, agents and consultants. This Code satisfies the requirements of a “code of business conduct and ethics” under the New York Stock Exchange listing standards and a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and applicable SEC rules. This Code of Business Conduct and Ethics has been posted to our website at www.ardenrealty.com, under Investor Relations—Corporate Governance and a copy will be provided to any person without charge, upon request sent to Arden Realty, Inc. 11601 Wilshire Boulevard, Fourth Floor, Los Angeles, CA 90025, Attention: Secretary. Amendments to, or waivers from, a provision of this Code of Business Conduct and Ethics that apply to our directors or executive officers, including the Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and persons performing similar functions, may be made only by the Board or a Board Committee and will be promptly posted on our website.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission and the New York Stock Exchange. Such persons are required by the regulations of the Securities and Exchange Commission to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of copies of such forms received by us with respect to fiscal 2005, and written representations from certain reporting persons, we believe that during fiscal 2005 all of our directors and executive officers and persons who own more than 10% of our common stock complied with the reporting requirements of Section 16(a), except for a late filing of one report concerning the forfeiture of stock in August 2005 for Mr. Coleman and a late filing of two reports concerning the forfeiture of stock in July 2005 and August 2005 for Mr. Peddicord.

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ITEM 11. EXECUTIVE COMPENSATION
     The following table sets forth information with respect to the compensation we paid for services rendered during the fiscal years ended December 31, 2005, 2004 and 2003 to our “named executive officers.” Our named executive officers consist of (a) our Chief Executive Officer and (b) our four most highly compensated executive officers other than our Chief Executive Officer.
Summary Compensation Table
                                                         
                                    Long-Term    
            Annual Compensation   Compensation Awards    
                            Other Annual   Options   Restricted   All Other
Name and Title   Year   Salary($)   Bonus($)   Compensation($)(1)   Granted (#)   Stock($)(2)   Compensation($) (3)
Richard S. Ziman
    2005       770,000       968,700       42,700             5,801,900 (4)     320,500  
Chairman of the Board and
    2004       736,000       896,700       59,000             1,162,700 (5)     303,700  
Chief Executive Officer
    2003       670,000       735,000       22,000       101,600       2,163,200 (6)     252,600  
 
                                                       
Victor J. Coleman
    2005       613,000       781,200       44,600             2,752,700 (4)     73,000  
President, Chief Operating
    2004       526,000       640,500       59,900             702,200 (5)     62,200  
Officer and Director
    2003       497,000       525,000       54,400       55,300       1,307,000 (6)     56,300  
 
                                                       
Richard S. Davis
    2005       431,000       517,500       7,200             1,399,700 (4)     46,500  
Executive Vice President —
    2004       342,000       418,700       7,200             336,400 (5)     44,100  
Chief Financial Officer
    2003       299,000       330,000       7,200       35,600       682,500 (6)     36,000  
 
                                                       
Robert C. Peddicord
    2005       358,000       414,000       7,200             1,399,700 (4)     46,500  
Executive Vice President —
    2004       342,000       418,700       7,200             336,400 (5)     44,100  
Leasing and Property Operations
    2003       299,000       330,000       7,200       35,600       682,500 (6)     36,000  
 
                                                       
Howard Stern
    2005       299,000       345,000       9,600             1,049,700 (4)     40,500  
Senior Vice President and
    2004       248,000       250,000       8,500             79,000 (5)     34,700  
Chief Investment Officer
    2003       217,000       100,000       6,000             75,000 (6)     22,100  
 
(1)   The amounts in this column include perquisites and other personal benefits. The perquisites and other personal benefits are valued on the basis of the aggregate incremental costs to Arden. The total represents amounts for annual auto allowances and the personal use of aircraft hours. The amounts for personal use of aircraft hours reflect the incremental cost after the amounts reimbursed to Arden using the Standard Industrial Fare Level formula established by the Internal Revenue Service.
                         
            Auto   Personal Use
    Year   Allowances ($)   of Aircraft ($)
Richard S. Ziman
    2005       14,400       28,300  
 
    2004       14,400       44,600  
 
    2003       14,400       7,600  
 
                       
Victor J. Coleman
    2005       14,400       30,200  
 
    2004       14,400       45,500  
 
    2003       14,400       40,000  
 
                       
Richard S. Davis
    2005       7,200        
 
    2004       7,200        
 
    2003       7,200        
 
                       
Robert C. Peddicord
    2005       7,200        
 
    2004       7,200        
 
    2003       7,200        
 
                       
Howard S. Stern
    2005       9,600        
 
    2004       8,550        
 
    2003       6,000        
 
(2)   Restricted stock is awarded pursuant to our Long-Term Incentive Program. All restricted stock awards granted under our Long-Term Incentive Program are made in accordance with the provisions of the 1996 Stock Option and Incentive Plan of Arden Realty, Inc. and Arden Realty Limited Partnership. The amounts shown reflect the market value of the restricted stock awards on the date of grant. The restriction on these awards prohibits the sale or transfer of such shares until vested. The named executive officers are entitled to receive dividends in respect of such restricted stock, whether vested or unvested.
 
    As of December 31, 2005, Messrs. Ziman, Coleman, Davis, Peddicord and Stern held a total of 304,307, 178,882, 80,187, 80,187 and 27,455 shares of unvested restricted stock awards, respectively. Based on the December 30, 2005 closing price of $44.83 per share of our common stock, as reported by the New York Stock Exchange, the total value of these awards was $13,642,100, $8,019,300, $3,594,800, $3,594,800 and $1,230,800, respectively.

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(3)   Represents amounts we contributed pursuant to our deferred compensation and 401(k) plans.
                         
            Deferred    
    Year   Compensation ($)   401(k) ($)
Richard S. Ziman
    2005       310,000       10,500  
 
    2004       294,000       9,700  
 
    2003       243,600       9,000  
 
                       
Victor J. Coleman
    2005       62,500       10,500  
 
    2004       52,500       9,700  
 
    2003       47,300       9,000  
 
                       
Richard S. Davis
    2005       36,000       10,500  
 
    2004       34,300       9,700  
 
    2003       27,000       9,000  
 
                       
Robert C. Peddicord
    2005       36,000       10,500  
 
    2004       34,300       9,700  
 
    2003       27,000       9,000  
 
                       
Howard S. Stern
    2005       30,000       10,500  
 
    2004       25,000       9,700  
 
    2003       13,100       9,000  
 
(4)   Of these restricted stock awards, 69,498, 33,517, 16,637, 16,637 and 12,477 of the restricted stock awards granted in 2005 to Messrs. Ziman, Coleman, Davis, Peddicord and Stern, respectively, are performance benchmark restricted stock awards. The common stock associated with these grants will be issued if Arden’s total return to shareholders exceeds certain performance measurements. The remainder of the restricted stock awards granted in 2005 vest equally on the anniversary date of the awards over five years.
 
(5)   These restricted stock awards vest equally on the anniversary date of the awards over three years.
 
(6)   Of these restricted stock awards, 12,500, 7,000, 4,500 and 4,500 of the restricted stock awards granted in 2003 to Messrs. Ziman, Coleman, Davis and Peddicord, respectively, cliff vest on the third anniversary date of the award. The remainder of the restricted stock awards granted in 2003 vest equally on the anniversary date of the award over a period ranging from three-to-five years.
Compensation of Directors
     Each non-employee director receives an annual retainer of $35,000 for his services. Each non-employee director also receives $2,000 for each Board Meeting attended, $2,500 for each audit committee meeting attended, and $2,000 for each other committee meeting attended.
     The audit committee chairman receives an additional annual retainer of $10,000 and the committee chairman of each other committee receives an additional annual retainer of $7,500.
     Each director who is not an employee is also reimbursed for reasonable expenses incurred to attend director and committee meetings. Directors who are also our officers are not paid any directors’ fees.
     Our 1996 Stock Option and Incentive Plan previously provided that each non-employee director is automatically granted options to purchase 10,000 shares of our common stock at the then current market price upon initial appointment to the Board of Directors. These initial options vest during the directors’ continued service over a four-year period at a rate of 2,500 shares of common stock per year on the anniversary date of such grant. However, our two new non-employee directors elected to the Board in 2004 waived their rights to their automatic option grants under our 1996 Stock Option and Incentive Plan and in lieu of such option grants were granted 3,000 restricted shares of our common stock. These restricted stock awards vest equally on the anniversary date of the awards over three years during the directors’ continued service. On March 22, 2005 the Board of Directors amended and restated the 1996 Stock Option and Incentive Plan, subject to stockholder approval, to, among other changes, eliminate future automatic option grants to non-employee directors so that the 1996 Stock Option and Incentive Plan more clearly reflects our compensation of our most recently elected non-employee directors, while preserving our flexibility to compensate newly elected non-employee directors in a consistent manner.
     In addition, each non-employee director has been granted options to purchase additional shares of our common stock and/or restricted stock awards for each year of service. The following table sets forth certain information concerning exercisable and unexercisable stock options received by each non-employee director as well as restricted shares of stock that have been awarded to each non-employee director at December 31, 2005.

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            Number of                    
            Shares                    
            Underlying   Exercise           Number of Securities    
            Options   Price per   Expiration   Underlying Unexercised Options   Restricted
Name   Year   Granted (#)   Share   Date   Exercisable   Unexercisable   Stock ($)(1)
Leslie E. Bider
    2005                                           $ 86,100  
 
    2004                                           $ 139,200  
 
                                                               
Carl D. Covitz
    2005                                           $ 86,100  
 
    2004                                           $ 47,500  
 
    2003                                           $ 40,000  
 
    2002                                           $ 25,100  
 
    2001                                           $ 40,200  
 
    2000       50,000     $ 25.50       7/27/10                            
 
    1999       10,000     $ 19.25       11/30/09                            
 
    1998       40,000     $ 22.50       12/15/08                            
 
    1997       10,000     $ 32.25       10/15/07       10,000                      
 
    1996       10,000     $ 20.00       10/4/06                            
 
                                                               
Larry S. Flax
    2005                                           $ 86,100  
 
    2004                                           $ 47,500  
 
    2003                                           $ 40,000  
 
    2002                                           $ 25,100  
 
    2001                                           $ 40,200  
 
    2000       50,000     $ 25.50       7/27/10                            
 
    1999       10,000     $ 19.25       11/30/09       10,000                      
 
    1998       40,000     $ 22.50       12/15/08                            
 
    1997       10,000     $ 32.25       10/15/07       10,000                      
 
    1997       10,000     $ 27.00       2/13/07       10,000                      
 
                                                               
Steven C. Good
    2005                                           $ 86,100  
 
    2004                                           $ 47,500  
 
    2003                                           $ 40,000  
 
    2002                                           $ 25,100  
 
    2001                                           $ 40,200  
 
    2000       50,000     $ 25.50       7/27/10                            
 
    1999       10,000     $ 19.25       11/30/09                            
 
    1998       40,000     $ 22.50       12/15/08                            
 
    1997       10,000     $ 32.25       10/15/07                            
 
    1996       10,000     $ 20.00       10/4/06                            
 
                                                               
Alan I. Rothenberg
    2005                                           $ 86,100  
 
    2004                                           $ 139,200  
Employment Agreements
     We have entered into employment agreements with Messrs. Ziman, Coleman, Davis, Peddicord and Stern. The employment agreements of Messrs. Ziman and Coleman originally expired in July 2004, the employment agreements for Messrs. Davis and Peddicord originally expired in December 2000 and the employment agreement for Mr. Stern originally expired in December 2005. However, these employment agreements all are subject to automatic one-year extensions following the expiration of those terms and provide for base compensation and bonus to be determined by the compensation committee of our Board of Directors.
     The annual compensation and bonuses paid to these executives for 2005 are presented in the Summary Compensation table above.
     The employment agreements of Messrs. Ziman, Coleman, Davis, Peddicord and Stern entitle the executives to participate in our 1996 Stock Option and Incentive Plan. Each executive has been allocated the number of stock options and restricted stock awards presented in the tables above. Each executive will also receive certain other insurance and pension benefits.
     In the event of a termination of any of these executives by us without “cause,” a termination by the executive for “good reason”, or a termination by the executive within a specified period following a “change in control,” as those terms are defined in their respective employment agreements, the terminated executive will be entitled to (1) payment of base compensation through the date of termination of employment and for Messrs. Ziman and Coleman, payment of a prorated bonus through the date of termination, (2) a single severance payment and (3) continued receipt of certain health benefits or reimbursement of COBRA premiums for a specified period of time following the date of termination. The bonus payments for Messrs. Ziman and Coleman are equal to the amount of the respective executive’s most recent annual bonus prorated on an annual basis to the date of termination of employment. The single severance payments for Messrs. Ziman and Coleman are equal to the sum of four times the respective executive’s highest annual base compensation for the preceding 48 months and four times the highest annual bonus received in the preceding 48-month period. The single severance payment for Messrs. Davis and Peddicord is equal to the sum of three times their average annual base compensation for the preceding 24-month period and an amount equal to three times the respective executive’s highest annual bonus received in the preceding 24-month period. The single severance payment for Mr. Stern is equal to the sum of 2.99 times his average annual base compensation for the preceding 24-month period and an amount equal to 2.99 times his highest annual bonus received in the preceding 24-month period. Messrs. Ziman and Coleman will continue to receive health

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benefits for four years commencing on the date of termination and Messrs. Davis, Peddicord and Stern will receive reimbursement of COBRA premiums for up to 18 months commencing on the date of termination. In the event of a termination without cause, in addition to payment of the single severance payment for Messrs. Ziman, Coleman, Davis, Peddicord and Stern, any unvested stock options and restricted stock awards will become fully vested as of the date of termination. In addition, if any of Messrs. Ziman’s, Coleman’s, Davis’s, Peddicord’s or Stern’s severance payments or benefits are deemed to be parachute payments under the Internal Revenue Code, we have agreed to make additional payments to the executive to compensate him for the additional tax obligations.
Option Grants in Last Fiscal Year
     No options were granted to our named executives in 2005.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
     The following table sets forth certain information concerning exercised and unexercised options held by the named executive officers at December 31, 2005.
                                                 
                    Number of    
                    Securities Underlying   Value of Unexercised
    Shares           Unexercised Options   In-the-Money Options at
    Acquired on   Value   At December 31, 2005   December 31, 2005 (1)
Name   Exercise (#)   Realized ($)   Exercisable   Unexercisable   Exercisable   Unexercisable
Richard S. Ziman
    200,000     $ 1,990,000       607,140       60,960     $ 11,607,000     $ 1,464,000  
 
Victor J. Coleman
    313,500     $ 2,967,000       97,120       33,180     $ 1,884,000     $ 797,000  
 
Richard S. Davis
    24,240     $ 307,000             21,360     $     $ 513,000  
 
Robert C. Peddicord
    17,120     $ 197,000             21,360     $     $ 513,000  
 
Howard S. Stern
                          $     $  
 
(1)   Based on the December 30, 2005 closing price of $44.83 per share of our common stock, as reported by the New York Stock Exchange.
Deferred Compensation Plan
     On June 1, 2002, the Board of Directors adopted a Deferred Compensation Plan. This plan provides certain key employees, selected by the compensation committee, with supplemental deferred benefits in the form of retirement payments. The compensation committee has selected ten of our current key employees to participate in the Deferred Compensation Plan, including all five of our named executive officers presented in the Summary Compensation table above.
     During 2005, we made contributions in the amount of 40% of the annual salary for Mr. Ziman and 10% of the annual salary for each of our other named executive officers. The contributions made by us on behalf of the Deferred Compensation Plan participants vest 100% to the benefit of the Deferred Compensation Plan participants after seven years of service to Arden Realty. In addition, the contributions will vest automatically in the event of a “change in control” as defined in the Deferred Compensation Plan or death of the participant while he or she is actively employed by us. The participants can begin drawing the amounts credited in their accounts 30 days after reaching 65 years of age in the form of annual installments or in a single lump sum.
     A life insurance policy has been purchased on the life of each Deferred Compensation Plan participant naming us as sole beneficiary to provide reimbursement to us for all or a portion of the contributions made under the Deferred Compensation Plan including the cost of the use of our money.

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Compensation Committee Interlocks and Insider Participation.
     There are no compensation committee interlocks and none of our current or former employees participates on the compensation committee.
Compensation Committee.
     The compensation committee consists of Mr. Covitz, its Chairman, and Messrs. Bider and Flax, each of whom is independent in accordance with the listing standards of the NYSE. The primary functions of the compensation committee are to:
    establish, review, modify, and adopt compensation plans and arrangements for our employees and consultants; and
 
    review, determine and establish the compensation including salaries, bonuses, stock option grants and restricted stock awards for our officers.
     The Board has adopted a compensation committee charter, a copy of which is available on our website at www.ardenrealty.com under Investor Relations—Corporate Governance.
     The compensation committee met nine times during 2005.

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ITEM 12. SECURITY AND OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTS
Equity Compensation Plan Information
     The following table provides information as of December 31, 2005 with respect to shares of our common stock that may be issued under our existing equity compensation plans (in thousands, except per share amounts):
                         
                    Number of shares of common  
    Number of shares of common     Weighted-average exercise     stock remaining available for  
    stock to be issued upon     price of outstanding     future issuance under equity  
    exercise of outstanding     options, warrants and     compensation plans (excluding  
    options, warrants and rights     rights     shares reflected in column (a))(1)  
Plan Category   (a)     (b)     (c)  
Equity Compensation plans approved by shareholders
    900     $ 24.96       2,341  
Equity Compensation plans not approved by shareholders
    30 (2)     27.92        
 
                 
Total
    930     $ 25.05       2,341  
 
                 
 
(1)   Includes shares available for issuance under restricted stock grants.
 
(2)   On October 15, 1997, 10,000 options with an exercise price of $32.25, on December 15, 1998, 40,000 options with an exercise price of $22.50, and on November 30, 1999, 10,000 options with an exercise price of $19.25 were granted to each of our non-employee directors: Carl D. Covitz, Larry S. Flax and Steven C. Good. All of these options were granted with an exercise price equal to fair market value on the date of grant, vest during the non-employee directors’ continued service with Arden Realty over a three-year period, with one third of the options vesting on each anniversary of the grant date and expire ten years from the anniversary of the grant date, subject to earlier termination upon the happening of certain events. From these grants, Mr. Good exercised 40,000 options during 2003. Mr. Covitz, Mr. Flax and Mr. Good exercised 50,000, 40,000 and 20,000 options, respectively, during 2004.

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     The following table sets forth certain information regarding the beneficial ownership of shares of our common stock (and shares of our common stock for which OP units are exchangeable) as of February 28, 2006 for (1) each person known by us to be the beneficial owner of five percent or more of our outstanding shares of common stock, (2) each director (3) our chief executive officer and each of our four most highly compensated executive officers (4) all executive officers and directors as a group. Except as indicated below, all of these shares of common stock are owned directly, and the indicated person has sole voting and investment power.
                 
    Number of Shares of   Percentage of Common Stock
Name and Address (1)   Common Stock (2)   Outstanding
Cohen & Steers, Inc.
               
757 Third Avenue
               
New York, NY 10017
    8,454,828 (3)     12.56 %(3)
 
Morgan Stanley Dean Witter
               
1585 Broadway
               
New York, NY 10036
    5,130,273 (4)     7.62 %(4)
 
Credit Suisse
               
Eleven Madison Avenue
               
New York, NY 10010
    4,423,725 (5)     6.57 %(5)
 
Security Capital Research & Management Incorporated
               
10 South Dearborn Street, Suite 1400
               
Chicago, IL 60603
    3,711,697 (6)     5.51 %(6)
 
Richard S. Ziman
    2,324,131 (7)     3.45 %(7)
 
Victor J. Coleman
    1,012,831 (8)     1.50 %(8)
 
Richard S. Davis
    121,682 (9)     *  
 
Robert C. Peddicord
    106,774 (10)     *  
 
Howard S. Stern
    29,954 (11)     *  
 
Leslie E. Bider
    10,000 (12)     *  
 
Carl D. Covitz
    20,200 (13)     *  
 
Larry S. Flax
    52,000 (14)     *  
 
Steven C. Good
    12,600 (15)     *  
 
Alan I. Rothenberg
    10,000 (16)     *  
 
All directors and officers as a group (11 persons)
    3,754,525 (17)     5.58 %(17)
 
*   Less than one percent.
 
(1)   Unless otherwise indicated, the address for each of the persons listed is 11601 Wilshire Boulevard, Fourth Floor, Los Angeles, CA 90025.
 
(2)   The number of shares of common stock beneficially owned is based on the Securities and Exchange Commission regulations regarding the beneficial ownership of securities. The number of shares of common stock beneficially owned by a person assumes that all OP units held by the person are exchanged for shares of common stock, that none of the OP units held by other persons are so exchanged, that all options and warrants exercisable within 60 days of February 28, 2006 to acquire shares of common stock held by the person are exercised, that no options or warrants to acquire shares of common stock held by other persons are exercised and that all restricted stock awards are fully vested.
 
(3)   Represents the number of shares of common stock owned pursuant to a Form 13G/A filed with the Securities and Exchange Commission on February 10, 2006. According to such Form 13G/A, Cohen & Steers, Inc. has sole voting power with respect to 8,105,623 shares and sole dispositive power with respect to 8,420,823 shares. The shares of common stock owned are held for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates. Therefore, this stockholder does not violate the ownership limits set forth in our charter. This stockholder is reporting the combined holdings of the entities for the purpose of administrative convenience.
 
(4)   Represents the number of shares of common stock owned pursuant to a Form 13G/A filed with the Securities and Exchange Commission on February 15, 2006. According to such Form 13G/A, Morgan Stanley Dean Witter has sole voting power with respect to 4,336,424 shares and sole dispositive power with respect to 4,336,424 shares. The shares of common stock owned are held for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates. Therefore, this stockholder does not violate the ownership limits set forth in our charter. This stockholder is reporting the combined holdings of the entities for the purpose of administrative convenience.

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(5)   Represents the number of shares of common stock owned pursuant to a Form 13D filed with the Securities and Exchange Commission on January 17, 2006. According to such Form 13D, Credit Suisse has shared voting power with respect to all 4,423,725 shares and shared dispositive power with respect to all 4,423,725 shares. The shares of common stock owned are held for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates. Therefore, this stockholder does not violate the ownership limits set forth in our charter. This stockholder is reporting the combined holdings of the entities for the purpose of administrative convenience
 
(6)   Represents the number of shares of common stock owned pursuant to a Form 13G filed with the Securities and Exchange Commission on February 15, 2006. According to such Form 13G, Security Capital Research & Management Incorporated has sole voting power with respect to 2,577,177 shares and sole dispositive power with respect to all 3,711,697 shares. The shares of common stock owned are held for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates. Therefore, this stockholder does not violate the ownership limits set forth in our charter. This stockholder is reporting the combined holdings of the entities for the purpose of administrative convenience
 
(7)   Represents (a) 68,342 OP units owned by Mr. Ziman, (b) 353,212 OP units owned by entities which are 100% owned by Mr. Ziman, (c) 136,674 OP units owned by a family partnership, in which Mr. Ziman has shared voting and investment power and of which Mr. Ziman is a 20% general partner and disclaims beneficial ownership of the remaining 80% in which he has no pecuniary interests, (d) 282,707 shares related to unvested restricted stock awards, (e) 765,736 shares of common stock owned by Mr. Ziman, (f) 2,000 shares of common stock and 88,000 OP units owned by an entity in which Mr. Ziman has sole voting and investment power and of which Mr. Ziman is a 2% general partner and disclaims beneficial ownership of the remaining 98% in which he has no pecuniary interest and (g) 627,460 shares of common stock related to exercisable stock options.
 
(8)   Represents (a) 277,188 OP units owned by a family trust of which Mr. Coleman is the trustee with sole voting and dispositive power, (b) 99,458 OP units owned by an entity which is 100% owned by Mr. Coleman, (c) 165,882 shares related to unvested restricted stock awards, (d) 362,123 shares of common stock owned by family trusts of which Mr. Coleman is the trustee with sole voting and dispositive power and (e) 108,180 shares of common stock related to exercisable stock options.
 
(9)   Represents 72,887 shares related to unvested restricted stock awards and 41,675 shares of common stock owned.
 
(10)   Represents 72,887 shares related to unvested restricted stock awards and 26,767 shares of common stock owned.
 
(11)   Represents 26,622 shares related to unvested restricted stock awards and 3,332 shares of common stock owned.
 
(12)   Represents 8,500 shares related to unvested restricted stock awards and 1,500 shares of common stock owned.
 
(13)   Represents 7,700 shares related to unvested restricted stock awards, 2,500 shares of common stock owned and 10,000 shares related to exercisable stock options.
 
(14)   Represents 7,700 shares related to unvested restricted stock awards, 14,300 shares of common stock owned and 30,000 shares related to exercisable stock options.
 
(15)   Represents 7,700 shares related to unvested restricted stock awards and 4,900 shares of common stock owned.
 
(16)   Represents 8,500 shares related to unvested restricted stock awards 1,500 shares of common stock owned.
 
(17)   Includes 705,428 shares related to unvested restricted stock awards and 789,880 shares related to exercisable stock options.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
     In July 2001, Mr. Peddicord executed a promissory note payable to us in the amount of $50,000. This note bears interest at an annual rate of 6.0% and matures in July 2006. In September 2001, Mr. Peddicord executed a promissory note payable to us in the amount of $18,679. This note bears interest at an annual rate of 5.75% and matures in September 2006. This note was executed for the purpose of meeting payroll taxes due upon the vesting of restricted stock awards and is personally guaranteed by Mr. Peddicord.
     We lease approximately 12,300 square feet of office space to three companies in which certain of our officers have investment interests. The terms under these leases are comparable to those that would have been negotiated at inception with unaffiliated third parties.
    4,900 square feet of office space is leased to Wetherly Capital Group, LLC. 50% of Wetherly Capital, LLC is owned by Upstream Partners, LLC, of which Messrs. Ziman, Coleman, Davis, Peddicord, Swartz and Stern have a 77% investment interest. The total annual rents from this lease are approximately $120,000.
 
    2,400 square feet of office space is leased to Rexford Industrial, LLC, of which Messrs. Ziman and Coleman have a 40% investment interest. The total annual rents from this lease are approximately $59,000.
 
    5,000 square feet of office space is leased to Brentwood Capital Partners, LLC, of which Messrs. Ziman and Coleman have a combined 40% investment interest. The total annual rents from this lease are approximately $151,000.
     We also lease approximately 34,000 square feet to California Pizza Kitchen, of which Mr. Flax, one of our independent directors, is the Co-Founder, Co-Chairman of the Board and Co-CEO. The total annual rents from this lease are approximately $518,000. The terms under this lease are comparable to those that would have been negotiated at inception with unaffiliated third parties.
     We have a 50% interest in an LLC that holds an operating lease for a corporate aircraft. Our executives use the aircraft for both business and personal travel. Each executive reimburses us for any personal use of the aircraft. The reimbursement is calculated using the Standard Industrial Fare Level formula established by the Internal Revenue Service. During 2005, we received reimbursements from Messrs. Ziman, Coleman and Peddicord totaling $15,500, $17,600 and $2,700, respectively.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
     The Audit Committee annually reviews and pre-approves certain audit and non-audit services that may be provided to us by Ernst & Young LLP and establishes a pre-approved aggregate fee level for all these services. Any proposed services not included within the list of pre-approved services or any proposed services that will cause us to exceed the pre-approved aggregate amount requires specific approval by the Audit Committee.
     Fees paid to Ernst & Young LLP, our independent auditors, during the 2005 and 2004 fiscal years were as follows:
                 
    2005     2004  
Audit fees
  $ 715,000     $ 721,000  
Audit-related fees(1)
    27,000        
Tax fees(2)
    498,000       197,000  
 
           
 
  $ 1,240,000     $ 918,000  
 
           
 
(1)   Consists of audit fees incurred in connection with the pending merger agreement with General Electric Capital Corporation.
 
(2)   Consists of tax compliance and tax planning services, including $278,000 in tax planning fees incurred in connection with the merger agreement with General Electric Capital Corporation.

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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
     The following consolidated financial information is included as a separate section of this Annual Report on Form 10-K:
     
    PAGE NO.
Report of Independent Auditors
  F-1
 
   
Consolidated Balance Sheets as of December 31, 2005 and 2004
  F-2
 
   
Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003
  F-3
 
   
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2005, 2004 and 2003
  F-4
 
   
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
  F-5
 
   
Notes to Financial Statements
  F-6
     All other schedules are omitted since the required information is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto.
(b) Exhibits
     
Exhibit    
Number   Description
2.1*
  Agreement and Plan of Merger by and among Arden Realty, Inc., Arden Realty Limited Partnership, General Electric Capital Corporation, Trizec Properties Inc., Trizec Holdings Operating LLC, Atlas Merger Sub, Inc., and Atlas Partnership Merger Sub, Inc. dated as of December 21, 2005, incorporated herein by reference to Item 1.01 of the Registrant’s current report on Form 8-K filed with the Commission on December 28, 2005.
 
   
3.1*
  Amended and Restated Articles of Incorporation as filed as an exhibit to Arden Realty’s registration statement on Form S-11 (No. 333-08163).
 
   
3.2*
  Articles Supplementary of Class A Junior Participating Preferred Stock as filed as an exhibit to the current report on Form 8-K, dated August 26, 1998.
 
   
3.3*
  Articles Supplementary of the 8 5/8 Series B Cumulative Redeemable Preferred Stock dated September 7, 1999, filed as an exhibit to Arden Realty’s annual report on Form 10-K dated March 27, 2000.
 
   
3.4*
  Bylaws of Registrant as filed as an exhibit to Arden Realty’s registration statement on Form S-11 (No. 333-08163).
 
   
3.5*
  Certificate of Amendment of the Bylaws of Arden Realty dated July 14, 1998, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q dated August 14, 1998.
 
   
3.6*
  Certificate of Amendment of the Bylaws of Arden Realty dated March 17, 2000, filed as an exhibit on Arden Realty’s quarterly report on Form 10-Q dated May 11, 2000.
 
   
4.1*
  Rights Agreement, dated August 14, 1998, between Arden Realty and The Bank of New York, as filed as an exhibit to Arden Realty’s current report on Form 8-K dated August 26, 1998.
 
   
4.2*
  Indenture between Arden Realty Limited Partnership and The Bank of New York, as trustee, dated March 14, 2000 as filed as an exhibit to Arden Realty Limited Partnership’s registration statement on Form S-4 (No. 333-35406).
 
   
4.3*
  Form of Arden Realty Limited Partnership’s unsecured 8.875% senior note due 2005, dated March 17, 2000 filed as an exhibit to Arden Realty Limited Partnership’s registration statement on Form S-4 (No. 333-35406).

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Exhibit    
Number   Description
4.4*
  Form of Arden Realty Limited Partnership’s unsecured 9.150% senior note due 2010, dated March 17, 2000 filed as an exhibit to Arden Realty Limited Partnership’s registration statement on Form S-4 (No. 333-35406).
 
   
4.5*
  Form of Arden Realty Limited Partnership’s unsecured 8.50% senior note due 2010, dated November 20, 2000 as filed as an exhibit to Arden Realty Limited Partnership’s registration statement on Form S-4 (No. 333-53376).
 
   
4.6*
  Form of Arden Realty Limited Partnership’s 7.00% Note due 2007, dated November 9, 2002 as filed as an exhibit to Arden Realty Limited Partnership’s current report on Form 8-K filed on November 9, 2001.
 
   
4.7*
  Officers’ certificate dated March 17, 2000 with respect to the terms of Arden Realty Limited Partnership’s 8.875% senior note due 2005 and 9.150% Senior Notes due 2010 as filed as an exhibit to Arden Realty’s annual report on Form 10-K filed on April 1, 2002.
 
   
4.8*
  Officers’ certificate dated November 20, 2000 with respect to the terms of Arden Realty Limited Partnership’s 8.50% Senior Notes due 2010 as filed as an exhibit to Arden Realty’s annual report on Form 10-K filed on April 1, 2002.
 
   
4.9*
  Officer’s certificate dated November 9, 2001 with respect to the terms of Arden Realty Limited Partnership’s 7.00% Note due 2007, filed as an exhibit to Arden Realty Limited Partnership’s current report on Form 8-K filed on November 9, 2001.
 
   
4.10*
  Second Amendment to Rights Agreement, dated as of June 19, 2003, between Arden Realty and the Bank of New York, as filed as an exhibit to Arden Realty’s current report on From 8-K dated July 1, 2003.
 
   
4.11*
  Amendment No. 3 to Term Loan Agreement between Arden Realty Limited Partnership and Wells Fargo Bank, National Association, as administrative agent, sole lead arranger and lender, relating to the $75 million term loan, dated as of February 14, 2005, incorporated herein by reference to Exhibit 10.1 to Arden Realty Limited Partnership’s current report on Form 8-K filed with the Commission on February 18, 2005.
 
   
4.12*
  Amendment No. 3 to Term Loan Agreement between Arden Realty Limited Partnership and Wells Fargo Bank, National Association, as administrative agent, sole lead arranger and lender and Wachovia Bank, N.A., as lender, relating to the $50 million term loan, dated as of February 14, 2005, incorporated herein by reference to Exhibit 10.2 to Arden Realty Limited Partnership’s current report on Form 8-K filed with the Commission on February 18, 2005.
 
   
4.13*
  Form of Arden Realty Limited Partnership’s 5.25% Note due 2015, dated February 28, 2005, incorporated herein by reference to Exhibit 4.1 to Arden Realty Limited Partnership’s current report on Form 8-K filed on March 1, 2005.
 
   
4.14*
  Officer’s certificate dated February 28, 2005 with respect to the terms of Arden Realty Limited Partnership’s 5.25% Note due 2015, incorporated herein by reference to Exhibit 4.2 to Arden Realty Limited Partnership’s current report on Form 8-K filed with the Commission on March 1, 2005.
 
   
10.1*^
  1996 Stock Option and Incentive Plan of Arden Realty, Inc. and Arden Realty Limited Partnership as filed as an exhibit to Arden Realty’s registration statement on Form S-11 (No. 333-08163).
 
   
10.2*^
  Amendment Number 1 to the 1996 Stock Option and Incentive Plan of Arden Realty, Inc. and Arden Realty Limited Partnership as filed as an exhibit to Arden Realty’s Schedule 14A filed on June 23, 1998.

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Exhibit    
Number   Description
10.3*^
  Form of Officers and Directors Indemnification Agreement as filed as an exhibit to Arden Realty’s registration statement on Form S-11 (No. 333-08163).
 
   
10.4*
  Loan Agreement dated June 8, 1998 by and between Arden Realty Finance III, L.L.C., a Delaware limited liability company and Lehman Brothers Realty Corporation, a Delaware corporation filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed on August 14, 1998.
 
   
10.5*
  Mortgage Note, dated June 8, 1998 for $136,100,000 by and between Arden Realty Finance III, L.L.C., a Delaware limited liability company, and Lehman Brothers Realty Corporation, a Delaware corporation. (Exhibit B. to Exhibit 10.4 above).
 
   
10.6*
  Tenant Estoppel Certificate (Exhibit C. to Exhibit 10.4 above).
 
   
10.7*
  Subordination, Non-Disturbance and Attornment Agreement (Exhibit D. to Exhibit 10.4 above).
 
   
10.8*
  Deed of Trust, Assignment of Rents and Leases, Security Agreement, and Fixture Filing dated as of June 8, 1998 made by Arden Realty Finance III, L.L.C. as Grantor, to Commonwealth Land Title Company as Trustee for the benefit of Lehman Brothers Realty Corporation as Beneficiary, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed on August 14, 1998.
 
   
10.9*
  Assignment of Leases and Rents dated June 8, 1998, by and between Arden Realty Finance III, L.L.C., a Delaware limited liability company and Lehman Brothers Realty Corporation, a Delaware corporation, its successors and assigns filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed on August 14, 1998.
 
   
10.10*
  Collateral Assignment of Management Agreement and Subordination Agreement dated as of June 8, 1998 among Arden Realty Finance III, L.L.C., a Delaware limited liability company (“Borrower”), Lehman Brothers Realty Corporation, a Delaware corporation, (“Lender”), and Arden Realty Limited Partnership, a Maryland limited partnership (“Manager”), filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed on August 14, 1998.
 
   
10.11*
  Security Agreement entered into as of June 8, 1998 by and between Arden Realty Finance III, L.L.C., a Delaware limited liability company and Lehman Brothers Realty Corporation, a Delaware corporation, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed on August 14, 1998.
 
   
10.12*
  Environmental Indemnity Agreement dated June 8, 1998 by Arden Realty Finance III, L.L.C., a Delaware limited liability company, in favor of Lehman Brothers Realty Corporation, a Delaware corporation, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed on August 14, 1998.
 
   
10.13*
  Letter Agreement dated June 8, 1998 between Lehman Brothers Realty Corporation, Arden Realty Finance III, L.L.C., Arden Realty and Arden Realty Limited Partnership, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed on August 14, 1998.
 
   
10.14*
  Loan Agreement by and between Arden Realty Finance IV, LLC, a Delaware limited liability company and Lehman Brothers Realty Corporation, a Delaware corporation, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed on August 14, 1998.
 
   
10.15*
  Mortgage Note, dated June 8, 1998 for $100,600,000 by and between Arden Realty Finance IV, L.L.C., a Delaware limited liability company (“Maker”), and Lehman Brothers Realty Corporation, a Delaware corporation (Exhibit B to Exhibit 10.14 above).

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Exhibit    
Number   Description
10.16*
  Tenant Estoppel Certificate (Exhibit C. to Exhibit 10.14 above).
 
   
10.17*
  Subordination, Non-Disturbance and Attornment Agreement (Exhibit D. to Exhibit 10.14 above).
 
   
10.18*
  Deed of Trust, Assignment of Rents and Leases, Security Agreement, and Fixture Filing dated as of June 8, 1998 made by Arden Realty Finance IV, L.L.C. as Grantor, to Commonwealth Land Title Company as Trustee for the benefit of Lehman Brothers Realty Corporation as Beneficiary, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed on August 14, 1998.
 
   
10.19*
  Assignment of Leases and Rents dated June 8, 1998, by and between Arden Realty Finance IV, L.L.C., a Delaware limited liability company (“Assignor”), and Lehman Brothers Realty Corporation, a Delaware corporation, its successors and assigns (“Assignee”), filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed on August 14, 1998.
 
   
10.20*
  Collateral Assignment of Management Agreement and Subordination Agreement dated as of June 8, 1998 among Arden Realty Finance IV, L.L.C., a Delaware limited liability company (“Borrower”), Lehman Brothers Realty Corporation, a Delaware corporation, (“Lender”), and Arden Realty Limited Partnership, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed on August 14, 1998.
 
   
10.21*
  Security Agreement entered into as of June 8, 1998 by and between Arden Realty Finance IV, L.L.C., a Delaware limited liability company (“Debtor”), and Lehman Brothers Realty Corporation, a Delaware corporation (“Secured Party”), filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed on August 14, 1998.
 
   
10.22*
  Environmental Indemnity Agreement dated June 8, 1998 by Arden Realty Finance IV, L.L.C., a Delaware limited liability company (“Indemnitor”), in favor of Lehman Brothers Realty Corporation, a Delaware corporation (“Lender”), filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed on August 14, 1998.
 
   
10.23*
  Letter Agreement dated June 8, 1998 between Lehman Brothers Realty Corporation, Arden Realty Finance IV, L.L.C., Arden Realty and Arden Realty Limited Partnership, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed on August 14, 1998.
 
   
10.24*^
  Amended and Restated Employment Agreement dated January 1, 1999, between Arden Realty and Mr. Robert Peddicord, filed as a exhibit to Arden Realty’s quarterly report on Form 10-Q filed on August 8, 2000.
 
   
10.25*
  Miscellaneous Rights Agreement among Arden Realty, Arden Realty Limited Partnership, NAMIZ, Inc. and Mr. Ziman, filed as an exhibit to Arden Realty’s registration statement on Form S- 11 (No. 333-08163).
 
   
10.26*
  Credit Facility documentation consisting of Second Amended and Restated Revolving Credit Agreement by and among Arden Realty Limited Partnership and a group of banks led by Wells Fargo Bank as filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed on May 12, 2000.
 
   
10.27*
  Mortgage Financing documentation consisting of Loan Agreement by and between Arden Realty’s special purpose financing subsidiary and Lehman Brothers Realty Corporation (the Loan Agreement includes the Mortgage Note, Deed of Trust, and form of Tenant Estoppel Certificate and Agreement as exhibits) as filed as an exhibit to Arden Realty’s registration statement on Form S-11 (No. 333-30059).

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Table of Contents

     
Exhibit    
Number   Description
10.28*
  Promissory Note, dated as of March 30, 1999, between Massachusetts Mutual Life Insurance Company and Arden Realty Finance V, L.L.C. filed as an exhibit to Arden Realty’s current report on Form 8-K filed on April 20, 1999.
 
   
10.29*
  Deed of Trust and Security Agreement, dated as of March 30, 1999, with Arden Realty Finance V, L.L.C. as the Trustor and Massachusetts Mutual Life Insurance Company as the Beneficiary filed as an exhibit to Arden Realty’s current report on Form 8-K filed on April 20, 1999.
 
   
10.30*
  Assignment of Leases and Rents, dated as of March 30, 1999, between Massachusetts Mutual Life Insurance Company and Arden Realty Finance V, L.L.C. filed as an exhibit to Arden Realty’s current report on Form 8-K filed on April 20, 1999.
 
   
10.31*
  Subordination of Management Agreement, dated as of March 30, 1999, between Massachusetts Mutual Life Insurance Company and Arden Realty Finance V. L.L.C. filed as an exhibit to Arden Realty’s current report on Form 8-K filed on April 20, 1999.
 
   
10.32*
  Environmental Indemnification and Hold Harmless Agreement, dated as of March 30, 1999, between Massachusetts Mutual Life Insurance Company and Arden Realty Finance V, L.L.C. filed as an exhibit to Arden Realty’s current report on Form 8-K filed on April 20, 1999.
 
   
10.33*^
  Amended and Restated Employment Agreement dated May 27, 1999, between Arden Realty and Mr. Randy J. Noblitt as filed as an exhibit to Arden Realty Limited Partnership’s registration statement on Form S-4 (No. 333-53376).
 
   
10.34*^
  Amended and Restated Employment Agreement dated July 27, 2000, by and between Arden Realty and Mr. Richard S. Ziman as filed as an exhibit to Arden Realty Limited Partnership’s registration statement on Form S-4 (No. 333-53376).
 
   
10.35*^
  Amended and Restated Employment Agreement dated July 27, 2000, by and between Arden Realty and Mr. Victor J. Coleman as filed as an exhibit to Arden Realty Limited Partnership’s registration statement on Form S-4 (No. 333-53376).
 
   
10.36*^
  Amendment to the 1996 Stock Option and Incentive Plan of Arden Realty, Inc. and Arden Realty Limited Partnership as filed as an exhibit to Arden Realty’s Schedule 14A filed on April 25, 2000.
 
   
10.37*^
  Second Amended and Restated 1996 Stock Option and Incentive Plan of Arden Realty, Inc. and Arden Realty Limited Partnership dated September 20, 2001 as filed as an exhibit to Arden Realty, Inc.’s quarterly report on Form 10-Q filed on November 14, 2001.
 
   
10.38*^
  Form of Promissory Note entered on July 19, 2001 and September 28, 2001 between Arden Realty Limited Partnership and Andrew Sobel and Robert Peddicord, respectively, as filed as an exhibit to Arden Realty Limited Partnership’s quarterly report on Form 10-Q filed on November 14, 2001.
 
   
10.39*^
  Amended and Restated Employment Agreement dated June 2, 1999, between Arden Realty and Mr. Richard Davis as filed on an exhibit to Arden Realty Limited Partnership’s annual report on Form 10-K filed on April 1, 2002.
 
   
10.40*^
  Amended and Restated Employment Agreement dated March 29, 2002, between Mr. Andrew Sobel and Arden Realty, Inc. as filed as an exhibit to Arden Realty, Inc.’s quarterly report on Form 10-Q filed on August 14, 2002.
 
   
10.41*^
  Form of Promissory Note entered into on February 18, 2002 between Arden Realty, Inc. and Mr. Andrew Sobel as filed as on exhibit to Arden Realty, Inc.’s quarterly report on Form 10-Q filed on August 14, 2002.
 
   
10.42*
  Term Loan Agreement between Arden Realty Limited Partnership and Wells

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Table of Contents

     
Exhibit    
Number   Description
 
  Fargo Bank, National Association dated as of June 12, 2002 as filed as an exhibit to Arden Realty Limited Partnership’s quarterly report on Form 10-Q filed on August 14, 2002.
 
   
10.43*
  Third Amended and Restated Revolving Credit Agreement between Arden Realty Limited Partnership and a group of lenders led by Wells Fargo Bank dated as of August 9, 2002 as filed as an exhibit to Arden Realty Limited Partnership’s quarterly report on Form 10-Q filed on November 12, 2002.
 
   
10.44*
  Amendment to Term Loan Agreement between Arden Realty Limited Partnership and Wells Fargo Bank, National Association dated as of September 19, 2002 as filed as an exhibit to Arden Realty Limited Partnership’s quarterly report on Form 10-Q filed on November 12, 2002.
 
   
10.45*^
  Amended and Restated Employment Agreement dated May 27, 1999, by and between Arden Realty Limited Partnership and Mr. David Swartz as filed as an exhibit to Arden Realty Limited Partnership’s annual report on Form 10-K filed on March 27, 2003.
 
   
10.46*
  Second Amended and Restated Agreement of Limited Partnership of Arden Realty Limited Partnership, dated September 7, 1999, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the Commission on November 15, 1999.
 
   
10.47*
  Admission of New Partners and Amendment to Limited Partnership Agreement entered into as of the 20th day of December, 2000, by and between Arden Realty Limited Partnership and the persons identified as the “New Partners” therein, filed as an exhibit to Arden Realty Limited Partnership’s annual report on Form 10-K filed with the Commission on March 30, 2001.
 
   
10.48*
  Second Amendment to Limited Partnership Agreement entered into as of September 13, 2003, by Arden Realty Limited Partnership, filed as an exhibit to Arden Realty Limited Partnership’s quarterly report on Form 10-Q filed with the Commission on November 13, 2003.
 
   
10.49*
  Confidential Resignation Agreement and General Release dated as of March 4, 2005 by and between Arden Realty, Inc. and Arden Realty Limited Partnership and Andrew J. Sobel.
 
   
10.50*
  Summary of Cash Bonus Plan available to certain senior executives of the Registrant, incorporated herein by reference to Item 1.01 of the Registrant’s current report on Form 8-K filed with the Commission on February 22, 2005.
 
   
10.51*
  Form of Restricted Stock Agreement under the Second Amended and Restated 1996 Stock Option and Incentive Plan of the Registrant and Arden Realty, Inc., incorporated herein by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed with the Commission on February 22, 2005.
 
   
10.52*
  Confidential Resignation Agreement and General Release dated as of March 4, 2005 by and between Arden Realty, Inc. and Arden Realty Limited Partnership and Andrew J. Sobel, incorporated herein by reference to Exhibit 10.49 to Arden Realty, Inc.’s annual report on Form 10-K filed with the Commission on March 14, 2005.
 
   
10.53*
  Summary of Director Restricted Stock Awards, incorporated herein by reference to Item 1.01 of the Registrant’s current report on Form 8-K filed with the Commission on April 15, 2005.
 
   
10.54*
  Summary of Increase in Director Retainer, incorporated herein by reference to Item 1.01 of the Registrant’s current report on Form 8-K filed with the Commission on April 15, 2005.

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Table of Contents

     
Exhibit    
Number   Description
10.55*
  Summary of Increase in Director Fees, incorporated herein by reference to Item 1.01 of the Registrant’s current report on Form 8-K filed with the Commission on April 15, 2005.
 
   
10.56*
  Summary of Establishment of Fiscal 2005 Base Salaries for certain senior executives of the Registrant, incorporated herein by reference to Item 1.01 of the Registrant’s current report on Form 8-K filed with the Commission on April 15, 2005.
 
   
10.57*
  Summary of Executive Restricted Stock Awards for certain senior executives of the Registrant, incorporated herein by reference to Item 1.01 of the Registrant’s current report on Form 8-K filed with the Commission on April 15, 2005.
 
   
10.58*
  Description of the Outperformance Plan, incorporated herein by reference to Item 1.01 of the Registrant’s current report on Form 8-K filed with the Commission on April 15, 2005.
 
   
10.59*
  Form of Restricted Stock Agreement, incorporated herein by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed with the Commission on April 15, 2005.
 
   
10.60*
  Form of Performance-Based Restricted Stock Agreement, incorporated herein by reference to Exhibit 10.2 to the Registrant’s current report on Form 8-K filed with the Commission on April 15, 2005.
 
   
10.61*
  Amended and Restated Arden Realty Limited Partnership Deferred Compensation Plan, dated July 1, 2005, incorporated herein by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed with the Commission on May 24, 2005.
 
   
10.62*
  Fourth Amended and Restated Revolving Credit Agreement dated July 7, 2005, incorporated herein by reference to Item 10.1 of the Registrant’s current Report on Form 8-K filed with the Commission on July 13, 2005.
 
   
10.63*
  Summary of Increase of Fiscal 2005 Base Salary of Richard S. Davis, Executive Vice President and Chief Financial Officer, incorporated herein by reference to Item 1.01(B) of the Registrant’s current Report on Form 8-K filed with the Commission on July 13, 2005.
 
   
10.64
  Arden Realty, Inc. 2005-2009 Outperformance Plan dated April 1, 2005.
 
   
10.65*
  Summary of Establishment of Fiscal 2006 Base Salaries for certain senior executives of the Registrant, incorporated herein by reference to Item 1.01 of the Registrant’s current report on Form 8-K filed with the Commission on December 5, 2005.
 
   
10.66*
  Summary of Executive Restricted Stock Awards for certain senior executives of the Registrant, incorporated herein by reference to Item 1.01 of the Registrant’s current report on Form 8-K filed with the Commission on December 5, 2005.

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Table of Contents

     
Exhibit    
Number   Description
12.1
  Statement regarding computation of ratios.
 
   
21.1*
  Subsidiaries of Arden Realty Limited Partnership as filed as an exhibit to Arden Realty Limited Partnership’s annual report on Form 10-K filed on March 27, 2003 are incorporated here by reference and in addition, Arden Realty Limited Partnership is included herein as a subsidiary of Arden Realty, Inc.
 
   
23.1
  Consent of independent auditors.
 
   
31.1
  Certification of Chief Executive Officer, pursuant to Rule 13a-14 promulgated under the Exchange Act, as created by Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2
  Certification of Chief Financial Officer, pursuant to Rule 13a-14 promulgated under the Exchange Act, as created by Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1
  Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.
 
   
32.2
  Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.