S&P Assigns 'BBB-' Rating to ArdenRealty Inc.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 6, 2000

Standard & Poor's today assigned its triple-'B'-minus corporate credit rating to Arden Realty Inc. (Arden), and its operating partnership, Arden Realty L.P. Standard & Poor's also assigned its triple- 'B' -minus

The ratings reflect the company's good business position in improving markets. Embedded growth in Arden's portfolio supports solid coverage measures. These strengths are offset by the limited seasoning of this assembled portfolio, geographic concentration, and its currently limited financial flexibility.

Arden is a Los Angeles, Calif.-based umbrella partnership REIT that has grown nearly fivefold from its initial public offering in October 1996. The portfolio is made up of 142 office properties with 18.5 million square feet (sq. ft.). Arden is the largest office landlord in southern California, with a market share of 6% to 7%, including a meaningful presence in the strong, supply-constrained west Los Angeles and Orange County submarkets.

The company's business position is about average. Arden has a total market capitalization of US$2.4 billion, and maintains a well-located portfolio of mostly Class B or Class B+ office buildings in five Southern California counties. Geographic concentration is mitigated by the strength and diversity of the southern California market which has improved from the late 1980s when the market was dominated by the aerospace industry.

Seasoning of the portfolio is a concern, with over 70% of the portfolio net operating income (NOI) having been acquired since the IPO. This is partly mitigated by management's experience in the southern California real estate market, and by its success to date at integrating acquisitions into the portfolio, exemplified by strong same-store NOI growth, high tenant retention and steadily improving occupancy. Occupancy at the end of 1999 stood at 94%. Arden's portfolio average cost per sq. ft. is relatively modest at US$125. Arden has a manageable lease expiration schedule with roughly 13% to 16% of leased sq. ft. expiring in each of the next five years. Arden should benefit from expiring leases due to embedded internal growth resulting from below market in-place rents in many of its submarkets.

While Arden has pursued a moderately conservative financial course, its financial flexibility is presently somewhat limited. Financial flexibility is currently constrained by a portfolio with about 50% of its NOI encumbered by mortgage debt (after the prepayment of secured debt) with a portion of the unsecured note issuance proceeds. The company appears committed to pursuing an unsecured strategy, and has the ability to further unencumber the portfolio by prepaying certain mortgages (up to US$25 million). Unencumbered NOI should grow as additional properties stabilize in 2000, and as development properties are completed and leased-up, providing additional flexibility. Therefore, Standard & Poor's has determined no the need to notch, or make a distinction between its corporate credit rating and senior unsecured debt ratings, at this time.

Arden's financial profile is highlighted by moderate leverage and strong coverage, subsidized to an extent by exposure to floating-rate debt. Total debt-to-total capital (book) is about 41%. Asset to liability matching at six years should improve slightly with the note issuance. Coverage measures are strong with debt service and fixed charge coverages at 3.14x and 3.06x, respectively, at year-end 1999.

OUTLOOK: STABLE

The company's portfolio should benefit from embedded internal growth due to below-market rents on expiring leases, and additional occupancy improvement. It is expected that external growth, including development projects, will be prudently pursued. Standard & Poor's also assumes that the company will maintain its current financial profile while continuing to unencumber the portfolio. -- CreditWire