424B4 1 a94749b4e424b4.htm 424B4 Maguire Properties, Inc. Form 424(b)(4)
Table of Contents

This filing is made pursuant
to Rule 424(b)(4) under
the Securities Act of
1933 in connection with
Registration No. 333-111577
PROSPECTUS
9,000,000 Shares

(Maguire Logo)

7.625% Series A Cumulative Redeemable Preferred Stock

(Liquidation Preference $25.00 per share)


       We are offering 9,000,000 shares of our 7.625% series A cumulative redeemable preferred stock, which we refer to in this prospectus as our series A preferred stock. We have granted the underwriters an option to purchase up to 1,000,000 additional shares of our series A preferred stock to cover over-allotments. We will pay cumulative dividends on our series A preferred stock from the date of original issuance in the amount of $1.90625 per share each year, which is equivalent to 7.625% of the $25.00 liquidation preference per share. Dividends on our series A preferred stock will be payable quarterly in arrears, beginning on April 30, 2004. Our series A preferred stock does not have a stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Upon liquidation, dissolution or winding up, our series A preferred stock will rank senior to our common stock with respect to the payment of distributions and amounts. We are not allowed to redeem our series A preferred stock before January 30, 2009, except in limited circumstances to preserve our status as a real estate investment trust. On or after January 30, 2009, we may, at our option, redeem our series A preferred stock, in whole or from time to time in part, for cash at a redemption price of $25.00 per share, plus all accumulated and unpaid dividends on such series A preferred stock up to and including the redemption date. Holders of our series A preferred stock will generally have no voting rights except for limited voting rights if we fail to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other events. Our series A preferred stock will not be convertible into or exchangeable for any other property or securities of our company.

       We are organized and conduct our operations to qualify as a real estate investment trust for federal income tax purposes. To assist us in complying with certain federal income tax requirements applicable to real estate investment trusts, our charter contains certain restrictions relating to the ownership and transfer of our stock, including an ownership limit of 9.8% on our series A preferred stock.

       No market currently exists for our series A preferred stock. Our common stock currently trades on the New York Stock Exchange, or NYSE, under the symbol “MPG.” We have applied to list our series A preferred stock on the NYSE under the symbol “MPG Pr A.” If the application is approved, trading of the series A preferred stock is expected to commence within 30 days after the initial delivery of the series A preferred stock.


       See “Risk Factors” beginning on page 18 for certain risk factors relevant to an investment in our series A preferred stock, including, among others:

  •  Our properties are primarily office buildings and are all located in Los Angeles County, California, making us more vulnerable to certain adverse events, such as casualty losses, than if we owned a more diverse portfolio of assets.
 
  •  Conflicts of interest exist between us and certain of our officers and directors, particularly Mr. Robert F. Maguire III, our Chairman and Co-Chief Executive Officer. Such officers and directors may suffer different and more adverse tax consequences than holders of our capital stock upon the sale or refinancing of our properties, which may make the sale or refinancing of some of our properties less likely. Such officers and directors are also parties to employment and other agreements with us, the enforcement of which we may pursue less vigorously than we otherwise would because of our relationship with them.
 
  •  We have agreed to indemnify Mr. Maguire and certain other contributors who contributed property interests to us in our formation against adverse tax consequences to them in the event that we sell in taxable transactions any of five of our properties that together represented 80.5% of our portfolio’s aggregate annualized rent as of September 30, 2003 for periods ranging between seven to, in certain circumstances, 12 years, and to use commercially reasonable efforts to make $591.8 million of indebtedness available for guarantee by Mr. Maguire and certain other contributors. While we do not intend to sell any of these properties in transactions that would trigger these tax indemnification obligations, if we were to trigger our tax indemnification obligations under these agreements, we would be liable for damages.
 
  •  We have substantial indebtedness. Our debt service obligations reduce cash available for distribution and expose us to the risk of default.


       Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

                 
Per Share Total


Public Offering Price(1)
  $ 25.00     $ 225,000,000  
Underwriting Discounts and Commissions
  $ 0.7875     $ 7,087,500  
Proceeds, before expenses, to us
  $ 24.2125     $ 217,912,500  


(1)  Plus accrued dividends, if any, from the original date of issue.

       Shares of our series A preferred stock will be ready for delivery in book-entry form through The Depository Trust Company on or about January 23, 2004.


 
Citigroup Friedman Billings Ramsey Wachovia Securities

Credit Suisse First Boston
  A.G. Edwards & Sons, Inc.
  Legg Mas on Wood Walker
Incorporated   

  Raymond James
  RBC Capital Markets
  UBS Investment Bank

The date of this prospectus is January 15, 2004


PROSPECTUS SUMMARY
Maguire Properties, Inc.
Recent Developments
Our Competitive Strengths
Business and Growth Strategies
Summary Risk Factors
The Properties
The Offering
Summary Selected Combined Financial Data
Ratios of Earnings and EBITDA to Fixed Charges and Preferred Dividends
Our Tax Status
RISK FACTORS
Risks Related to Our Properties and Our Business
Risks Related to Our Organization and Structure
Risks Related to this Offering
FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
RATIOS OF EARNINGS AND EBITDA TO FIXED CHARGES AND PREFERRED DIVIDENDS
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
CAPITALIZATION
SELECTED COMBINED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Critical Accounting Policies
Results of Operations
Pro Forma Operating Results
Funds From Operations
Liquidity and Capital Resources
Cash Flows
Inflation
New Accounting Pronouncements
Quantitative and Qualitative Disclosures About Market Risk
BUSINESS AND PROPERTIES
Overview
Our Competitive Strengths
Business and Growth Strategies
Existing Portfolio
Tenant Diversification
Lease Distribution
Lease Expirations
Historical Percentage Leased and Rental Rates
Historical Lease Renewals
Historical Tenant Concessions and Leasing Commissions
Historical Capital Expenditures
Description of Existing Portfolio
Los Angeles Central Business District Office Properties
Tri-Cities Office Properties
Cerritos Submarket
Hotel Property
Garage Properties
Land Parcel
Description of Option Properties
Depreciation
Regulation
Insurance
Competition
Employees
Offices
Legal Proceedings
MANAGEMENT
Directors and Executive Officers
Board Committees
Compensation of Directors
Executive Officer Compensation
Summary Compensation Table
Option Grants in 2003
401(k) Plan
Incentive Bonus Plan
Deferred Bonus Plan
Amended and Restated 2003 Incentive Award Plan
Employment Agreements
Non-competition Agreements
Indemnification Agreements
Compensation Committee Interlocks and Insider Participation
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Acquisition of Additional Interests in Certain Properties by the Maguire Organization Prior to the Formation Transactions
Distribution to Mr. Maguire Prior to the Formation Transactions
Formation Transactions
Description of Contribution Agreements, Tax Indemnity and Debt Guarantees
Partnership Agreement
Registration Rights
Employment Agreements
Indemnification of Officers and Directors
Option Agreements
Management, Leasing, Development and Services Agreements
Property and Liability Insurance
Other Benefits to Related Parties and Related Party Transactions
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
Investment Policies
Dispositions
Financing Policies
Conflict of Interest Policies
Interested Director and Officer Transactions
Business Opportunities
Policies With Respect To Other Activities
STRUCTURE OF OUR COMPANY
Our Operating Partnership
Our Services Company
DESCRIPTION OF THE PARTNERSHIP AGREEMENT OF MAGUIRE PROPERTIES, L.P.
Management of Our Operating Partnership
Transferability of Interests
Amendments of the Partnership Agreement
Distributions to Unitholders
Redemption/Exchange Rights
Issuance of Additional Common Units, Preferred Units, Common Stock, Preferred Stock or Convertible Securities
Tax Matters
Allocations of Net Income and Net Losses to Partners
Operations
Termination Transactions
Term
Indemnification and Limitation of Liability
PRINCIPAL STOCKHOLDERS
DESCRIPTION OF SERIES A PREFERRED STOCK
7.625% Series A Cumulative Redeemable Preferred Stock (Liquidation Preference $25.00 per share)
General.
Rank.
Dividends.
Liquidation Preference.
Optional Redemption.
No Maturity, Sinking Fund or Mandatory Redemption.
Limited Voting Rights.
Restrictions on Ownership and Transfer.
Conversion.
Global Securities.
Transfer Agent and Registrar.
DESCRIPTION OF SECURITIES
General
Common Stock
Preferred Stock
Power to Increase Authorized Stock and Issue Additional Shares of Our Common Stock and Preferred Stock
Restrictions on Transfer
Transfer Agent and Registrar
MATERIAL PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS
Our Board of Directors
Removal of Directors
Business Combinations
Control Share Acquisitions
Amendment to Our Charter
Transactions Outside the Ordinary Course of Business
Dissolution of Our Company
Advance Notice of Director Nominations and New Business
Anti-takeover Effect of Certain Provisions of Maryland Law and of Our Charter and Bylaws
Ownership Limit
Indemnification and Limitation of Directors’ and Officers’ Liability
Indemnification Agreements
FEDERAL INCOME TAX CONSIDERATIONS
Taxation of Our Company
Failure To Qualify
Tax Aspects of Our Operating Partnership, the Subsidiary Partnerships and the Limited Liability Companies
Federal Income Tax Considerations for Holders of Our Preferred Stock
Taxation of Taxable U.S. Stockholders Generally
Backup Withholding
Taxation of Tax Exempt Stockholders
Taxation of Non-U.S. Stockholders
Other Tax Consequences
New Legislation
Proposed Legislation
ERISA CONSIDERATIONS
General
Employee Benefit Plans, Tax-Qualified Retirement Plans and IRAs
Our Status Under ERISA
UNDERWRITING
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
INDEX TO FINANCIAL STATEMENTS


Table of Contents

TABLE OF CONTENTS

           
Page

PROSPECTUS SUMMARY
    1  
 
Maguire Properties, Inc. 
    1  
 
Recent Developments
    2  
 
Our Competitive Strengths
    3  
 
Business and Growth Strategies
    3  
 
Summary Risk Factors
    4  
 
The Properties
    6  
 
The Offering
    7  
 
Summary Selected Combined Financial Data
    10  
 
Ratios of Earnings and EBITDA to Fixed Charges and Preferred Dividends
    15  
 
Our Tax Status
    17  
RISK FACTORS
    18  
 
Risks Related to Our Properties and Our Business
    18  
 
Risks Related to Our Organization and Structure
    27  
 
Risks Related to this Offering
    31  
FORWARD-LOOKING STATEMENTS
    33  
USE OF PROCEEDS
    34  
RATIOS OF EARNINGS AND EBITDA TO FIXED CHARGES AND PREFERRED DIVIDENDS
    35  
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
    37  
CAPITALIZATION
    38  
SELECTED COMBINED FINANCIAL DATA
    39  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    44  
 
Overview
    44  
 
Critical Accounting Policies
    45  
 
Results of Operations
    46  
 
Pro Forma Operating Results
    57  
 
Funds from Operations
    60  
 
Liquidity and Capital Resources
    61  
 
Cash Flows
    70  
 
Inflation
    71  
 
New Accounting Pronouncements
    71  
 
Quantitative and Qualitative Disclosures About Market Risk
    71  
BUSINESS AND PROPERTIES
    73  
 
Overview
    73  
 
Our Competitive Strengths
    75  
 
Business and Growth Strategies
    76  
 
Existing Portfolio
    77  
 
Tenant Diversification
    79  
 
Lease Distribution
    81  
 
Lease Expirations
    81  
 
Historical Percentage Leased and Rental Rates
    82  
 
Historical Lease Renewals
    82  
 
Historical Tenant Concessions and Leasing Commissions
    83  
 
Historical Capital Expenditures
    84  
 
Description of Existing Portfolio
    84  
 
Los Angeles Central Business District Office Properties
    85  
 
Tri-Cities Office Properties
    95  
 
Cerritos Submarket
    99  
 
Hotel Property
    101  
 
Garage Properties
    102  
 
Land Parcel
    103  
 
Description of Option Properties
    103  
 
Depreciation
    106  
 
Regulation
    107  
 
Insurance
    108  
 
Competition
    108  
 
Employees
    108  
 
Offices
    108  
 
Legal Proceedings
    109  
MANAGEMENT
    110  
 
Directors and Executive Officers
    110  
 
Board Committees
    112  
 
Compensation of Directors
    113  
 
Executive Officer Compensation
    113  
 
Summary Compensation Table
    114  
 
Option Grants in 2003
    115  
 
401(k) Plan
    115  
 
Incentive Bonus Plan
    115  
 
Deferred Bonus Plan
    115  
 
Amended and Restated 2003 Incentive Award Plan
    116  
 
Employment Agreements
    117  
 
Non-competition Agreements
    121  
 
Indemnification Agreements
    122  
 
Compensation Committee Interlocks and Insider Participation
    123  
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    124  
 
Acquisition of Additional Interests in Certain Properties by the Maguire Organization Prior to the Formation Transactions
    124  
 
Distribution to Mr. Maguire Prior to the Formation Transactions
    125  
 
Formation Transactions
    125  
 
Description of Contribution Agreements, Tax Indemnity and Debt Guarantees
    126  
 
Partnership Agreement
    128  
 
Registration Rights
    128  
 
Employment Agreements
    128  
 
Indemnification of Officers and Directors
    129  
 
Option Agreements
    129  
 
Management, Leasing, Development and Services Agreements
    130  
 
Property and Liability Insurance
    131  
 
Other Benefits to Related Parties and Related Party Transactions
    132  
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
    133  
 
Investment Policies
    133  
 
Dispositions
    134  
 
Financing Policies
    134  
 
Conflict of Interest Policies
    134  
 
Interested Director and Officer Transactions
    135  
 
Business Opportunities
    136  
 
Policies With Respect To Other Activities
    136  
STRUCTURE OF OUR COMPANY
    137  
 
Our Operating Partnership
    137  
 
Our Services Company
    137  
DESCRIPTION OF THE PARTNERSHIP AGREEMENT OF MAGUIRE PROPERTIES, L.P.
    139  
 
Management of Our Operating Partnership
    139  
 
Transferability of Interests
    139  

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Page

 
Amendments of the Partnership Agreement
    140  
 
Distributions to Unitholders
    140  
 
Redemption/ Exchange Rights
    141  
 
Issuance of Additional Common Units, Preferred Units, Common Stock, Preferred Stock or Convertible Securities
    141  
 
Tax Matters
    141  
 
Allocations of Net Income and Net Losses to Partners
    141  
 
Operations
    142  
 
Termination Transactions
    142  
 
Term
    143  
 
Indemnification and Limitation of Liability
    143  
PRINCIPAL STOCKHOLDERS
    144  
DESCRIPTION OF SERIES A PREFERRED STOCK
    146  
 
General
    146  
 
Rank
    146  
 
Dividends
    146  
 
Liquidation Preference
    148  
 
Optional Redemption
    149  
 
No Maturity, Sinking Fund or Mandatory Redemption
    150  
 
Limited Voting Rights
    150  
 
Restrictions on Ownership and Transfer
    152  
 
Conversion
    153  
 
Global Securities
    153  
 
Transfer Agent and Registrar
    154  
DESCRIPTION OF SECURITIES
    155  
 
General
    155  
 
Common Stock
    155  
 
Preferred Stock
    156  
 
Power to Increase Authorized Stock and Issue Additional Shares of Our Common Stock and Preferred Stock
    156  
 
Restrictions on Transfer
    156  
 
Transfer Agent and Registrar
    159  
MATERIAL PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS
    160  
 
Our Board of Directors
    160  
 
Removal of Directors
    160  
 
Business Combinations
    160  
 
Control Share Acquisitions
    161  
 
Amendment to Our Charter
    162  
 
Transactions Outside the Ordinary Course of Business
    162  
 
Dissolution of Our Company
    162  
 
Advance Notice of Director Nominations and New Business
    162  
 
Anti-takeover Effect of Certain Provisions of Maryland Law and of Our Charter and Bylaws
    162  
 
Ownership Limit
    163  
 
Indemnification and Limitation of Directors’ and Officers’ Liability
    163  
 
Indemnification Agreements
    164  
FEDERAL INCOME TAX CONSIDERATIONS
    165  
 
Taxation of Our Company
    165  
 
Failure To Qualify
    174  
 
Tax Aspects of Our Operating Partnership, the Subsidiary Partnerships and the Limited Liability Companies
    175  
 
Federal Income Tax Considerations for Holders of Our Preferred Stock
    177  
 
Taxation of Taxable U.S. Stockholders Generally
    178  
 
Backup Withholding
    180  
 
Taxation of Tax Exempt Stockholders
    180  
 
Taxation of Non-U.S. Stockholders
    180  
 
Other Tax Consequences
    183  
 
New Legislation
    183  
 
Proposed Legislation
    184  
ERISA CONSIDERATIONS
    185  
 
General
    185  
 
Employee Benefit Plans, Tax-Qualified Retirement Plans and IRAs
    185  
 
Our Status Under ERISA
    186  
UNDERWRITING
    188  
LEGAL MATTERS
    192  
EXPERTS
    192  
WHERE YOU CAN FIND MORE INFORMATION
    192  


       You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.

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PROSPECTUS SUMMARY

       This summary highlights selected information about us. It may not contain all the information that may be important to you in deciding whether to invest in the series A preferred stock. You should read this entire prospectus, including our historical and pro forma financial statements and the information appearing under the caption “Risk Factors.” References in this prospectus to “we,” “our,” “us” and “our company” refer to Maguire Properties, Inc., a Maryland corporation, together with our consolidated subsidiaries, including Maguire Properties, L.P., a Maryland limited partnership of which we are the sole general partner and which we refer to in this prospectus as our operating partnership, and Maguire Properties Services, Inc., a Maryland corporation and wholly owned subsidiary of our operating partnership, which we refer to in this prospectus as our services company. Unless otherwise indicated, the information contained in this prospectus is as of September 30, 2003 and assumes that the underwriters’ over-allotment option is not exercised. Additionally, unless otherwise indicated, portfolio property data as of September 30, 2003 relating to square feet, tenants, leasing, rents, commissions, credits and allowances, lease expirations and parking includes such data for One California Plaza, a property we acquired on November 6, 2003, as described below.

Maguire Properties, Inc.

       We are the largest owner and operator of Class A office properties in the Los Angeles central business district, or LACBD, and are primarily focused on owning and operating high quality office properties in the high-barrier-to-entry Southern California market. We were formed in June 2002 to succeed to certain businesses of the Maguire Organization, a nationally recognized owner, developer and acquirer of institutional-quality properties in the Los Angeles area since 1965. Prior to our initial public offering of common stock, or IPO, on June 27, 2003, the Maguire Organization was comprised of Maguire Partners Development, Ltd. and its more than 125 predecessor and related entities, all of which were predominately owned by, or otherwise affiliated with, Robert F. Maguire III, our Chairman and Co-Chief Executive Officer. We are a full service real estate company, and we operate as a real estate investment trust, or REIT, for federal income tax purposes.

       Through our operating partnership, we own a portfolio of 13 commercial real estate properties, consisting of nine office properties with approximately 7.1 million net rentable square feet, one 350-room hotel with 266,000 square feet, and three off-site parking garages totaling 2,749 spaces and approximately 1.0 million square feet. In addition, our office portfolio contains approximately 2.3 million square feet of on-site parking totaling 8,065 spaces. We also own an undeveloped two-acre land parcel adjacent to an existing office property that we believe can support 300,000 net rentable square feet of office development.

       Our existing portfolio is located in three Southern California markets — the LACBD, the Tri-Cities area of Pasadena, Glendale and Burbank and the Cerritos submarket of Los Angeles County. Our portfolio includes five office properties in the prime Bunker Hill area of the LACBD — US Bank Tower (formerly Library Tower), Gas Company Tower, KPMG Tower, Wells Fargo Tower and One California Plaza — and three off-site parking garages. In the Tri-Cities, we own the Plaza Las Fuentes office and hotel properties in Pasadena, the Glendale Center office property in Glendale and a two-acre land parcel adjacent to the Glendale Center. In the Cerritos submarket, we own the Cerritos Corporate Center Phase I and Phase II properties, collectively known as the AT&T Wireless Western Regional Headquarters. As of September 30, 2003, our office portfolio was 92.2% leased to more than 200 tenants. As of September 30, 2003, tenants generating 47.5% of the annualized rent of our office portfolio were rated investment grade as reported by Standard & Poor’s, and tenants generating an additional 38.5% of the annualized rent of our office portfolio were nationally recognized professional services firms.

       Our management team possesses substantial expertise in all aspects of real estate management, marketing, leasing, acquisition, development and finance. We directly manage the properties in our portfolio, except for Cerritos Corporate Center Phases I and II, through our operating partnership and/or our services company. We provide development, leasing and/or management services to various properties that are owned or controlled by Mr. Maguire. We have options to purchase certain of these properties,

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1733 Ocean Avenue in Santa Monica, California, Western Asset Plaza (formerly known as Plaza Las Fuentes II) in Pasadena, California, and a 12.5% interest in the Water’s Edge Development in West Los Angeles, which we refer to in this prospectus as the option properties, but do not with respect to certain other properties owned or controlled by Mr. Maguire, which we refer to in this prospectus as the excluded properties. We operate from our headquarters in Los Angeles, California. As of November 30, 2003, we had 81 employees.

       Our principal executive offices are located at 555 West Fifth Street, Suite 5000, Los Angeles, California 90013-1010. Our telephone number at that location is (213) 626-3300. Our website is located at www.maguireproperties.com. The information found on, or otherwise accessible through our website is not incorporated into, and does not form a part of, this prospectus or any other report or document we file with or furnish to the Securities and Exchange Commission.

Recent Developments

       On September 15, 2003 we declared a dividend to common stockholders of record and our operating partnership declared a distribution to holders of record of common limited partnership units in our operating partnership, or units, in each case as of September 30, 2003, totaling $22,402,000, or $0.4176 per common share and common unit. This dividend consisted of a quarterly dividend of $0.40 per common share and common unit for the period from July 1, 2003 through September 30, 2003 and a pro rata dividend of $0.0176 per common share and common unit covering the period from the consummation of our IPO on June 27, 2003 through June 30, 2003. The dividend and distribution were paid on October 31, 2003. The dividend is equivalent to an annual rate of $1.60 per common share and common unit.

       On October 10, 2003, we sold a $72.0 million interest rate swap agreement associated with $72.0 million of the floating rate KPMG Tower mortgage for $1.6 million.

       On October 14, 2003, our subsidiary that is the fee simple owner of Glendale Center entered into a ten-year, interest-only $80.0 million mortgage loan with Greenwich Capital Financial Products secured by Glendale Center. This mortgage matures in November 2013 and bears interest at a fixed rate of 5.727% per annum.

       On November 6, 2003, a subsidiary of our operating partnership acquired One California Plaza, a 42-story, 981,662 foot office tower in the LACBD, from Metropolitan Life Insurance Company for aggregate consideration of $225.0 million. We funded this purchase with cash on hand and a seven-year, $146.3 million mortgage bearing interest at a fixed rate of 4.73% per annum provided by Metropolitan Life Insurance Company.

       On December 15, 2003, we declared a dividend to common stockholders of record and our operating partnership declared a distribution to common unit holders of record, in each case as of December 31, 2003, totaling $21,458,000, or $0.40 per common share and common unit, for the quarter ended December 31, 2003. The dividend and distribution are payable on January 30, 2004. The dividend is equivalent to an annual rate of $1.60 per common share and common unit.

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Our Competitive Strengths

       We believe we distinguish ourselves from other owners, operators, acquirers and developers of office properties in a number of ways, and enjoy significant competitive strengths, including:

  •  Trophy Quality Portfolio. Our office portfolio consists of architecturally distinctive, Class A properties, including West Coast landmarks such as US Bank Tower and Gas Company Tower, which, based on current market rents and estimated construction costs, management believes could not be replicated on a cost-competitive basis today.
 
  •  Nationally Recognized Tenants. The high quality of our office portfolio attracts nationally recognized firms as tenants. As of September 30, 2003, 86.0% of our annualized rent was generated by tenants that were either rated investment grade by Standard & Poor’s or were nationally recognized professional services firms.
 
  •  Southern California Focus. All of our properties are located in the high-barrier-to-entry Southern California office market.
 
  •  Commanding Market Share. The concentration of our portfolio in the LACBD, and particularly the prime Bunker Hill section of the LACBD, provides us with a commanding share of the LACBD Class A office space market.
 
  •  Strategic Joint Ventures. We have had considerable experience in creating strategic joint ventures in order to mitigate acquisition and development risks, secure marquee anchor tenants and facilitate financing.
 
  •  Experienced and Committed Management Team. Our senior management team has an average of 21 years of experience in the commercial real estate industry and collectively owns a 20.0% interest in our company’s common equity on a fully diluted basis.

Business and Growth Strategies

       Our primary business objectives are to maximize distributable cash flow and to achieve sustainable long-term growth in cash flow per share in order to maximize long-term stockholder value. Our business strategies to achieve these objectives consist of several elements:

  •  Focus on Premier-Quality Properties. Our core strategy is to own, manage, acquire and develop buildings of exceptional quality that can achieve premium rents within our markets.
 
  •  Opportunistic Acquisition and Redevelopment. We intend to selectively acquire and redevelop existing office buildings that can be acquired at significant discounts to replacement cost, and reposition them into high-quality properties through architectural improvements and additional amenities.
 
  •  Fostering Strong Tenant Relationships. We foster strong tenant relationships with nationally recognized tenants through a commitment to serving tenant needs. Our substantial in-house marketing, lease-negotiation and design capabilities give us a competitive advantage in retaining existing tenants, attracting new tenants and replacing departing tenants quickly and efficiently.
 
  •  Capital Recycling. We will seek to raise low-cost equity capital by joint venturing our stabilized properties and reinvesting the proceeds into properties with higher growth potential.

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Summary Risk Factors

       You should carefully consider the following important risks:

  •  Our properties are primarily office buildings, are all located in Los Angeles County, California and are geographically concentrated in the LACBD, making us more vulnerable to certain adverse events than if we owned a more diverse portfolio of assets.
 
  •  Conflicts of interest exist or may develop with certain of our officers and directors, particularly with Mr. Maguire, our Chairman and Co-Chief Executive Officer. Such officers and directors may suffer different and more adverse tax consequences than holders of our capital stock upon the sale or refinancing of our properties, which may make the sale or refinancing of some of our properties less likely. Mr. Maguire and Richard I. Gilchrist, a director and our Co-Chief Executive Officer and President, and/or entities related to them are parties to employment agreements, certain other agreements entered into in connection with our formation transactions, non-competition agreements and, only with respect to certain entities controlled by Mr. Maguire, option agreements under which they receive material benefits and have material obligations, the enforcement of which we may pursue less vigorously than we otherwise might because of our desire to maintain our ongoing relationship with them.
 
  •  Under the contribution agreements by which Mr. Maguire and certain other contributors, including Master Investments, LLC, an entity in which Mr. Maguire and Mr. Gilchrist each own an interest, contributed their direct and indirect interests in certain properties to us in connection with the contribution and acquisition transactions consummated concurrently with our IPO, which we refer to in this prospectus as the formation transactions, we agreed to indemnify Mr. Maguire and these other contributors against adverse tax consequences to them in the event that we directly or indirectly sell, exchange or otherwise dispose of three of our properties in a taxable transaction until June 27, 2012 (or up to June 27, 2015 if Mr. Maguire and related entities retain ownership of 50% or more of the units received by them in the formation transactions and pursuant to option agreements) and two other properties until June 27, 2010 (or up to June 27, 2013 if Mr. Maguire and related entities retain ownership of 50% or more of the units received by them in the formation transactions and pursuant to option agreements). These properties represented 80.5% of our portfolio’s aggregate annualized rent as of September 30, 2003. In addition, under such contribution agreements, we agreed to use commercially reasonable efforts to make approximately $591.8 million of indebtedness available for guarantee by Mr. Maguire and certain other contributors which will, among other things, allow them to defer the recognition of gain in connection with the formation transactions. The tax indemnities granted to the contributors, including Mr. Maguire, will not affect the way in which we conduct our business, including when and under what circumstances we sell restricted properties or interests therein during the restriction period. While we may seek to enter into tax efficient joint ventures with third party investors, we have no intention to sell or otherwise dispose of the properties or interests therein in taxable transactions during the restriction period. While we do not intend to sell any of these properties in transactions that would trigger these tax indemnification obligations, if we were to trigger our tax indemnification obligations under these agreements, we would be liable for damages.
 
  •  Potential losses from terrorism, fires, floods, earthquakes or liability, including liability for environmental matters, may not be fully covered by our insurance policies or may be subject to significant deductibles; other losses like losses from riots or acts of God are not covered by insurance at all. All of our properties, as well as all but one of the option properties and all of the excluded properties, are covered by the same blanket insurance policy. Any claim with respect to the option and excluded properties could reduce amounts available for our properties. The five largest properties in our office portfolio, which together represented approximately 87.5% of our office portfolio’s aggregate annualized rent as of September 30, 2003, are located within the Bunker Hill section of the LACBD. Because these properties are located so closely together, the

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  amount of our insurance coverage may not be sufficient to fully cover potential losses from earthquakes, terrorist attacks or other adverse events affecting the LACBD.
 
  •  As of November 30, 2003, we had $1.2 billion of consolidated indebtedness, and we may incur significant additional debt to finance future acquisition and development activities. We also have a $100 million secured revolving credit facility with a group of banks led by affiliates of Citigroup Global Markets Inc. and Wachovia Capital Markets, LLC, two of our lead underwriters. The credit facility has a borrowing limit based on a percentage of the value of our properties that secure this credit facility. Approximately $76.7 million will be available upon consummation of this offering. Our debt service obligations with respect to such indebtedness will reduce cash available for distribution, including cash available to pay dividends on our series A preferred stock, and expose us to the risk of default. Our debt agreements contain lockbox and cash management provisions, and if our properties do not generate sufficient cash flow to be distributed to us, we may be required to fund distributions, including dividends on our series A preferred stock, from working capital or borrowings or to reduce such distributions. It is our policy to limit our indebtedness to approximately 60% of our total market capitalization, which is the sum of the market values of all of our outstanding common stock, preferred stock and units not owned by our company and the book value of our indebtedness; however, this policy is not a part of our governing documents and our board of directors can change it at any time.
 
  •  We are dependent on significant tenants that may be difficult or costly to replace, including Sempra Energy (together with its Southern California Gas Company subsidiary), which accounts for more than 17.5% of our office portfolio annualized rent as of September 30, 2003. The loss of this tenant could cause a material decrease in cash available for distribution to our stockholders.
 
  •  We seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements that involve risk, such as the risk that counterparties may fail to honor their obligations under these arrangements, and that such arrangements may not be effective in reducing our exposure to interest rate changes. Failure to hedge effectively against interest rate changes may adversely affect results of operations.
 
  •  We may be unable to identify or complete acquisitions or successfully integrate new acquisitions into our operations.
 
  •  If we fail to qualify as a REIT for federal income tax purposes, we will be taxed as a corporation and our liability for certain federal, state and local income taxes may significantly increase, which could result in a material decrease in cash available for distribution.
 
  •  Our charter, the Maryland General Corporation Law and the partnership agreement of our operating partnership contain provisions that may delay or prevent a change of control transaction or limit the opportunity for stockholders to receive a premium for their series A preferred stock in such a transaction, including a 9.8% limit on ownership of our common stock.
 
  •  We and our predecessor have had historical accounting losses. We may experience future losses.

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The Properties

       Our existing portfolio is located in three Southern California markets — the LACBD, the Tri-Cities area and the Cerritos submarket. The following table presents an overview of our existing portfolio as of September 30, 2003, including information as of September 30, 2003 for One California Plaza, which we acquired on November 6, 2003. We hold long-term leasehold interests in One California Plaza, Plaza Las Fuentes and the Plaza Las Fuentes Westin and in each of Cerritos Corporate Center Phase I and Phase II. See “Business and Properties — Description of Existing Portfolio.” For the meanings of certain terms used in the chart and other important information, see “Business and Properties — Existing Portfolio” on pages 77-78.

                                                             
Annualized
Annualized Net Effective
Rent Per Rent Per
Percent Year Built/ Net Rentable Percent Annualized Leased Leased
Office Properties Location Ownership Renovated Square Feet Leased Rent Square Foot Square Foot









US Bank Tower
  Los Angeles     100 %     1989       1,374,883       90.4%     $ 35,752,581     $ 28.75     $ 22.36  
Gas Company Tower
  Los Angeles     100       1991       1,335,957       96.1       34,406,906       26.80       24.51  
Wells Fargo Tower
  Los Angeles     100       1982       1,380,519       88.9       22,731,506       18.53       18.77  
KPMG Tower
  Los Angeles     100       1983       1,119,248       87.8       19,168,638       19.50       11.38  
One California Plaza*
  Los Angeles     100       1985       981,667       92.9       13,347,262       14.64       11.24  
Plaza Las Fuentes
  Pasadena     100       1989       183,614       95.8       3,282,754       18.67       14.39  
Glendale Center
  Glendale     100       1973/1996       382,888       100.0       7,411,364       19.36       19.20  
Cerritos Corporate Center Phase I
  Cerritos     100       1999       221,968       100.0       5,084,054       22.90       25.06  
Cerritos Corporate Center Phase II
  Cerritos     100       2001       104,567       100.0       2,141,371       20.48       19.80  
                         
     
     
                 
Portfolio Total/ Weighted Average:                     7,085,311       92.2%     $ 143,326,436     $ 21.94     $ 18.48  
                     
     
     
                 
                                                                 
Percentage
of Vehicle
Vehicles Capacity
Under Under
Vehicle Monthly Monthly Square
Garage Properties Capacity Contract Contract Footage





On-Site Parking
    8,065       9,237       114.5 %     2,307,547                                  
Off-Site Garages
    2,749       2,757       100.3       958,087                                  
     
     
     
     
                                 
Total/ Weighted Average:
    10,814       11,994       110.9 %     3,265,634                                  
     
     
             
                                 
                                                             
Twelve Months Ended
September 30, 2003

Revenue Per
Percent Square Available Average Average Available
Hotel Properties Location Ownership Year Built Footage Rooms Occupancy Daily Rate Room









Plaza Las Fuentes Westin
  Pasadena     100%       1989       266,000       350       73.9%     $ 124.40     $ 91.89  
                         
                                 
Total Existing Portfolio Square Footage:                     10,616,945                                  
                     
                                 


Acquired on November 6, 2003.

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The Offering

       The offering terms are summarized below solely for your convenience. For a more complete description of the terms of our series A preferred stock, see “Description of Series A Preferred Stock.” We will contribute the net proceeds of the sale of our series A preferred stock to our operating partnership and our operating partnership will issue to us series A preferred units.

 
Issuer Maguire Properties, Inc., a Maryland corporation.
 
Securities Offered 9,000,000 shares of our 7.625% series A cumulative redeemable preferred stock (10,000,000 shares if the underwriters’ option to purchase additional shares is exercised in full).
 
Ranking The series A preferred stock will rank, with respect to dividend rights and rights upon our liquidation, dissolution or winding-up:
 
     • senior to all classes or series of our common stock, and to any other class or series of our capital stock expressly designated as ranking junior to the series A preferred stock;
 
     • on parity with any class or series of our capital stock expressly designated as ranking on parity with the series A preferred stock; and
 
     • junior to any other class or series of our capital stock expressly designated as ranking senior to the series A preferred stock.
 
Dividend Rate and Payment Date Investors will be entitled to receive cumulative cash dividends on the series A preferred stock from and including the date of original issue, payable quarterly in arrears on or about the last calendar day of January, April, July and October of each year, commencing April 2004, at the rate of 7.625% per annum of the $25.00 liquidation preference per share (equivalent to an annual amount of $1.90625 per share). The first dividend payable on the series A preferred stock on April 30, 2004 will be a pro rata dividend from and including the original issue date to and including April 30, 2004 in the amount of $0.51892 per share. Dividends on the series A preferred stock will accrue whether or not we have earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are authorized or declared.
 
As a result of recent changes in the tax law, dividends paid by regular C corporations to persons or entities that are taxed as United States individuals now are generally taxed at the rate applicable to long-term capital gains, which is a maximum of 15%, subject to certain limitations. Because we are a REIT, however, our dividends, including dividends paid on our series A preferred stock, generally will continue to be taxed at regular ordinary income tax rates, except to the extent that the special rules relating to qualified dividend income and capital gains dividends paid by a REIT apply. See “Federal Income Tax Considerations.”

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Liquidation Preference If we liquidate, dissolve or wind-up, holders of the series A preferred stock will have the right to receive $25.00 per share, plus accrued and unpaid dividends (whether or not earned or declared) up to and including the date of payment, before any payment is made to holders of our common stock and any other class or series of capital stock ranking junior to the series A preferred stock as to liquidation rights. The rights of holders of series A preferred stock to receive their liquidation preference will be subject to the proportionate rights of any other class or series of our capital stock ranking on parity with the series A preferred stock as to liquidation.
 
Optional Redemption We may not redeem the series A preferred stock prior to January 30, 2009, except in limited circumstances to preserve our status as a REIT. On and after January 30, 2009, the series A preferred stock will be redeemable at our option, in whole or in part at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to and including the redemption date. Any partial redemption will be on a pro rata basis.
 
No Maturity, Sinking Fund or Mandatory Redemption The series A preferred stock has no maturity date and we are not required to redeem the series A preferred stock at any time. Accordingly, the series A preferred stock will remain outstanding indefinitely, unless we decide, at our option, to exercise our redemption right. The series A preferred stock is not subject to any sinking fund.
 
Voting Rights Holders of series A preferred stock will generally have no voting rights. However, if we are in arrears on dividends on the series A preferred stock for six or more quarterly periods, whether or not consecutive, holders of the series A preferred stock (voting together as a class with the holders of all other classes or series of parity preferred stock upon which like voting rights have been conferred and are exercisable) will be entitled to vote at our next annual meeting and each subsequent annual meeting of stockholders for the election of two additional directors to serve on our board of directors until all unpaid dividends and the dividend for the then-current period with respect to the series A preferred stock and any other class or series of parity preferred stock have been paid or declared and a sum sufficient for the payment thereof set aside for payment. In addition, we may not make certain material adverse changes to the terms of the series A preferred stock without the affirmative vote of the holders of at least two-thirds of the outstanding shares of series A preferred stock and the holders of all other shares of any class or series ranking on parity with the series A preferred stock that are entitled to similar voting rights (voting together as a single class).
 
Listing We have applied to list the series A preferred stock on the NYSE. We will use commercially reasonable efforts to have our listing application for the series A preferred stock approved. If the application is approved, trading of the series A preferred

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stock on the NYSE is expected to commence within 30 days after the date of initial delivery of the series A preferred stock. The underwriters have advised us that they intend to make a market in the series A preferred stock prior to commencement of any trading on the NYSE. However, the underwriters will have no obligation to do so, and no assurance can be given that a market for the series A preferred stock will develop prior to commencement of trading on the NYSE or, if developed, will be maintained.
 
Restrictions on Ownership
and Transfer
For us to qualify as a REIT under the Internal Revenue Code of 1986, as amended, or the Code, the transfer of our capital stock, which includes the series A preferred stock, is restricted and not more than 50% in value of our outstanding capital stock may be owned, directly or constructively, by five or fewer individuals, as defined in the Code. In order to assist us in meeting these requirements, no person or persons acting as a group may own, or be deemed to own by virtue of the constructive ownership rules of the Code, subject to limited exceptions, more than 9.8% of the outstanding shares of the series A preferred stock. See “Description of Series A Preferred Stock — Restrictions on Ownership and Transfer.”
 
Conversion The series A preferred stock is not convertible into or exchangeable for any of our other property or securities.
 
Use of Proceeds We expect that the net proceeds from this offering will be approximately $216.8 million after deducting underwriting discounts and commissions and our expenses (or approximately $241.0 million if the underwriters exercise their option to purchase additional shares in full). We will contribute the net proceeds from this offering to our operating partnership in exchange for series A preferred units, the economic terms of which are substantially similar to the series A preferred stock. Our operating partnership will subsequently use the net proceeds received from us to potentially acquire or develop additional properties and for other general corporate purposes. See “Use of Proceeds.”
 
Risk Factors An investment in the series A preferred stock involves various risks, and prospective investors should carefully consider the matters discussed under the caption entitled “Risk Factors” beginning on page 18 of this prospectus before making a decision to invest in the series A preferred stock.
 
Form The series A preferred stock will be issued and maintained in book-entry form registered in the name of the nominee of The Depository Trust Company, except under limited circumstances.

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Summary Selected Combined Financial Data

       The following table sets forth summary selected consolidated financial and operating data on a pro forma and historical basis for our company and on a combined historical basis for the Maguire Properties Predecessor. We have not presented historical information for our company prior to June 27, 2003, the date on which we consummated our IPO, because during the period from our formation until our IPO, we did not have material corporate activity.

       The Maguire Properties Predecessor combined historical financial information includes the following entities, which are a subset of the entities referred to collectively in this prospectus as the Maguire Organization, for periods prior to June 27, 2003:

  •  the property management, leasing and real estate development operations of Maguire Partners Development, Ltd.;
 
  •  the real estate operations for certain entities that own Plaza Las Fuentes and the Plaza Las Fuentes Westin, Gas Company Tower (beginning December 21, 2000), 808 South Olive garage (beginning December 21, 2000) and KPMG Tower (beginning September 13, 2002); and
 
  •  investments in and equity in net income or loss from the operations for certain real estate entities that own Gas Company Tower, 808 South Olive garage and KPMG Tower prior to the dates listed above and US Bank Tower, Wells Fargo Tower and Glendale Center for all periods prior to June 27, 2003.

       The owners of the Maguire Properties Predecessor were Mr. Maguire and certain others who had minor ownership interests.

       You should read the following summary selected financial data in conjunction with our consolidated and combined historical and consolidated pro forma financial statements and the related notes, as well as with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this prospectus.

       The historical combined balance sheet information as of December 31, 2002 and 2001 of the Maguire Properties Predecessor and combined statements of operations information for the years ended December 31, 2002, 2001 and 2000 of the Maguire Properties Predecessor have been derived from the historical combined financial statements audited by KPMG LLP, independent auditors, whose report with respect thereto is included elsewhere in this prospectus. The historical combined balance sheet information as of December 31, 2000 has been derived from the historical combined financial statements of the Maguire Properties Predecessor audited by KPMG LLP. The historical consolidated balance sheet information as of September 30, 2003 and the consolidated statement of operations information for the three months ended September 30, 2003 and the period from June 27, 2003 through September 30, 2003 have been derived from the unaudited consolidated financial statements of our company. The combined statements of operations information for the period from January 1, 2003 through June 26, 2003 and for the three and nine months ended September 30, 2002 have been derived from the unaudited combined financial statements of the Maguire Properties Predecessor. In the opinion of the management of our company, the historical consolidated and combined statements of operations for the three months ended September 30, 2003, the period from June 27, 2003 through September 30, 2003, the period from January 1, 2003 through June 26, 2003 and the three and nine months ended September 30, 2002 include all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the information set forth therein. Our results of operations for the interim periods ended September 30, 2003 are not necessarily indicative of the result to be obtained for the full fiscal year.

       Our unaudited summary selected pro forma consolidated financial statements and operating information as of and for the nine months ended September 30, 2003 and for the year ended December 31, 2002 assumes completion of this offering, the incurrence of the new $80.0 million mortgage financing relating to Glendale Center, the purchase of One California Plaza and the incurrence of the $146.3 million mortgage relating to One California Plaza as of the beginning of the period presented for the operating data and as of the stated date for the balance sheet data. Our pro forma consolidated

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financial statements also include the effects of our IPO on June 27, 2003 and the related formation and refinancing transactions that occurred in conjunction with our IPO, as if the resulting debt and equity structure were in place as of the first day of the period presented. Additionally, the pro forma consolidated statements of operations are presented as if the additional interests in KPMG Tower and Wells Fargo Tower that were acquired on September 13, 2002 and February 5, 2003, respectively, along with the related financing transactions, had occurred on the first day of the period presented. Our pro forma financial information is not necessarily indicative of what our actual financial position and results of operations would have been as of the date and for the periods indicated, nor does it purport to represent our future financial position or results of operations.

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The Company (Pro Forma and Historical Consolidated) and

the Maguire Properties Predecessor (Historical Combined)
(Dollars in thousands)
                                                     
The Maguire
Properties
The Company Predecessor


Pro Forma Historical Historical Historical Historical Historical
Consolidated Consolidated Consolidated Combined Combined Combined
Nine Months Three Months Period Period Three Months Nine Months
Ended Ended June 27, 2003 - January 1, 2003 - Ended Ended
September 30, September 30, September 30, June 26, September 30, September 30,






2003 2003 2003 2003 2002 2002






(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Statement of Operations Data:
                                               
 
Rental revenues
  $ 114,507     $ 33,986     $ 35,292     $ 28,732     $ 10,741     $ 30,115  
 
Tenant reimbursements
    54,176       16,070       16,646       13,165       5,139       12,769  
 
Hotel operations
    13,305       4,392       4,567       8,738       4,448       14,933  
 
Other revenues
    33,942       8,075       10,659       8,110       4,814       11,330  
     
     
     
     
     
     
 
   
Total revenues
    215,930       62,523       67,164       58,745       25,142       69,147  
     
     
     
     
     
     
 
 
Rental property operating and maintenance expenses
    48,719       13,857       14,467       11,941       4,947       11,011  
 
Hotel operating and maintenance expenses
    10,214       3,287       3,430       6,784       3,137       10,373  
 
Real estate taxes
    14,066       4,757       4,901       3,006       1,035       2,819  
 
General and administrative expenses
    16,824       3,450       17,633       9,080       4,858       12,644  
 
Depreciation and amortization expense
    49,536       13,696       14,100       11,387       3,903       11,159  
 
Interest expense
    43,792       11,650       12,490       24,853       9,383       26,812  
 
Loss from early extinguishment of debt
          2,431       46,760       6,667       3,967       3,967  
 
Other expenses
    16,085       286       4,206       7,549       470       782  
     
     
     
     
     
     
 
   
Total expenses
    199,236       53,414       117,987       81,267       31,700       79,567  
 
Equity in net income (loss) of uncombined real estate entities
          (31 )     (25 )     1,648       (237 )     (755 )
     
     
     
     
     
     
 
 
Income (loss) before gain on forgiveness of debt and minority interest
    16,694       9,078       (50,848 )     (20,874 )     (6,795 )     (11,175 )
 
Gain on forgiveness of debt
                                   
 
Minority interests
    3,422       1,882       (11,802 )     275       2       (336 )
     
     
     
     
     
     
 
 
Net income (loss)
  $ 13,272     $ 7,196     $ (39,046 )   $ (21,149 )   $ (6,797 )   $ (10,839 )
             
     
     
     
     
 
 
Pro forma preferred dividends
    12,867                                
     
                                         
 
Pro forma net income available to common stockholders
  $ 405                                
     
                                         
 
Basic earnings (loss) per common share
  $ 0.01     $ 0.17     $ (0.94 )                  
     
     
     
                         
 
Diluted earnings (loss) per common share
  $ 0.01     $ 0.17     $ (0.94 )                  
     
     
     
                         
 
Weighted average common shares outstanding – basic
    42,329,921       41,913,231       41,702,405                    
 
Weighted average common shares outstanding – diluted
    42,389,350       41,974,245       41,702,405                    
Cash dividends declared per common share
        $ 0.42                            

[Additional columns below]

[Continued from above table, first column(s) repeated]
                                     
The Maguire Properties
The Company Predecessor


Pro Forma
Consolidated
Year Ended Historical Combined Year
December 31, Ended December 31,


2002 2002 2001 2000




(Unaudited)
Statement of Operations Data:
                               
 
Rental revenues
  $ 150,118     $ 44,401     $ 39,028     $ 4,750  
 
Tenant reimbursements
    66,878       19,782       14,595       2,056  
 
Hotel operations
    20,005       20,005       19,346       23,879  
 
Other revenues
    39,254       16,864       14,636       8,011  
     
     
     
     
 
   
Total revenues
    276,255       101,052       87,605       38,696  
     
     
     
     
 
 
Rental property operating and maintenance expenses
    64,608       17,986       12,757       1,941  
 
Hotel operating and maintenance expenses
    15,310       15,310       13,361       15,166  
 
Real estate taxes
    16,811       4,692       4,134       995  
 
General and administrative expenses
    25,469       16,222       13,577       12,701  
 
Depreciation and amortization expense
    62,283       16,774       14,410       3,546  
 
Interest expense
    58,458       38,975       45,772       34,511  
 
Loss from early extinguishment of debt
          3,967              
 
Other expenses
    5,195       2,125       843       851  
     
     
     
     
 
   
Total expenses
    248,134       116,051       104,854       69,711  
 
Equity in net income (loss) of uncombined real estate entities
          (162 )     (2,679 )     3,065  
     
     
     
     
 
 
Income (loss) before gain on forgiveness of debt and minority interest
    28,121       (15,161 )     (19,928 )     (27,950 )
 
Gain on forgiveness of debt
                      161,159  
 
Minority interests
    5,765       (465 )     (2,359 )     (180 )
     
     
     
     
 
 
Net income (loss)
  $ 22,356     $ (14,696 )   $ (17,569 )   $ 133,389  
             
     
     
 
 
Pro forma preferred dividends
    17,156                    
     
                         
 
Pro forma net income available to common stockholders
  $ 5,200                    
     
                         
 
Basic earnings (loss) per common share
  $ 0.12                    
     
                         
 
Diluted earnings (loss) per common share
  $ 0.12                    
     
                         
 
Weighted average common shares outstanding – basic
    42,329,921                    
 
Weighted average common shares outstanding – diluted
    42,394,114                    
Cash dividends declared per common share
                       

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The Maguire
Properties
The Company Predecessor


Pro Forma Historical Historical Historical Historical Historical
Consolidated Consolidated Consolidated Combined Combined Combined
Nine Months Three Months Period Period Three Months Nine Months
Ended Ended June 27, 2003 - January 1, 2003 - Ended Ended
September 30, September 30, September 30, June 26, September 30, September 30,






2003 2003 2003 2003 2002 2002






(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Balance Sheet Data (at period end):
                                               
 
Investments in real estate, net
  $ 1,563,347     $ 1,336,509     $ 1,336,509                    
 
Total assets
    2,016,697       1,564,314       1,564,314                    
 
Mortgages and other secured loans
    1,211,250       985,000       985,000                    
 
Total liabilities
    1,359,756       1,124,975       1,124,975                    
 
Minority interest (deficit)
    90,243       90,082       90,082                    
 
Stockholders’/owners’ equity (deficit)
    566,698       349,257       349,257                    
 
Total liabilities and stockholders’/owners’ equity
    2,016,697       1,564,314       1,564,314                    
Cash flows from:
                                               
   
Operating activities
                                  (3,771 )
   
Investing activities
                                  (26,495 )
   
Financing activities
                                  31,926  
Other Data (unaudited):
                                               
 
Funds from operations(1)
    65,894                                
 
Funds from operations available to common stockholders(1)(2)
    53,027                                
 
EBITDA(3)
    110,022       34,424       (24,258 )     15,366       6,491       26,796  
 
EBITDA available to common stockholders(3)(4)
    97,155       34,424       (24,258 )     -       -       -  

[Additional columns below]

[Continued from above table, first column(s) repeated]
                                     
The Maguire Properties
The Company Predecessor


Pro Forma
Consolidated
Year Ended Historical Combined Year
December 31, Ended December 31,


2002 2002 2001 2000




(Unaudited)
Balance Sheet Data (at period end):
                               
 
Investments in real estate, net
        $ 549,384     $ 400,653     $ 406,471  
 
Total assets
          622,039       435,746       440,531  
 
Mortgages and other secured loans
          658,038       451,534       445,296  
 
Total liabilities
          781,207       556,669       538,046  
 
Minority interest (deficit)
          (12,889 )     (12,424 )     (10,065 )
 
Stockholders’/owners’ equity (deficit)
          (146,279 )     (108,499 )     (87,450 )
 
Total liabilities and stockholders’/owners’ equity
          622,039       435,746       440,531  
Cash flows from:
                               
   
Operating activities
            3,283       6,993       (3,851 )
   
Investing activities
            (28,024 )     (2,889 )     (20,538 )
   
Financing activities
            25,598       (4,066 )     25,582  
Other Data (unaudited):
                               
 
Funds from operations(1)
    89,956                    
 
Funds from operations available to common stockholders(1)(2)
    72,800                    
 
EBITDA(3)
    148,862       40,588       40,254       171,266  
 
EBITDA available to common stockholders(3)(4)
    131,706       -       -       -  


(1)  We calculate funds from operations, or FFO, as defined by the National Association of Real Estate Investment Trusts, or NAREIT. FFO represents net income (loss) (computed in accordance with accounting principles generally accepted in the United States of America, or GAAP), excluding gains (or losses) from sales of property, real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. Other equity REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to such other REITs’ FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. FFO also should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.
 
(2)  FFO available to common stockholders has been calculated assuming that the common units in our operating partnership are exchanged for common stock.
 
(3)  We believe that earnings before interest, taxes, depreciation and amortization, or EBITDA, is a useful supplemental performance measure. Management uses EBITDA as an indicator of our ability to incur and service debt. In addition, we believe EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of equity REITs. However, because EBITDA is calculated before recurring cash charges including interest expense and taxes, and is not adjusted for capital expenditures or other recurring cash requirements of our business, its utility as a measure of our liquidity is limited. Accordingly, EBITDA should be considered only as supplement to cash flows from operating activities (computed in accordance with GAAP) as a measure of our liquidity. EBITDA is not a measure of our financial performance and should not be considered as an alternative to net income as an indicator of our operating performance. Other equity REITs may calculate EBITDA differently than we do; accordingly, our EBITDA may not be comparable to such other REITs’ EBITDA.
 
(4)  EBITDA available to common stockholders has been calculated assuming that the common units in our operating partnership are exchanged for common stock.

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       The following table reconciles our pro forma FFO and pro forma FFO available to common stockholders to our pro forma net income for the nine months ended September 30, 2003 and the year ended December 31, 2002.

                   
Pro Forma
Nine Months Pro Forma
Ended Year Ended
September 30, 2003 December 31, 2002


(In thousands) (In thousands)
Reconciliation of pro forma net income to
pro forma funds from operations and pro forma funds from operations available to common stockholders:
               
Pro forma net income
  $ 13,272     $ 22,356  
Adjustments:
               
 
Pro forma minority interests
    3,422       5,765  
 
Pro forma real estate depreciation and amortization
    49,200       61,835  
     
     
 
Pro forma FFO
    65,894       89,956  
Less pro forma preferred stock dividends
    12,867       17,156  
     
     
 
Pro forma FFO available to common stockholders(1)
  $ 53,027     $ 72,800  
     
     
 


(1)  FFO available to common stockholders has been calculated assuming that the common units in our operating partnership are exchanged for common stock.

       The following table reconciles our EBITDA and EBITDA available to common stockholders to our net income for the periods indicated:

                                                                                   
The Maguire
Properties The Maguire Properties
The Company Predecessor The Company Predecessor




Pro Forma Historical Historical Historical Historical Historical
Consolidated Consolidated Consolidated Combined Combined Combined Pro Forma
Nine Months Three Months Period Period Three Months Nine Months Consolidated
Ended Ended June 27, 2003 - January 1, 2003 - Ended Ended Year Ended Historical Combined Year
September 30, September 30, September 30, June 26, September 30, September 30, December 31, Ended December 31,








2003 2003 2003 2003 2002 2002 2002 2002 2001 2000










Reconciliation of net income to earnings before interest, taxes and depreciation and amortization (EBITDA):
                                                                               
Net income (loss)
  $ 13,272     $ 7,196     $ (39,046 )   $ (21,149 )   $ (6,797 )   $ (10,839 )   $ 22,356     $ (14,696 )   $ (17,569 )   $ 133,389  
Adjustments:
                                                                               
 
Minority interests
    3,422       1,882       (11,802 )     275       2       (336 )     5,765       (465 )     (2,359 )     (180 )
 
Interest expense
    43,792       11,650       12,490       24,853       9,383       26,812       58,458       38,975       45,772       34,511  
 
Depreciation and amortization
    49,536       13,696       14,100       11,387       3,903       11,159       62,283       16,774       14,410       3,546  
     
     
     
     
     
     
     
     
     
     
 
EBITDA
    110,022       34,424       (24,258 )   $ 15,366     $ 6,491     $ 26,796       148,862     $ 40,588     $ 40,254     $ 171,266  
     
     
     
     
     
     
     
     
     
     
 
Less preferred stock dividends
    12,867                                     17,156                    
     
     
     
                             
                         
EBITDA available to common stockholders (1)
  $ 97,155     $ 34,424     $ (24,258 )                     $ 131,706                    
     
     
     
                             
                         


(1)  EBITDA available to common stockholders has been calculated assuming that the common units in our operating partnership are exchanged for common stock.

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Ratios of Earnings and EBITDA to Fixed Charges and Preferred Dividends

       Our ratios of earnings to fixed charges, earnings to fixed charges and preferred dividends, EBITDA to fixed charges and EBITDA to fixed charges and preferred dividends for the periods indicated are as follows:

                                                                                 
The Maguire
Properties The Maguire Properties
The Company Predecessor The Company Predecessor




Historical
Pro Forma Historical Combined
Consolidated Historical Consolidated Period Pro Forma
Nine Months Three Months Period January 1, Consolidated Historical Combined Year
Ended Ended June 27, 2003 - 2003 - Year Ended Ended December 31,
September 30, September 30, September 30, June 26, December 31,
2003 2003 2003 2003 2002 2002 2001 2000 1999 1998










Ratio of Earnings to Fixed Charges
    1.38x       1.79 x     (3.03 )x     0.16x       1.47x       0.67x       0.68x       5.21x       0.78x       0.49x  
Ratio of Earnings to Fixed Charges and Preferred Dividends
    1.07x                         1.14x                                
Ratio of EBITDA to Fixed Charges
    2.47x       2.93 x     (1.93 )x     0.62x       2.51x       1.04x       0.88x       4.94x       0.42x       0.60x  
Ratio of EBITDA to Fixed Charges and Preferred Dividends
    1.92x                         1.95x                                

       Our ratios of earnings to fixed charges and EBITDA to fixed charges are computed by dividing earnings or EBITDA, as applicable, by fixed charges. Our ratios of earnings to fixed charges and preferred dividends and EBITDA to fixed charges and preferred dividends are computed by dividing earnings or EBITDA, as applicable, by the sum of fixed charges and preferred dividends. For these purposes, “earnings” consist of net income (loss) before minority interests, equity in net income (loss) of uncombined real estate entities and fixed charges plus distributed income of the uncombined real estate entities. “EBITDA” consists of net income (loss) from continuing operations before minority interests, interest expense and depreciation and amortization. “Fixed charges” consist of interest expense, capitalized interest and amortization of deferred financing fees, whether expensed or capitalized, and interest within rental expense. Preferred dividends consist of the amount of pre-tax earnings required to pay dividends on the series A preferred stock. Our pro forma ratios are prepared on the basis of our pro forma financial statements. See “Maguire Properties, Inc. Pro Forma Condensed Consolidated Financial Statements.”

       The consummation of our IPO and the related formation transactions and refinancing transactions on June 27, 2003 permitted us to significantly deleverage our properties, resulting in a significantly improved ratio of earnings to fixed charges since the consummation of these transactions. Although our properties generally have had positive net cash flow before debt service, due to the loss from early extinguishment of debt and compensation expense associated with our IPO, for the historical consolidated period from June 27, 2003 to September 30, 2003, we showed a negative ratio of earnings to fixed charges and an earnings shortfall of $50.7 million during that period compared with the amount that would have been necessary to cover fixed charges. The Maguire Properties Predecessor’s computation of the ratio of earnings to fixed charges for the periods ended prior to the consummation of our IPO indicates that earnings were inadequate to cover fixed charges by approximately $21.1 million during the period from January 1, 2003 to June 26, 2003, and by $13.1 million, $14.6 million, $6.9 million, and $16.1 million, in the years ended December 31, 2002, 2001, 1999 and 1998, respectively.

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      Presented below are the components used to calculate the ratios of EBITDA to fixed charges and EBITDA to fixed charges and preferred dividends:

                                                                                   
The Maguire
Properties
The Company Predecessor The Company The Maguire Properties Predecessor




Historical
Pro Forma Historical Combined
Consolidated Historical Consolidated Period Pro Forma
Nine Months Three Months Period January 1, Consolidated Historical Combined Year Ended
Ended Ended June 27, 2003 - 2003 - Year Ended December 31,
September 30, September 30, September 30, June 26, December 31,
2003 2003 2003 2003 2002 2002 2001 2000 1999 1998










EBITDA
  $ 110,022     $ 34,424     $ (24,258 )   $ 15,366     $ 148,862     $ 40,588     $ 40,254     $ 171,266     $ 13,365     $ 19,046  
Fixed charges:
                                                                               
 
Interest expense
    43,792       11,650       12,490       24,853       58,458       38,975       45,772       34,511       31,564       31,368  
 
Interest within rental expense
    667       89       89       91       888       181       181       181       181       181  
     
     
     
     
     
     
     
     
     
     
 
      44,459       11,739       12,579       24,944       59,346       39,156       45,953       34,692       31,745       31,549  
Preferred Dividends
    12,867                         17,156                                

       For a reconciliation of EBITDA to net income (loss), see page 14.

       Since our inception, we have neither issued any shares of, nor paid any dividends on, preferred stock. Accordingly, the ratio of earnings to fixed charges and preferred stock dividends and the ratio of EBITDA to fixed charges and preferred stock dividends are not presented for historical periods.

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Our Tax Status

       We intend to be taxed as a REIT under Section 856 through 860 of the Code, commencing with our taxable year ending December 31, 2003. We believe that our organization and method of operation will enable us to meet the requirements for qualification and taxation as a REIT for federal income tax purposes. To maintain REIT status, we must meet a number of organizational and operational requirements, including a requirement that we annually distribute as least 90% of our REIT taxable income to our stockholders. As a REIT, we generally will not be subject to federal income tax on REIT taxable income we currently distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax at regular corporate rates. Even if we qualify for taxation as a REIT, we may be subject to some federal, state and local taxes on our income or property and the income of our services company will be subject to taxation at normal corporate rates. See “Federal Income Tax Considerations.”

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RISK FACTORS

       Investment in our series A preferred stock involves risks. In addition to other information contained in this prospectus, you should carefully consider the following factors before acquiring shares of our series A preferred stock offered by this prospectus. The occurrence of any of the following risks might cause you to lose all or a part of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Forward-Looking Statements” on page 33.

Risks Related to Our Properties and Our Business

       Our properties depend upon the Southern California economy and the demand for office space.

       All of our properties are located in Los Angeles County, California and most of them are concentrated in the LACBD, which exposes us to greater economic risks than if we owned properties in several geographic regions. Moreover, because our portfolio of properties consists primarily of office buildings, a decrease in the demand for office space, and Class A office space in particular, may have a greater adverse effect on our business and financial condition than if we owned a more diversified real estate portfolio. We are susceptible to adverse developments in the Southern California region (such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics, increased telecommuting, terrorist targeting of high-rise structures, infrastructure quality, California state budgetary constraints and priorities, increases in real estate and other taxes, costs of complying with government regulations or increased regulation and other factors) and the national and Southern California regional office space market (such as oversupply of or reduced demand for office space). In addition, the State of California continues to address issues related to budget deficits, shortages of electricity, interruptions in power service, increased energy costs, and the continued solvency of its utility companies, any or all of which may create the perception that the State is not able to effectively manage itself, in turn reducing demand for office space in California. The State of California is also generally regarded as more litigious and more highly regulated and taxed than many states, which may reduce demand for office space in California. Any adverse economic or real estate developments in the Southern California region, or any decrease in demand for office space resulting from California’s regulatory environment, business climate or energy or fiscal problems, could adversely impact our financial condition, results of operations, cash flow, the per share trading price of our series A preferred stock and our ability to satisfy our debt service obligations and to pay dividends to you. We cannot assure you of the continued growth of the Southern California economy or the national economy or our future growth rate.

       Tax indemnification obligations in the event that we sell certain properties could limit our operating flexibility.

       We have agreed to indemnify Mr. Maguire, Master Investments, LLC, an entity in which Mr. Maguire and Mr. Gilchrist each own an interest, and certain others against adverse tax consequences to them in the event that our operating partnership directly or indirectly sells, exchanges or otherwise disposes (including by way of merger, sale of assets or otherwise) of any portion of its interests, in a taxable transaction, in five of the office properties in our portfolio which represented 80.5% of our portfolio’s aggregate annualized rent as of September 30, 2003. These tax indemnity obligations apply for initial periods ranging between seven and nine years from the date of our IPO, which occurred on June 27, 2003, with up to three one-year extension periods if Mr. Maguire and related entities maintain ownership of units equal to 50% of the units received by them in the formation transactions and pursuant to option agreements with respect to option properties. We have also agreed to use commercially reasonable efforts to make approximately $591.8 million of debt available for certain contributors, including Mr. Maguire and related entities and Master Investments, LLC, to guarantee. See “Certain Relationships and Related Transactions — Description of Contribution Agreements, Tax Indemnity and Debt Guarantees.” We agreed to these provisions in order to assist Mr. Maguire and certain other contributors in preserving their tax position after their contribution of property interests to us. The tax indemnities granted to the contributors, including Mr. Maguire, will not affect the way in which we conduct our business, including

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when and under what circumstances we sell restricted properties or interests therein during the restriction period. While we do not intend to sell any of these properties in transactions that would trigger these tax indemnifications obligations, if we were to trigger our tax indemnification obligations under these agreements, we would be required to pay damages for the resulting tax consequences to Mr. Maguire and other contributors, and we have acknowledged that a calculation of damages will not be based on the time value of money or the time remaining within the restricted period. See “— Risks Related to Our Organization and Structure — Conflicts of interest exist with holders of units in our operating partnership.” In addition, we could involuntarily trigger our tax indemnification obligations under these provisions in the event of a condemnation of one of these properties.

       Potential losses may not be covered by insurance.

       We carry comprehensive liability, fire, extended coverage, earthquake, terrorism, business interruption and rental loss insurance covering all of the properties in our portfolio under a blanket policy that also covers all but one of the option and all of the excluded properties. We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. We do not carry insurance for generally uninsured losses such as loss from riots, war or acts of God. Some of our policies, like those covering losses due to terrorism, earthquake and floods, are insured subject to limitations involving large deductibles or co-payments and policy limits which may not be sufficient to cover losses. All of our properties are located in Southern California, an area especially subject to earthquakes. The five largest properties in our office portfolio — US Bank Tower, Gas Company Tower, Wells Fargo Tower, KPMG Tower and One California Plaza — are all located within the Bunker Hill section of downtown Los Angeles. Together, these properties represented roughly 87.5% of our office portfolio’s aggregate annualized rent as of September 30, 2003. Because these properties are located so closely together, an earthquake in downtown Los Angeles could materially damage, destroy or impair the use by tenants of all of these properties. While we presently carry earthquake insurance on our properties, the amount of our earthquake insurance coverage may not be sufficient to fully cover losses from earthquakes, particularly losses from an earthquake in downtown Los Angeles. In addition, we may discontinue earthquake, terrorism or other insurance on some or all of our properties in the future if the cost of premiums for any of these policies exceeds, in our judgment, the value of the coverage discounted for the risk of loss.

       If we experience a loss which is uninsured or which exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged. In the event of a significant loss at one or more of the option or excluded properties covered by the blanket policy, the remaining insurance under this policy, if any, could be insufficient to adequately insure our existing properties covered by this policy. In such event, securing additional insurance, if possible, could be significantly more expensive than our current policy.

       Future terrorist attacks in the United States could harm the demand for and the value of our properties.

       Future terrorist attacks in the U.S., such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and other acts of terrorism or war could harm the demand for and the value of our properties. Certain of our properties are well-known landmarks, in particular US Bank Tower in downtown Los Angeles, and may be perceived as more likely terrorist targets than similar, less recognizable properties, which could potentially reduce the demand for and value of these properties. A decrease in demand could make it difficult for us to renew or re-lease our properties at lease rates equal to or above historical rates or then-prevailing market rates.

       Terrorist attacks also could directly impact the value of our properties through damage, destruction, loss, or increased security costs, and the availability of insurance for such acts may be limited or may cost more. The five largest properties in our office portfolio — US Bank Tower, Gas Company Tower, Wells Fargo Tower, KPMG Tower and One California Plaza — are all located within the Bunker Hill section of

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downtown Los Angeles. Together, these properties represented roughly 87.5% of our office portfolio’s aggregate annualized rent as of September 30, 2003. Because these properties are located so closely together, a terrorist attack on any one of these properties, or in the downtown Los Angeles or Bunker Hill areas generally, could materially damage, destroy or impair the use by tenants of all of these properties. To the extent that our tenants are impacted by future attacks, their ability to continue to honor obligations under their existing leases with us could be adversely affected. Additionally, certain tenants have termination rights or purchase options in respect of certain casualties. If we receive casualty proceeds, we may not be able to reinvest such proceeds profitably or at all, and we may be forced to recognize taxable gain on the affected property. Failure to reinvest casualty proceeds in the affected property or properties could also trigger our tax indemnification obligations under our agreements with certain limited partners of our operating partnership with respect to sales of specified properties. See “— Tax indemnification obligations in the event that we sell certain properties could limit our operating flexibility” and “Certain Relationships and Related Transactions — Description of Contribution Agreements, Tax Indemnity and Debt Guarantees.”

       Our debt level reduces cash available for distribution, including cash available to pay dividends on our series A preferred stock, and may expose us to the risk of default under our debt obligations.

       As of November 30, 2003, our total consolidated indebtedness was approximately $1.2 billion, and we may incur significant additional debt to finance future acquisition and development activities. We also have a $100 million secured revolving credit facility with a group of banks led by affiliates of Citigroup Global Markets Inc. and Wachovia Capital Markets, LLC, two of our lead underwriters. This credit facility has a borrowing limit that varies based on a percentage of the value of our properties that secure our credit facility. Approximately $76.7 million will be available upon consummation of this offering.

       Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties or to pay the distributions currently contemplated or necessary to maintain our REIT qualification. Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:

  •  our cash flow may be insufficient to meet our required principal and interest payments;
 
  •  we may be unable to borrow additional funds as needed or on favorable terms;
 
  •  we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;
 
  •  because a portion of our debt bears interest at variable rates, increases in interest rates could increase our interest expense;
 
  •  we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms;
 
  •  we may default on our obligations and the lenders or mortgagees may foreclose on our properties that secure their loans and receive an assignment of rents and leases;
 
  •  we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations;
 
  •  our default under any one of our mortgage loans with cross default provisions could result in a default on other indebtedness; and
 
  •  because we have agreed with Mr. Maguire and other contributors to use commercially reasonable efforts to maintain certain debt levels, we may not be able to refinance our debt when it would be otherwise advantageous to do so or to reduce our indebtedness when our board of directors thinks it is prudent.

See “— Risks Related to this Offering — Our revolving credit facility prohibits us from redeeming the series A preferred stock and may limit our ability to pay dividends on the series A preferred stock.”

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       If any one of these events were to occur, our financial condition, results of operations, cash flow, per share trading price of our series A preferred stock and our ability to satisfy our debt service obligations and to pay dividends to you could be adversely affected. In addition, our debt agreements contain lockbox and cash management arrangements pursuant to which substantially all of the income generated by our properties is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders and from which cash is distributed to us only after funding of improvement, leasing and maintenance reserves and the payment of debt service, insurance, taxes, operating expenses, and extraordinary capital expenditures and leasing expenses. As a result, we may be forced to draw funds from our revolving line of credit in order to pay dividends to you and maintain our qualification as a REIT. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, a circumstance which could hinder our ability to meet the REIT distribution requirements imposed by the Code. Foreclosures could also trigger our tax indemnification obligations under the terms of our agreements with Mr. Maguire and others with respect to sales of certain properties and obligating us to use commercially reasonable efforts to make certain levels of indebtedness available for them to guarantee.

       We depend on significant tenants.

       As of September 30, 2003, the twenty largest tenants in the buildings in our office portfolio (including One California Plaza) represented approximately 76.7% of our portfolio’s total annualized rent. Our largest tenants are Sempra Energy and its subsidiaries and Wells Fargo Bank. Sempra Energy, together with its Southern California Gas Company subsidiary, currently leases 784,074 net rentable square feet of office space, representing approximately 17.5% of the total annualized rent generated by the properties in our office portfolio. Wells Fargo Bank currently leases 432,855 net rentable square feet of office space, representing approximately 7.2% of our portfolio’s total annualized rent. Our tenants may experience a downturn in their businesses, which may weaken their financial condition, result in their failure to make timely rental payments or their default under their leases. In the event of any tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment.

       The bankruptcy or insolvency of a major tenant also may adversely affect the income produced by our properties. If any tenant becomes a debtor in a case under the United States Bankruptcy Code, we cannot evict the tenant solely because of the bankruptcy. In addition, the bankruptcy court might authorize the tenant to reject and terminate its lease with us. Our claim against the tenant for unpaid, future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease. Even so, our claim for unpaid rent would likely not be paid in full.

       Our revenue and cash available for distribution to you could be materially adversely affected if any of our significant tenants were to become bankrupt or insolvent, or suffer a downturn in their business, or fail to renew their leases at all or renew on terms less favorable to us than their current terms.

       Failure to hedge effectively against interest rate changes may adversely affect results of operations.

       We seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements that involve risk, such as the risk that counterparties may fail to honor their obligations under these arrangements, and that such arrangements may not be effective in reducing our exposure to interest rate changes. Failure to hedge effectively against interest rate changes may adversely affect results of operations.

       We may be unable to complete acquisitions and successfully operate acquired properties.

       We continue to evaluate the market of available properties and may acquire office and other properties when strategic opportunities exist. Our ability to acquire properties on favorable terms and successfully operate them may be exposed to the following significant risks:

  •  potential inability to acquire a desired property because of competition from other real estate investors with significant capital, including both publicly traded REITs and institutional investment funds;

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  •  even if we are able to acquire a desired property, competition from other potential acquirors may significantly increase the purchase price;
 
  •  even if we enter into agreements for the acquisition of office properties, these agreements are subject to customary conditions to closing, including completion of due diligence investigations to our satisfaction;
 
  •  we may be unable to finance the acquisition at all or on favorable terms;
 
  •  we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;
 
  •  we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations, and as a result our results of operations and financial condition could be adversely affected;
 
  •  market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and
 
  •  we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities such as liabilities for clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.

       If we cannot finance property acquisitions on favorable terms, or operate acquired properties to meet our financial expectations, our financial condition, results of operations, cash flow, per share trading price of our series A preferred stock and ability to satisfy our debt service obligations and to pay dividends to you could be adversely affected.

       Any decision to cause the operating partnership to exercise its option would be made by the independent members of our Board of Directors.

       We may be unable to successfully complete and operate developed properties.

       We intend to develop and substantially renovate office and other properties. Our future development and construction activities, including development and construction of the option properties if we exercise our options to acquire them, involve the following significant risks:

  •  we may be unable to obtain construction financing at all or on favorable terms;
 
  •  we may be unable to obtain permanent financing at all or on advantageous terms if we finance development projects through construction loans;
 
  •  we may not complete development projects on schedule or within budgeted amounts;
 
  •  we may encounter delays or refusals in obtaining all necessary zoning, land use, building, occupancy, and other required governmental permits and authorizations; and
 
  •  occupancy rates and rents at newly developed or renovated properties may fluctuate depending on a number of factors, including market and economic conditions, and may result in our investment not being profitable.

       While we intend to develop office properties primarily in the Southern California market, we may in the future develop properties for commercial, retail or other use and expand our business to other geographic regions where we expect the development of property to result in favorable risk-adjusted returns on our investment. Presently, we do not possess the same level of familiarity with development of other property types or other markets, which could adversely affect our ability to develop such properties successfully or at all or to achieve expected performance.

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       Our performance and value are subject to risks associated with real estate assets and with the real estate industry.

       Our ability to pay dividends to you depends on our ability to generate revenues in excess of expenses, scheduled principal payments on debt and capital expenditure requirements. Events and conditions generally applicable to owners and operators of real property that are beyond our control may decrease cash available for distribution and the value of our properties. These events include:

  •  local oversupply, increased competition or reduction in demand for office space;
 
  •  inability to collect rent from tenants;
 
  •  vacancies or our inability to rent space on favorable terms;
 
  •  inability to finance property development and acquisitions on favorable terms;
 
  •  increased operating costs, including insurance premiums, utilities, and real estate taxes;
 
  •  costs of complying with changes in governmental regulations;
 
  •  the relative illiquidity of real estate investments; and
 
  •  changing submarket demographics.

       In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases, which would adversely affect our financial condition, results of operations, cash flow, per share trading price of our series A preferred stock and ability to satisfy our debt service obligations and to pay dividends to you.

       We face significant competition, which may decrease or prevent increases of the occupancy and rental rates of our properties.

       We compete with numerous developers, owners and operators of office and commercial real estate, many of which own properties similar to ours in the same submarkets in which our properties are located, but which have lower occupancy rates than our properties. On average, our higher relative occupancy rates mean that our competitors have more space currently available for lease than we do and may be willing to make space available at lower prices than the space in the properties in our office portfolio. If our competitors offer space at rental rates below current market rates, or below the rental rates we currently charge our tenants, some of which are significantly above current market rates, we may lose potential tenants and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants when their leases expire. As a result, our financial condition, results of operations, cash flow, per share trading price of our series A preferred stock and ability to satisfy our debt service obligations and to pay dividends to you may be adversely affected.

       We could default on leases for land on which some of our properties are located.

       We possess a leasehold interest on the land underlying One California Plaza that expires in 2082. As of November 6, 2003, we had 981,667 net rentable square feet of office and retail space and a subterranean parking structure located on this parcel. If we default on the terms of this long-term lease, we may be liable for damages and lose our interest in One California Plaza. We possess a leasehold interest on the land and air space at Plaza Las Fuentes and the Plaza Las Fuentes Westin that, including renewal options, expires in 2047. As of September 30, 2003, we had approximately 183,614 net rentable square feet of office and retail space and a 350-room hotel located on this parcel. If we default under the terms of this long-term lease, we may be liable for damages and lose our interest in Plaza Las Fuentes and Plaza Las Fuentes Westin, including our options to purchase the land and airspace subject to the lease. We also possess a leasehold interest on the land underlying Cerritos Corporate Center Phase I and Phase II that, including renewal options, expires in 2087. As of September 30, 2003, we had 326,535 net rentable square feet of office space and 357,660 square feet of parking at a five-story garage and 58,630 square feet of surface lot parking shared by these properties on this parcel. If we default under the terms of this long-term lease, we may be liable for damages and lose our interest in Cerritos Corporate Center Phase I and Phase II and the parking garage.

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       We may be unable to renew leases, lease vacant space or re-lease space as leases expire.

       As of September 30, 2003, leases representing 1.5% and 4.1% of the square footage of the properties in our office portfolio (including One California Plaza) will expire in the remainder of 2003 and 2004, respectively, and an additional 7.8% of the square footage of the properties in our office portfolio was available. Above market rental rates at some of our properties may force us to renew or re-lease some expiring leases at lower rates. We cannot assure you that leases will be renewed or that our properties will be re-leased at net effective rental rates equal to or above their current net effective rental rates. If the rental rates for our properties decrease, our existing tenants do not renew their leases or we do not re-lease a significant portion of our available space and space for which leases will expire, our financial condition, results of operations, cash flow, per share trading price of our series A preferred stock and our ability to satisfy our debt service obligations and to pay dividends to you would be adversely affected.

       Because we own a hotel property, we face the risks associated with the hospitality industry.

       We own the Plaza Las Fuentes Westin in Pasadena, California and are susceptible to risks associated with the hospitality industry, including:

  •  competition for guests with other hotels, some of which may have greater marketing and financial resources than the manager of our hotel;
 
  •  increases in operating costs from inflation and other factors that the manager of our hotel may not be able to offset through higher room rates;
 
  •  future terrorist attacks that could adversely affect the travel and tourism industries and decrease demand for our hotel;
 
  •  the fluctuating and seasonal demands of business travelers and tourism;
 
  •  general and local economic conditions that may affect demand for travel in general; and
 
  •  potential oversupply of hotel rooms resulting from excessive new development.

       If our hotel does not generate sufficient revenues, our financial position, results of operations, cash flow, per share trading price of our series A preferred stock and ability to satisfy our debt service obligations and to pay dividends to you may be adversely affected.

       Planned renovations at the Plaza Las Fuentes Westin hotel may disrupt normal operations during the first half of 2004, and could disrupt normal operations thereafter if these renovations are delayed or take longer to complete than we currently expect. See “Business and Properties — Description of Existing Portfolio — Hotel Property.”

       We could incur significant costs related to government regulation and private litigation over environmental matters.

       Under various laws relating to the protection of the environment, a current or previous owner or operator of real estate may be liable for contamination resulting from the presence or discharge of hazardous or toxic substances at that property, and may be required to investigate and clean up such contamination at that property or emanating from that property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of the contaminants, and the liability may be joint and several. The presence of contamination or the failure to remediate contamination in our properties may expose us to third-party liability or adversely affect our ability to sell, lease or develop the real estate or to borrow using the real estate as collateral.

       These environmental laws also govern the presence, maintenance and removal of asbestos-containing building materials, or ACBM, and may impose fines and penalties for failure to comply with these requirements or expose us to third-party liability. Some of our properties may contain ACBM and we could be liable for such fines or penalties, as described below in “Business and Properties — Regulation — Environmental Matters.”

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       Some of the properties in our portfolio contain, or may have contained, or are adjacent to or near other properties that have contained or currently contain underground storage tanks for the storage of petroleum products or other hazardous or toxic substances. If hazardous or toxic substances were released from these tanks, we could incur significant costs or be liable to third parties with respect to the releases.

       From time to time, the United States Environmental Protection Agency, or EPA, designates certain sites affected by hazardous substances as “Superfund” sites pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act. The EPA identifies parties who are considered to be potentially responsible for the hazardous substances at Superfund sites and makes them liable for the costs of responding to the hazardous substances. The parcel of land on which the Glendale Center is located lies within a large Superfund site, and we could be named as a potentially responsible party with respect to that site. See “Business and Properties — Regulation — Environmental Matters” for further discussion on Superfund sites.

       Existing conditions at some of our properties may expose us to liability related to environmental matters.

       Independent environmental consultants have conducted Phase I or similar environmental site assessments on all of the properties in our existing portfolio and all the properties on which we have options or purchase rights, except for Playa Vista — Water’s Edge, an option property in West Los Angeles with two office buildings and developable land of which we have an option to purchase a 12.5% interest. Site assessments are intended to discover and evaluate information regarding the environmental condition of the surveyed property and surrounding properties. These assessments do not generally include soil samplings, subsurface investigations or an asbestos survey. None of the recent site assessments revealed any past or present environmental liability that we believe would have a material adverse effect on our business, assets or results of operations. However, the assessments may have failed to reveal all environmental conditions, liabilities, or compliance concerns. Material environmental conditions, liabilities, or compliance concerns may have arisen after the review was completed or may arise in the future; and future laws, ordinances or regulations may impose material additional environmental liability.

       Environmental reports available to us on the Playa Vista — Water’s Edge option property were generally completed more than two years ago. According to these reports, the California Regional Water Quality Control Board, Los Angeles Region issued a cleanup and abatement order in 1998 with respect to the Playa Vista project area, which includes the Playa Vista — Water’s Edge development relating to various chlorinated volatile organic compounds, petroleum hydrocarbons and metals detected in soil and groundwater in the Playa Vista project area. We are not named as a responsible party under the order, but we cannot assure you that we will not be named as a responsible party in the future should we exercise our option rights.

       We cannot assure you that costs of future environmental compliance will not affect our ability to make distributions to you or that such costs or other remedial measures will not have a material adverse effect on our business, assets or results of operations.

       Potential environmental liabilities may exceed our environmental insurance coverage limits.

       We carry environmental insurance to cover likely and reasonably anticipated potential environmental liability associated with above-ground and underground storage tanks at all five of our properties where tanks are located. While we believe this coverage is sufficient to protect us against likely environmental risks, we cannot assure you that our insurance coverage will be sufficient or that our liability, if any, will not have a material adverse effect on our financial condition, results of operations, cash flow, per share trading price of our series A preferred stock and our ability to satisfy our debt service obligations and to pay dividends to you.

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       We may incur significant costs complying with the Americans with Disabilities Act and similar laws.

       Under the Americans with Disabilities Act of 1990, or the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. Although we believe that the properties in our portfolio substantially comply with present requirements of the ADA, we have not conducted an audit or investigation of all of our properties to determine our compliance. If one or more of our properties is not in compliance with the ADA, then we would be required to incur additional costs to bring the property into compliance. Additional federal, state and local laws also may require modifications to our properties, or restrict our ability to renovate our properties. We cannot predict the ultimate amount of the cost of compliance with the ADA or other legislation. If we incur substantial costs to comply with the ADA and any other legislation, our financial condition, results of operations, cash flow, per share trading price of our series A preferred stock and our ability to satisfy our debt service obligations and to pay dividends to you could be adversely affected.

       We may incur significant costs complying with other regulations.

       The properties in our portfolio are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these various requirements, we might incur governmental fines or private damage awards. We believe that the properties in our portfolio are currently in material compliance with all applicable regulatory requirements. However, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will adversely impact our financial condition, results of operations, cash flow, the per share trading price of our series A preferred stock and our ability to satisfy our debt service obligations and to pay dividends to you.

       Our growth depends on external sources of capital which are outside of our control.

       In order to maintain our qualification as a REIT, we are required under the Code to annually distribute at least 90% of our net taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In addition, we will be subject to income tax at regular corporate rates to the extent that we distribute less than 100% of our net taxable income, including any net capital gains. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we rely on third-party sources to fund our capital needs. We may not be able to obtain financing on favorable terms or at all. Any additional debt we incur will increase our leverage. Our access to third-party sources of capital depends, in part, on:

  •  general market conditions;
 
  •  the market’s perception of our growth potential;
 
  •  our current debt levels;
 
  •  our current and expected future earnings;
 
  •  our cash flow and cash distributions; and
 
  •  the market price per share of our capital stock.

       If we cannot obtain capital from third-party sources, we may not be able to acquire or develop properties when strategic opportunities exist, satisfy our debt service obligations or pay the cash dividends to our stockholders necessary to maintain our qualification as a REIT.

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       Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and disputes between us and our co-venturers.

       We may co-invest in the future with third parties through partnerships, joint ventures or other entities, acquiring non-controlling interests in or sharing responsibility for managing the affairs of a property, partnership, joint venture or other entity. In such event, we would not be in a position to exercise sole decision-making authority regarding the property, partnership, joint venture or other entity. Investments in partnerships, joint ventures, or other entities may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or co-venturers might become bankrupt or fail to fund their share of required capital contributions. Partners or co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor the partner or co-venturer would have full control over the partnership or joint venture. Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. Consequently, actions by or disputes with partners or co-venturers might result in subjecting properties owned by the partnership or joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers. We will seek to maintain sufficient control of such entities to permit them to achieve our business objectives.

Risks Related to Our Organization and Structure

       Conflicts of interest exist with holders of units in our operating partnership.

       We may pursue less vigorous enforcement of terms of contribution and other agreements because of conflicts of interest with certain of our officers. Mr. Maguire and related entities and certain other contributors had ownership interests in the properties and in the other assets contributed to our operating partnership in the formation transactions and in the properties on which we have options. We, under the agreements relating to the contribution of such interests, are entitled to indemnification and damages in the event of breaches of representations or warranties made by Mr. Maguire and related entities and other contributors. In addition, Mr. Maguire and Mr. Gilchrist have entered into employment and non-competition agreements with us pursuant to which they have agreed, among other things, not to engage in certain business activities in competition with us and pursuant to which they will devote substantially full-time attention to our affairs. See “Management — Employment Agreements” and “— Non-competition Agreements.” We have also entered into property management and development agreements with respect to the option and excluded properties owned by Mr. Maguire, as well as a right of first offer with respect to Solana, a 1.4 million square foot office, hotel and retail property in Dallas, Texas that is one of the excluded properties. None of these contribution, option, employment, non-competition, management and development agreements were negotiated on an arm’s-length basis. We may choose not to enforce, or to enforce less vigorously, our rights under these contribution, option, employment, non-competition, management and development agreements because of our desire to maintain our ongoing relationship with the individuals involved.

       Tax consequences upon sale or refinancing. Some holders of units, including Mr. Maguire and Mr. Gilchrist, may suffer different and more adverse tax consequences than holders of our capital stock upon the sale or refinancing of the properties owned by our operating partnership, and therefore these holders may have different objectives regarding the appropriate pricing, timing and other material terms of any sale or refinancing of certain properties.

       Competitive real estate activities of management. Messrs. Maguire and Gilchrist have substantial outside business interests, including Mr. Maguire’s controlling interests in the Solana property in Texas, a senior housing project located at 740 South Olive Street in the LACBD and a parking structure located at 17th & Grand Avenue in the LACBD, Mr. Maguire’s interests in the option properties and certain other passive real estate investments and Mr. Maguire’s and Mr. Gilchrist’s interests in Master Investments,

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LLC, an entity that is a potential competitor. Although Messrs. Maguire and Gilchrist are party to employment agreements that require that they devote substantially full-time attention to our business and affairs, these agreements also permit Messrs. Maguire and Gilchrist to devote time to their outside business interests consistent with past practice, and we have no assurance that either Mr. Maguire or Mr. Gilchrist will continue to devote any specific portion of his time to us. As a result, these outside business interests could interfere with Mr. Maguire’s and/or Mr. Gilchrist’s ability to devote time to our business and affairs.

       Our Chairman and Co-Chief Executive Officer has substantial influence over our affairs. Robert F. Maguire III is our Chairman and Co-Chief Executive Officer. Mr. Maguire beneficially owns units exchangeable for an aggregate of 10,226,340 shares of our common stock, including 28,947 units beneficially owned through Master Investments, LLC, an entity in which Mr. Maguire owns a 55% interest, representing a total of approximately 18.8% of the total outstanding shares of our common stock on a fully diluted basis. Consequently, Mr. Maguire has substantial influence on us and could exercise his influence in a manner that is not in the best interests of our stockholders. Pursuant to the partnership agreement, we may not engage in termination transactions, such as a tender offer, merger or sale of substantially all of our assets, without meeting certain criteria with respect to the consideration to be received by the limited partners and without the consent of partners (including us) holding 50% of all partnership interests. See “Description of the Partnership Agreement of Maguire Properties, L.P. — Termination Transactions.”

       Failure to qualify as a REIT would have significant adverse consequences to us and the value of our stock.

       We operate in a manner that is intended to allow us to qualify as a REIT for federal income tax purposes under the Code. We have not requested and do not plan to request a ruling from the IRS that we qualify as a REIT, and the statements in this prospectus are not binding on the IRS or any court. If we lose our REIT status, we will face serious tax consequences that would substantially reduce the funds available for distribution to you for each of the years involved because:

  •  we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be subject to federal income tax at regular corporate rates;
 
  •  we also could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and
 
  •  unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified.

       In addition, if we fail to qualify as a REIT, we will not be required to make distributions to stockholders, and all distributions to stockholders will be subject to tax as regular corporate dividends to the extent of our current and accumulated earnings and profits. As a result of all these factors, our failure to qualify as a REIT also could impair our ability to expand our business and raise capital, and would adversely affect the value of our series A preferred stock.

       Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury regulations that have been promulgated under the Code is greater in the case of a REIT that, like us, holds its assets through a partnership. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. In order to qualify as a REIT, we must satisfy a number of requirements, including requirements regarding the composition of our assets and a requirement that at least 95% of our gross income in any year must be derived from qualifying sources, such as “rents from real property.” For example, in order for the rent payable pursuant to the Plaza Las Fuentes Westin lease to constitute “rents from real property,” the lease must be respected as a true lease for federal income tax purposes and not treated as a service contract, joint venture or some other type of arrangement. As this determination is inherently factual, we can provide no assurance that our characterization of this hotel lease as a true lease will not be challenged by

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the IRS or, if challenged, will be sustained by a court. Also, we must make distributions to stockholders aggregating annually at least 90% of our net taxable income, excluding capital gains. In addition, legislation, new regulations, administrative interpretations or court decisions may adversely affect our investors, our ability to qualify as a REIT for federal income tax purposes or the desirability of an investment in a REIT relative to other investments.

       Even if we qualify as a REIT for federal income tax purposes, we may be subject to some federal, state and local taxes on our income or property and, in certain cases, a 100% penalty tax in the event we sell property as a dealer or if our services company enters into agreements with us or our tenants on a basis that is determined to be other than an arm’s-length basis.

       To maintain our REIT status, we may be forced to borrow funds on a short-term basis during unfavorable market conditions.

       To qualify as a REIT, we generally must distribute to our stockholders at least 90% of our net taxable income each year, excluding capital gains, and we will be subject to regular corporate income taxes to the extent that we distribute less than 100% of our net taxable income each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.

       In order to maintain our REIT status and avoid the payment of income and excise taxes, we may need to borrow funds on a short-term basis to meet the REIT distribution requirements even if the then prevailing market conditions are not favorable for these borrowings. These short-term borrowing needs could result from differences in timing between the actual receipt of cash and inclusion of income for federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments.

       Our board of directors may change our investment and financing policies without stockholder approval and we may become more highly leveraged, which may increase our risk of default under our debt obligations.

       Our board of directors adopted a policy of limiting our indebtedness to approximately 60% of our total market capitalization. Our total market capitalization is defined as the sum of the market value of our outstanding common and preferred stock (which may decrease, thereby increasing our debt to total capitalization ratio), including shares of restricted common stock that we have issued to certain of our officers under our incentive award plan (but not including options or shares of restricted common stock with an aggregate value of $5.5 million that we have committed to grant to certain officers no later than one year following the consummation of our IPO, which occurred on June 27, 2003), plus the aggregate value of the units not held by us, plus the book value of our total consolidated indebtedness. However, our organizational documents do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. Our board of directors may alter or eliminate our current policy on borrowing at any time without stockholder approval. If this policy changed, we could become more highly leveraged which could result in an increase in our debt service and which could adversely affect our cash flow and our ability to make expected distributions to you. Higher leverage also increases the risk of default on our obligations.

       Our success depends on key personnel whose continued service is not guaranteed.

       We depend on the efforts of key personnel, particularly Mr. Maguire, our Chairman and Co-Chief Executive Officer, and Mr. Gilchrist, a director and our Co-Chief Executive Officer and President. Among the reasons that Messrs. Maguire and Gilchrist are important to our success is that each has a national or regional industry reputation that attracts business and investment opportunities and assists us in negotiations with lenders, existing and potential tenants and industry personnel. If we lost their services, our relationships with such personnel could diminish. In addition, Mr. Maguire is 68 years old and, although he has informed us that he does not currently plan to retire, his continued service to us cannot be guaranteed.

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       Many of our other senior executives also have strong regional industry reputations, which aid us in identifying opportunities, having opportunities brought to us, and negotiating with tenants and build-to-suit prospects. While we believe that we could find replacements for all of these key personnel, the loss of their services could materially and adversely affect our operations because of diminished relationships with lenders, existing and prospective tenants and industry personnel.

       Our charter and Maryland law contain provisions that may delay, defer, or prevent transactions that may be beneficial to the holders of our series A preferred stock.

       Our charter contains a 9.8% ownership limit. Our Charter, subject to certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT and to limit any person to actual or constructive ownership of no more than 9.8% of the outstanding shares of our common stock. Our board of directors, in its sole discretion, may exempt a proposed transferee from the ownership limit. However, our board of directors may not grant an exemption from the ownership limit to any proposed transferee whose ownership, direct or indirect, of in excess of 9.8% of the value of our outstanding shares of our common stock could jeopardize our status as a REIT. See “Description of Securities — Restrictions on Transfer.” These restrictions on transferability and ownership will not apply if our board of directors determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT. The ownership limit may delay or impede a transaction or a change of control that might be in the best interest of our series A preferred stockholders. See “Description of Securities — Restrictions on Transfer.”

       We could authorize and issue stock without stockholder approval. Our charter authorizes our board of directors to authorize additional shares of our common stock or preferred stock, issue authorized but unissued shares of our common stock or preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock and to set the preferences, rights and other terms of such classified or unclassified shares. See “Description of Securities — Common Stock” and “— Preferred Stock.” Although our board of directors has no such intention at the present time, it could establish another series of preferred stock that could, depending on the terms of such series, delay, defer or prevent a transaction that might be in the best interest of our series A preferred stockholders.

       Certain provisions of Maryland law could inhibit changes in control. Certain provisions of the Maryland General Corporation Law, or MGCL, may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could be in the best interest of our series A preferred stockholders, including:

  •  “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes special appraisal rights and special stockholder voting requirements on these combinations; and
 
  •  “control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

       We have opted out of these provisions of the MGCL, in the case of the business combination provisions of the MGCL by resolution of our board of directors, and in the case of the control share provisions of the MGCL pursuant to a provision in our bylaws. However, our board of directors may by resolution elect to opt in to the business combination provisions of the MGCL and we may, by amendment to our bylaws, opt in to the control share provisions of the MGCL in the future.

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       Our charter, bylaws, the partnership agreement and Maryland law also contain other provisions that may delay, defer or prevent a transaction or a change of control that might otherwise be in the best interest of our series A preferred stockholders. See “Material Provisions of Maryland Law and of Our Charter and Bylaws — Removal of Directors,” “— Control Share Acquisitions,” “— Advance Notice of Director Nominations and New Business” and “Description of the Partnership Agreement of Maguire Properties, L.P.”

       We and our predecessor have had historical accounting losses; we may experience future losses.

       We and our predecessor have had losses before gains on forgiveness of debt and minority interests of approximately $71.7 million in the nine months ended September 30, 2003 and $15.2 million, $19.9 million and $28.0 million in the years ended December 31, 2002, 2001 and 2000, respectively. There can be no assurance that we will not incur net losses in the future.

Risks Related to this Offering

       Our series A preferred stock is a new issuance and does not have an established trading market, which may negatively affect its market value and your ability to transfer or sell your shares; our series A preferred stock has no stated maturity date.

       The shares of series A preferred stock are a new issue of securities with no established trading market. Since the securities have no stated maturity date, investors seeking liquidity will be limited to selling their shares in the secondary market. We have applied to list the series A preferred stock on the NYSE. If approved, however, an active trading market on the NYSE for the shares may not develop or, even if it develops, may not last, in which case the trading price of the shares could be adversely affected and your ability to transfer your shares of series A preferred stock will be limited.

       We have been advised by the underwriters that they intend to make a market in the shares of our series A preferred stock, but they are not obligated to do so and may discontinue market-making at any time without notice. The series A preferred stock has not been rated by any nationally recognized statistical rating organization, and will be subordinated to all of our existing and future debt.

 
Market interest rates and other factors may affect the value of our series A preferred stock.

       One of the factors that will influence the price of our series A preferred stock will be the dividend yield on the series A preferred stock relative to market interest rates. An increase in market interest rates, which are currently at low levels relative to historical rates, could cause the market price of our series A preferred stock to go down. The trading price of the shares of series A preferred stock would also depend on many other factors, which may change from time to time, including:

  •  prevailing interest rates;
 
  •  the market for similar securities;
 
  •  the attractiveness of REIT securities in comparison to the securities of other companies, taking into account, among other things, the higher tax rates imposed on dividends paid by REITs;
 
  •  government action or regulation;
 
  •  general economic conditions; and
 
  •  our financial condition, performance and prospects.

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      Our revolving credit facility prohibits us from redeeming the series A preferred stock and may limit our ability to pay dividends on the series A preferred stock.

      Our revolving credit facility prohibits us from redeeming or otherwise repurchasing any shares of our capital stock, including the series A preferred stock. Our revolving credit facility also prohibits us from distributing to our stockholders more than 95% of our funds from operations (as defined in our revolving credit facility) during any four consecutive fiscal quarters, except as necessary to enable us to qualify as a REIT for federal income tax purposes. As a result, if we do not generate sufficient funds from operations (as defined in our revolving credit facility) during the twelve months preceding any series A preferred stock dividend payment date, we would not be able to pay all or a portion of the accumulated dividends payable to our series A preferred stockholders on such payment date without causing a default under our revolving credit facility. In the event of a default under our revolving credit facility, we would be unable to borrow under our revolving credit facility and any amounts we have borrowed thereunder could become due and payable.

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FORWARD-LOOKING STATEMENTS

       We make statements in this prospectus that are forward-looking statements. In particular, statements pertaining to our capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, our pro forma financial statements and all our statements regarding anticipated growth in our funds from operations and anticipated market conditions, demographics and results of operations are forward-looking statements. Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

  •  adverse economic or real estate developments in Southern California;
 
  •  general economic conditions;
 
  •  future terrorist attacks in the U.S.;
 
  •  defaults on or non-renewal of leases by tenants;
 
  •  increased interest rates and operating costs;
 
  •  our failure to obtain necessary outside financing;
 
  •  decreased rental rates or increased vacancy rates;
 
  •  difficulties in identifying properties to acquire and completing acquisitions;
 
  •  our failure to successfully operate acquired properties and operations;
 
  •  our failure to successfully develop properties;
 
  •  our failure to maintain our status as a REIT;
 
  •  environmental uncertainties and risks related to natural disasters;
 
  •  financial market fluctuations; and
 
  •  changes in real estate and zoning laws and increases in real property tax rates.

       For a further discussion of these and other factors that could impact our future results, performance or transactions, see the section above entitled “Risk Factors.”

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USE OF PROCEEDS

       We estimate we will receive gross proceeds from this offering of $225.0 million and approximately $250.0 million if the underwriters’ over-allotment option is exercised in full. After deducting underwriting discounts and commissions and the estimated expenses of this offering, we expect net proceeds from this offering of approximately $216.8 million and approximately $241.0 million if the underwriters’ over-allotment is exercised in full.

       We will contribute the net proceeds of this offering to our operating partnership in exchange for series A preferred units, the economic terms of which will be substantially similar to the series A preferred stock. Our operating partnership will subsequently use the net proceeds received from us to potentially acquire or develop additional properties and for general corporate purposes. If the underwriters exercise their over-allotment option in full, we expect to use the additional net proceeds in the same manner.

       Pending application of cash proceeds, we will invest the net proceeds in interest bearing accounts and short-term, interest-bearing securities which are consistent with our intention to qualify as a REIT for federal income tax purposes.

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RATIOS OF EARNINGS AND EBITDA TO FIXED CHARGES AND PREFERRED DIVIDENDS

       Our ratios of earnings to fixed charges, earnings to fixed charges and preferred dividends, EBITDA to fixed charges and EBITDA to fixed charges and preferred dividends for the periods indicated are as follows:

                                                                                 
The Maguire
Properties The Maguire Properties
The Company Predecessor The Company Predecessor




Historical
Pro Forma Historical Combined
Consolidated Historical Consolidated Period Pro Forma
Nine Months Three Months Period January 1, Consolidated Historical Combined Year
Ended Ended June 27, 2003 - 2003 - Year Ended Ended December 31,
September 30, September 30, September 30, June 26, December 31,
2003 2003 2003 2003 2002 2002 2001 2000 1999 1998










Ratio of Earnings to Fixed Charges
    1.38 x     1.79 x     (3.03 )x     0.16 x     1.47 x     0.67 x     0.68 x     5.21 x     0.78 x     0.49 x
Ratio of Earnings to Fixed Charges and Preferred Dividends
    1.07 x                       1.14 x                              
Ratio of EBITDA to Fixed Charges
    2.47 x     2.93 x     (1.93 )x     0.62 x     2.51 x     1.04 x     0.88 x     4.94 x     0.42 x     0.60 x
Ratio of EBITDA to Fixed Charges and Preferred Dividends
    1.92 x                       1.95 x                              

       Our ratios of earnings to fixed charges and EBITDA to fixed charges are computed by dividing earnings or EBITDA, as applicable, by fixed charges. Our ratios of earnings to fixed charges and preferred dividends and EBITDA to fixed charges and preferred dividends are computed by dividing earnings or EBITDA, as applicable, by the sum of fixed charges and preferred dividends. For these purposes, “earnings” consist of net income (loss) before minority interests, equity in net income (loss) of uncombined real estate entities and fixed charges plus distributed income of the uncombined real estate entities. “EBITDA” consists of net income (loss) from continuing operations before minority interests, interest expense and depreciation and amortization. “Fixed charges” consist of interest expense, capitalized interest and amortization of deferred financing fees, whether expensed or capitalized, and interest within rental expense. Preferred dividends consist of the amount of pre-tax earnings required to pay dividends on the series A preferred stock. Our pro forma ratios are prepared on the basis of our pro forma financial statements. See “Maguire Properties, Inc. Pro Forma Condensed Consolidated Financial Statements.”

       The consummation of our IPO and the related formation transactions and refinancing transactions on June 27, 2003 permitted us to significantly deleverage our properties, resulting in a significantly improved ratio of earnings to fixed charges since the consummation of these transactions. Although our properties generally have had positive net cash flow before debt service, due to the loss from early extinguishment of debt and compensation expense associated with our IPO, for the historical consolidated period from June 27, 2003 to September 30, 2003, we showed a negative ratio of earnings to fixed charges and an earnings shortfall of $50.7 million during that period compared with the amount that would have been necessary to cover fixed charges. The Maguire Properties Predecessor’s computation of the ratio of earnings to fixed charges for the periods ended prior to the consummation of our IPO indicates that earnings were inadequate to cover fixed charges by approximately $21.1 million during the period from January 1, 2003 to June 26, 2003, and by $13.1 million, $14.6 million, $6.9 million, and $16.1 million, in the years ended December 31, 2002, 2001, 1999 and 1998, respectively.

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      Presented below are the components used to calculate the ratios of EBITDA to fixed charges and EBITDA to fixed charges and preferred dividends:

                                                                                   
The Maguire
Properties
The Company Predecessor The Company The Maguire Properties Predecessor




Historical
Pro Forma Historical Combined
Consolidated Historical Consolidated Period Pro Forma
Nine Months Three Months Period January 1, Consolidated Historical Combined Year Ended
Ended Ended June 27, 2003 - 2003 - Year Ended December 31,
September 30, September 30, September 30, June 26, December 31,
2003 2003 2003 2003 2002 2002 2001 2000 1999 1998










EBITDA
  $ 110,022     $ 34,424     $ (24,258 )   $ 15,366     $ 148,862     $ 40,588     $ 40,254     $ 171,266     $ 13,365     $ 19,046  
Fixed charges:
                                                                               
 
Interest expense
    43,792       11,650       12,490       24,853       58,458       38,975       45,772       34,511       31,564       31,368  
 
Interest within rental expense
    667       89       89       91       888       181       181       181       181       181  
     
     
     
     
     
     
     
     
     
     
 
      44,459       11,739       12,579       24,944       59,346       39,156       45,953       34,692       31,745       31,549  
Preferred Dividends
    12,867                               17,156                                          

       For a reconciliation of EBITDA to net income (loss), see page 43.

       Since our inception, we have neither issued any shares of, nor paid any dividends on, preferred stock. Accordingly, the ratio of earnings to fixed charges and preferred stock dividends and the ratio of EBITDA to fixed charges and preferred stock dividends are not presented for historical periods.

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PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

       Our common stock has been listed and is traded on the NYSE under the symbol “MPG” since June 25, 2003. The following table sets forth, for the periods indicated, the high, low and last sale prices in dollars on the NYSE for our common stock and the distributions we declared with respect to the periods indicated.

                                 
High Low Last Distributions




Period June 25, 2003 to June 30, 2003
  $ 19.40     $ 19.00     $ 19.25     $ 0.0176  
Quarter Ended September 30, 2003
  $ 21.00     $ 19.00     $ 20.50     $ 0.4000  
Quarter Ended December 31, 2003
  $ 24.46     $ 20.32     $ 24.12     $ 0.4000  
Period January 1, 2004 to January 15, 2004
  $ 24.45     $ 22.55     $ 23.64     $ -  

       We intend to continue to declare quarterly distributions on our common stock. The actual amount and timing of distributions, however, will be at the discretion of our board of directors and will depend upon our financial condition in addition to the requirements of the Code, and no assurance can be given as to the amounts or timing of future distributions.

       Subject to the distribution requirements applicable to REITs under the Code, we intend, to the extent practicable, to invest substantially all of the proceeds from sales and refinancings of our assets in real estate-related assets and other assets. We may, however, under certain circumstances, make a distribution of capital or of assets. Such distributions, if any, will be made at the discretion of our board of directors. Distributions will be made in cash to extent that cash is available for distribution.

       On January 15, 2004, the closing sale price for our common stock, as reported on the NYSE, was $23.64. As of January 14, 2004, there were 25 record holders of our common stock. This figure does not reflect the beneficial ownership of shares held in nominee name.

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CAPITALIZATION

       The following table sets forth the historical consolidated capitalization of our company as of September 30, 2003 and our pro forma consolidated capitalization as of September 30, 2003, adjusted to give effect to this offering, the new Glendale Center mortgage loan, the acquisition of One California Plaza and the mortgage loan obtained in connection with the acquisition of One California Plaza. You should read this table in conjunction with “Use of Proceeds,” “Selected Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and our consolidated financial statements and the notes to our financial statements appearing elsewhere in this prospectus.

                   
Historical Pro Forma
Consolidated Consolidated


(In thousands)
Mortgages and other secured loans
  $ 985,000     $ 1,211,250  
Minority interest in our operating partnership
    90,082       90,243  
Stockholders’ equity:
               
 
7.625% series A cumulative redeemable preferred stock, $.01 par value per share, 10,000,000 shares authorized and 9,000,000 shares issued and outstanding on a pro forma basis(1)
          90  
 
Common stock, $.01 par value per share, 100,000,000 shares authorized and 42,645,711 shares issued and outstanding(2)
    426       426  
 
Additional paid in capital
    407,001       623,728  
 
Accumulated deficit and dividends
    (56,854 )     (56,854 )
 
Unearned and accrued stock compensation
    (5,389 )     (5,389 )
 
Accumulated other comprehensive income, net
    4,073       4,697  
     
     
 
 
Total stockholders’ equity
    349,257       566,698  
     
     
 
Total capitalization
  $ 1,424,339     $ 1,868,191  
     
     
 


(1)  The preferred stock outstanding as shown includes series A preferred stock to be issued in this offering and excludes 1,000,000 shares of series A preferred stock issuable upon exercise of the underwriters’ over-allotment option.
 
(2)  The common stock outstanding as shown excludes (i) 3,627,650 shares of common stock available for future issuance under our incentive award plan (of which we have committed to grant to certain officers shares of restricted common stock with an aggregate value of $5.5 million no later than June 27, 2004), (ii) 530,000 shares of common stock issuable under outstanding options granted under our incentive award plan and (iii) 10,999,398 shares reserved for issuance with respect to units issued in connection with the formation of our operating partnership that may, subject to limits in the partnership agreement for our operating partnership, be exchanged for cash or, at our option, shares of our common stock on a one-for-one basis generally commencing August 27, 2004.

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SELECTED COMBINED FINANCIAL DATA

       The following table sets forth selected consolidated financial and operating data on a pro forma and historical basis for our company, and on a combined historical basis for the Maguire Properties Predecessor. We have not presented historical information for our company prior to June 27, 2003, the date on which we consummated our IPO, because during the period from our formation until our IPO, we did not have material corporate activity.

       The Maguire Properties Predecessor combined historical financial information includes the following entities, which are a subset of the entities referred to collectively in this prospectus as the Maguire Organization, for periods prior to June 27, 2003:

  •  the property management, leasing and real estate development operations of Maguire Partners Development, Ltd.;
 
  •  the real estate operations for certain entities that own Plaza Las Fuentes and the Plaza Las Fuentes Westin, Gas Company Tower (beginning December 21, 2000), 808 South Olive garage (beginning December 21, 2000) and KPMG Tower (beginning September 13, 2002); and
 
  •  investments in and equity in net income or loss from the operations for certain real estate entities that own Gas Company Tower, 808 South Olive garage and KPMG Tower prior to the dates listed above and US Bank Tower, Wells Fargo Tower and Glendale Center for all periods prior to June 27, 2003.

The owners of the Maguire Properties Predecessor were Mr. Maguire and certain others who had minor ownership interests.

       You should read the following summary selected financial data in conjunction with our consolidated and combined historical and consolidated pro forma financial statements and the related notes, as well as with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this prospectus.

       The historical combined balance sheet information as of December 31, 2002 and 2001 of the Maguire Properties Predecessor and combined statements of operations information for the years ended December 31, 2002, 2001 and 2000 of the Maguire Properties Predecessor have been derived from the historical combined financial statements audited by KPMG LLP, independent auditors, whose report with respect thereto is included elsewhere in this prospectus. The historical combined balance sheet information as of December 31, 2000 and combined historical statements of operations information for the year ended December 31, 1999 have been derived from the historical combined financial statements of the Maguire Properties Predecessor audited by KPMG LLP. The historical consolidated balance sheet information as of September 30, 2003 and the consolidated statement of operations information for the three months ended September 30, 2003 and the period from June 27, 2003 through September 30, 2003 have been derived from the unaudited consolidated financial statements of our company. The historical combined balance sheet information as of December 31, 1999 and 1998 and combined statements of operations information for the period from January 1, 2003 through June 26, 2003 and for the three and nine months ended September 30, 2002 and for the year ended December 31, 1998 have been derived from the unaudited combined financial statements of the Maguire Properties Predecessor. In the opinion of the management of our company, the historical consolidated and combined statements of operations for the three months ended September 30, 2002, the period from June 27, 2003 through September 30, 2003, the period from January 1, 2003 through June 26, 2003 and the three and nine months ended September 30, 2002 include all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the information set forth therein. Our results of operations for the interim periods ended September 30, 2003 are not necessarily indicative of the result to be obtained for the full fiscal year.

       Our unaudited summary selected pro forma consolidated financial statements and operating information as of and for the nine months ended September 30, 2003 and for the year ended December 31, 2002 assumes completion of this offering, the incurrence of the new $80.0 million mortgage

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financing relating to Glendale Center, the purchase of One California Plaza and the incurrence of the $146.3 million mortgage relating to One California Plaza as of the beginning of the period presented for the operating data and as of the stated date for the balance sheet data. Our pro forma consolidated financial statements also include the effects of our IPO on June 27, 2003 and the related formation and financing transactions that occurred in conjunction with our IPO, as if the resulting debt and equity structure were in place as of the first day of the period presented. Additionally, the pro forma consolidated statements of operations are presented as if the additional interests in KPMG Tower and Wells Fargo Tower that were acquired on September 13, 2002 and February 5, 2003, respectively, along with the related financing transactions, had occurred on the first day of the period presented. Our pro forma financial information is not necessarily indicative of what our actual financial position and results of operations would have been as of the date and for the periods indicated, nor does it purport to represent our future financial position or results of operations.

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The Company (Pro Forma and Historical Consolidated) and

the Maguire Properties Predecessor (Historical Combined)
(Dollars in thousands)
                                                     
The Maguire
The Company Properties Predecessor


Historical Historical Historical
Pro Forma Consolidated Historical Combined Combined Historical
Consolidated Three Consolidated Period Three Combined
Nine Months Months Period January 1, Months Nine Months
Ended Ended June 27, 2003- 2003- Ended Ended
September 30, September 30, September 30, June 26, September 30, September 30,
2003 2003 2003 2003 2002 2002






(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Statement of Operations Data:
                                               
 
Rental revenues
  $ 114,507     $ 33,986     $ 35,292     $ 28,732     $ 10,741     $ 30,115  
 
Tenant reimbursements
    54,176       16,070       16,646       13,165       5,139       12,769  
 
Hotel operations
    13,305       4,392       4,567       8,738       4,448       14,933  
 
Other revenues
    33,942       8,075       10,659       8,110       4,814       11,330  
     
     
     
     
     
     
 
   
Total revenues
    215,930       62,523       67,164       58,745       25,142       69,147  
     
     
     
     
     
     
 
 
Rental property operating and maintenance expenses
    48,719       13,857       14,467       11,941       4,947       11,011  
 
Hotel operating and maintenance expenses
    10,214       3,287       3,430       6,784       3,137       10,373  
 
Real estate taxes
    14,066       4,757       4,901       3,006       1,035       2,819  
 
General and administrative expenses
    16,824       3,450       17,633       9,080       4,858       12,644  
 
Depreciation and amortization expense
    49,536       13,696       14,100       11,387       3,903       11,159  
 
Interest expense
    43,792       11,650       12,490       24,853       9,383       26,812  
 
Loss from early extinguishment of debt
          2,431       46,760       6,667       3,967       3,967  
 
Other expenses
    16,085       286       4,206       7,549       470       782  
     
     
     
     
     
     
 
   
Total expenses
    199,236       53,414       117,987       81,267       31,700       79,567  
 
Equity in net income (loss) of uncombined real estate entities
          (31 )     (25 )     1,648       (237 )     (755 )
     
     
     
     
     
     
 
 
Income (loss) before gain on forgiveness of debt and minority interest
    16,694       9,078       (50,848 )     (20,874 )     (6,795 )     (11,175 )
 
Gain on forgiveness of debt
                                   
 
Minority interests
    3,422       1,882       (11,802 )     275       2       (336 )
     
     
     
     
     
     
 
 
Net income (loss)
  $ 13,272     $ 7,196     $ (39,046 )   $ (21,149 )   $ (6,797 )   $ (10,839 )
             
     
     
     
     
 
 
Pro forma preferred dividends
    12,867                                
     
                                         
 
Pro forma net income available to common stockholders
  $ 405                                
     
                                         
 
Basic earnings (loss) per common share
  $ 0.01     $ 0.17     $ (0.94 )                  
     
     
     
                         
 
Diluted earnings (loss) per common share
  $ 0.01     $ 0.17     $ (0.94 )                  
     
     
     
                         
 
Weighted average common shares outstanding — basic
    42,329,921       41,913,231       41,702,405                    
 
Weighted average common shares outstanding — diluted
    42,389,350       41,974,245       41,702,405                    
 
Cash dividends declared per common share
  $     $ 0.42     $                    

[Additional columns below]

[Continued from above table, first column(s) repeated]
                                                     
The
Company The Maguire Properties Predecessor


Pro Forma
Consolidated
Year Ended Historical Combined Year Ended December 31,
December 31,
2002 2002 2001 2000 1999 1998






(Unaudited) (Unaudited)
Statement of Operations Data:
                                               
 
Rental revenues
  $ 150,118     $ 44,401     $ 39,028     $ 4,750     $ 4,282     $ 3,997  
 
Tenant reimbursements
    66,878       19,782       14,595       2,056       1,335       1,217  
 
Hotel operations
    20,005       20,005       19,346       23,879       22,908       21,796  
 
Other revenues
    39,254       16,864       14,636       8,011       8,195       8,990  
     
     
     
     
     
     
 
   
Total revenues
    276,255       101,052       87,605       38,696       36,720       36,000  
     
     
     
     
     
     
 
 
Rental property operating and maintenance expenses
    64,608       17,986       12,757       1,941       1,558       2,266  
 
Hotel operating and maintenance expenses
    15,310       15,310       13,361       15,166       14,465       13,788  
 
Real estate taxes
    16,811       4,692       4,134       995       787       670  
 
General and administrative expenses
    25,469       16,222       13,577       12,701       7,934       7,257  
 
Depreciation and amortization expense
    62,283       16,774       14,410       3,546       3,688       3,378  
 
Interest expense
    58,458       38,975       45,772       34,511       31,564       31,368  
 
Loss from early extinguishment of debt
          3,967                          
 
Other expenses
    5,195       2,125       843       851       913       618  
     
     
     
     
     
     
 
   
Total expenses
    248,134       116,051       104,854       69,711       60,909       59,345  
 
Equity in net income (loss) of uncombined real estate entities
          (162 )     (2,679 )     3,065       2,302       7,645  
     
     
     
     
     
     
 
 
Income (loss) before gain on forgiveness of debt and minority interest
    28,121       (15,161 )     (19,928 )     (27,950 )     (21,887 )     (15,700 )
 
Gain on forgiveness of debt
                      161,159              
 
Minority interests
    5,765       (465 )     (2,359 )     (180 )            
     
     
     
     
     
     
 
 
Net income (loss)
  $ 22,356     $ (14,696 )   $ (17,569 )   $ 133,389     $ (21,887 )   $ (15,700 )
             
     
     
     
     
 
 
Pro forma preferred dividends
    17,156                                
     
                                         
 
Pro forma net income available to common stockholders
  $ 5,200                                
     
                                         
 
Basic earnings (loss) per common share
  $ 0.12                                
     
                                         
 
Diluted earnings (loss) per common share
  $ 0.12                                
     
                                         
 
Weighted average common shares outstanding — basic
    42,329,921                                
 
Weighted average common shares outstanding — diluted
    42,394,114                                
 
Cash dividends declared per common share
                                   

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The Maguire
The Company Properties Predecessor


Historical Historical Historical
Pro Forma Consolidated Historical Combined Combined Historical
Consolidated Three Consolidated Period Three Combined
Nine Months Months Period January 1, Months Nine Months
Ended Ended June 27, 2003- 2003- Ended Ended
September 30, September 30, September 30, June 26, September 30, September 30,
2003 2003 2003 2003 2002 2002






(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Balance Sheet Data (at period end):
                                               
 
Investments in real estate, net
  $ 1,563,347     $ 1,336,509     $ 1,336,509                    
 
Total assets
    2,016,697       1,564,314       1,564,314                    
 
Mortgages and other secured loans
    1,211,250       985,000       985,000                    
 
Total liabilities
    1,359,756       1,124,975       1,124,975                    
 
Minority interest (deficit)
    90,243       90,082       90,082                    
 
Stockholders’/owners’ equity (deficit)
    566,698       349,257       349,257                    
 
Total liabilities and stockholders’/owners’ equity
    2,016,697       1,564,314       1,564,314                    
Cash flows from:
                                           
   
Operating activities
                                  (3,771 )
   
Investing activities
                                      (26,495 )
   
Financing activities
                                  31,926  
Other Data (unaudited):
                                               
 
Funds from operations(1)
    65,894                                
 
Funds from operations available to common stockholders(1)(2)
    53,027                                
 
EBITDA(3)
    110,022       34,424       (24,258 )     15,366       6,491       26,796  
 
EBITDA available to common stockholders(3)(4)
    97,155       34,424       (24,258 )                  

[Additional columns below]

[Continued from above table, first column(s) repeated]
                                                     
The
Company The Maguire Properties Predecessor


Pro Forma
Consolidated
Year Ended Historical Combined Year Ended December 31,
December 31,
2002 2002 2001 2000 1999 1998






(Unaudited) (Unaudited)
Balance Sheet Data (at period end):
                                               
 
Investments in real estate, net
        $ 549,384     $ 400,653     $ 406,471     $ 82,674     $ 84,470  
 
Total assets
          622,039       435,746       440,531       155,040       173,246  
 
Mortgages and other secured loans
          658,038       451,534       445,296       91,644       92,061  
 
Total liabilities
          781,207       556,669       538,046       352,576       345,775  
 
Minority interest (deficit)
          (12,889 )     (12,424 )     (10,065 )            
 
Stockholders’/owners’ equity (deficit)
          (146,279 )     (108,499 )     (87,450 )     (197,536 )     (172,529 )
 
Total liabilities and stockholders’/owners’ equity
          622,039       435,746       440,531       155,040       173,246  
Cash flows from:
                                               
   
Operating activities
          3,283       6,993       (3,851 )     7,667        
   
Investing activities
          (28,024 )     (2,889 )     (20,538 )     (3,861 )      
   
Financing activities
          25,598       (4,066 )     25,582       (3,608 )      
Other Data (unaudited):
                                               
 
Funds from operations(1)
    89,956                                
 
Funds from operations available to common stockholders(1)(2)
    72,800                                
 
EBITDA(3)
    148,862       40,588       40,254       171,266       13,365       19,046  
 
EBITDA available to common stockholders(3)(4)
    131,706                                


(1)  We calculate FFO, as defined by NAREIT. FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of property, real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. Other equity REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to such other REITs’ FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. FFO also should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.
 
(2)  FFO available to common stockholders has been calculated assuming that the common units in our operating partnership are exchanged for common stock.
 
(3)  We believe that earnings before interest, taxes, depreciation and amortization, or EBITDA, is a useful supplemental performance measure. Management uses EBITDA as an indicator of our ability to incur and service debt. In addition, we believe EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of equity REITs. However, because EBITDA is calculated before recurring cash charges including interest expense and taxes, and is not adjusted for capital expenditures or other recurring cash requirements of our business, its utility as a measure of our liquidity is limited. Accordingly, EBITDA should be considered only as supplement to cash flows from operating activities (computed in accordance with GAAP) as a measure of our liquidity. EBITDA is not a measure of our financial performance and should not be considered as an alternative to net income as an indicator of our operating performance. Other equity REITs may calculate EBITDA differently than we do; accordingly, our EBITDA may not be comparable to such other REITs’ EBITDA.
 
(4)  EBITDA available to common stockholders has been calculated assuming that the common units in our operating partnership are exchanged for common stock.

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       The following table reconciles our pro forma FFO and pro forma FFO available to common stockholders to our pro forma net income for the nine months ended September 30, 2003 and the year ended December 31, 2002:

                   
Pro Forma
Nine Months Pro Forma
Ended Year Ended
September 30, December 31,
2003 2002


(In thousands) (In thousands)
Reconciliation of pro forma net income to pro forma funds from operations and pro forma funds from operations available to common stockholders:
               
Pro forma net income
  $ 13,272     $ 22,356  
Adjustments:
               
 
Pro forma minority interests
    3,422       5,765  
 
Pro forma real estate depreciation and amortization
    49,200       61,835  
     
     
 
Pro forma FFO
    65,894       89,956  
Less pro forma preferred dividends
    12,867       17,156  
     
     
 
Pro forma FFO available to common stockholders(1)
  $ 53,027     $ 72,800  
     
     
 


(1)  FFO available to common stockholders has been calculated assuming that the common units in our operating partnership are exchanged for common stock.

       The following table reconciles our EBITDA and EBITDA available to common stockholders to our net income for the periods presented:
                                                   
The Maguire
The Company Properties Predecessor


Historical Historical Historical
Pro Forma Consolidated Historical Combined Combined Historical
Consolidated Three Consolidated Period Three Combined
Nine Months Months Period January 1, Months Nine Months
Ended Ended June 27, 2003- 2003- Ended Ended
September 30, September 30, September 30, June 26, September 30, September 30,
2003 2003 2003 2003 2002 2002






Reconciliation of net income to earnings before interest, taxes and depreciation and amortization (EBITDA):
                                               
Net income
  $ 13,272     $ 7,196     $ (39,046 )   $ (21,149 )   $ (6,797 )   $ (10,839 )
Adjustments:
                                               
 
Minority interests
    3,422       1,882       (11,802 )     275       2       (336 )
 
Interest expense
    43,792       11,650       12,490       24,853       9,383       26,812  
 
Depreciation and amortization
    49,536       13,696       14,100       11,387       3,903       11,159  
     
     
     
     
     
     
 
EBITDA
    110,022       34,424       (24,258 )   $ 15,366     $ 6,491     $ 26,796  
     
     
     
     
     
     
 
Less preferred stock dividends
    12,867                                
     
     
     
                         
EBITDA available to common stockholders(1)
  $ 97,155     $ 34,424     $ (24,258 )                  
     
     
     
                         

[Additional columns below]

[Continued from above table, first column(s) repeated]
                                                   
The
Company The Maguire Properties Predecessor


Pro Forma
Consolidated
Year Ended Historical Combined Year Ended December 31,
December 31,
2002 2002 2001 2000 1999 1998






Reconciliation of net income to earnings before interest, taxes and depreciation and amortization (EBITDA):
                                               
Net income
  $ 22,356     $ (14,696 )   $ (17,569 )   $ 133,389     $ (21,887 )   $ (15,700 )
Adjustments:
                                               
 
Minority interests
    5,765       (465 )     (2,359 )     (180 )            
 
Interest expense
    58,458       38,975       45,772       34,511       31,564       31,368  
 
Depreciation and amortization
    62,283       16,774       14,410       3,546       3,688       3,378  
     
     
     
     
     
     
 
EBITDA
    148,862     $ 40,588     $ 40,254     $ 171,266     $ 13,365     $ 19,046  
     
     
     
     
     
     
 
Less preferred stock dividends
    17,156                                
     
                                         
EBITDA available to common stockholders(1)
  $ 131,706                                
     
                                         


(1)  EBITDA available to common stockholders has been calculated assuming that the common units in our operating partnership are exchanged for common stock.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

       The following discussion should be read in conjunction with Selected Combined Financial Data and the financial statements and notes thereto appearing elsewhere in this prospectus. Where appropriate, the following discussion includes analysis of the effects of the IPO, the formation transactions and related refinancing transactions, certain other transactions and this offering. These effects are reflected in the pro forma condensed consolidated financial statements located elsewhere in this prospectus.

Overview

       Maguire Properties, Inc. was formed on June 26, 2002. During the period from our formation until we commenced operations upon consummation of our IPO on June 27, 2003, we did not have any material corporate activity other than the issuance of 100 shares of common stock to Mr. Maguire in connection with the initial capitalization of our company. Because we believe that a discussion of the results of Maguire Properties, Inc. prior to the consummation of our IPO would not be meaningful, we have set forth below a discussion of our results of operations beginning June 27, 2003 and the Maguire Properties Predecessor’s historical results of operations prior to that date.

       The Maguire Properties Predecessor combined historical financial information includes the following entities, which are a subset of the entities referred to collectively in this prospectus as the Maguire Organization for the period prior to June 27, 2003:

  •  the property management, leasing and real estate development operations of Maguire Partners Development, Ltd.;
 
  •  the real estate operations for certain entities that own Plaza Las Fuentes and the Plaza Las Fuentes Westin, Gas Company Tower (beginning December 21, 2000), 808 South Olive garage (beginning December 21, 2000) and KPMG Tower (beginning September 13, 2002); and
 
  •  investments in and equity in net income or loss from the operations for certain real estate entities that own Gas Company Tower, 808 South Olive garage and KPMG Tower prior to the dates listed above and US Bank Tower, Wells Fargo Tower and Glendale Center for all periods prior to June 27, 2003.

       The owners of the Maguire Properties Predecessor were Mr. Maguire and certain others who had minor ownership interests.

       Our results of operations for the nine month period ended September 30, 2003 combines the Maguire Properties Predecessor’s combined results of operations for the period from January 1, 2003 through June 26, 2003 and our consolidated results of operations for the period from June 27, 2003 through September 30, 2003. Upon the consummation of our IPO, we purchased Cerritos Corporate Center Phase I and Phase II from a third party. Accordingly, the results of operations of these properties are included in our results of operations beginning June 27, 2003. On August 29, 2003, we purchased all third party interests in Glendale Center. Accordingly, we continued to use the equity method of accounting for our investment in Glendale Center until August 29, 2003, when we began consolidating Glendale Center’s results of operations.

       The consolidated pro forma financial information includes the consolidated operations of each of the above-mentioned properties, as well as One California Plaza, which we purchased on November 6, 2003. The consolidated pro forma financial information does not include financial information related to any of the option properties as we cannot predict when, if at all, the option properties will be acquired.

       During all periods presented prior to June 27, 2003, the Maguire Properties Predecessor was the general partner, managing member or administrative member of the real estate entities that directly or indirectly own all of these properties other than Cerritos Corporate Center Phase I and Phase II and One California Plaza, with responsibility for the day-to-day operations of such entities. However, applicable accounting rules do not permit the Maguire Properties Predecessor to combine such entities unless it,

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during the relevant period, also had sole control over major decisions at the property entity level such as sales and refinancings of the underlying asset. Because we have often held our interests in the properties through joint ventures in which we did not have sole control over major decisions, the Maguire Properties Predecessor combined financial information does not present the combined financial information of all of the properties for all periods presented. As a result, we do not believe that the Maguire Properties Predecessor year-to-year and quarter-to-quarter historical financial information is comparable. We have included in the prospectus the separate financial statements for each of our properties that were accounted for using the equity method of accounting during each of the periods presented in the Maguire Properties Predecessor combined financial statements and we have included a discussion of our historical share of the net income or loss from uncombined real estate entities in “— Results of Operations” below.

       We receive income primarily from rental revenue (including tenant reimbursements) from commercial office properties, and to a lesser extent, from our hotel property and on-and off-site parking garages. We also recognize income from providing management, leasing and real estate development services to our option and certain excluded properties. See “Business and Properties — Description of Option Properties.”

       Upon consummation of our IPO, our operating partnership received a contribution of direct and indirect interests in certain of the properties, as well as certain assets of the management, leasing and real estate development operations of the Maguire Organization, in exchange for 10,999,398 units. Pursuant to purchase and sale agreements, we also acquired additional interests in certain of the properties from unaffiliated third parties for $305.5 million in cash. In connection with the formation transactions, we assumed $1.21 billion of debt and other obligations.

       We account for purchases of properties using the purchase method of accounting. With respect to the ownership interests contributed to us by Mr. Maguire on entities owned by Mr. Maguire in exchange for limited partnership units, we accounted for this exchange as a reorganization of entities under common control in a manner similar to a pooling of interests. Accordingly, the contributed assets and liabilities assumed are accounted for by the operating partnership at the Maguire Properties Predecessor’s historical cost. With respect to the ownership interests contributed to us by minority owners of the Maguire Properties Predecessor in exchange for limited partnership units, we account for this exchange as an acquisition of minority ownership interests and, in accordance with FASB Technical Bulletin 85-5, Issues Relating to Accounting for Business Combinations. These acquisitions are recorded at fair value.

Critical Accounting Policies

Revenue Recognition

       Rental income with scheduled rent increases is recognized using the straight-line method over the term of the leases. Deferred rents included in our consolidated and combined balance sheets represents the aggregate excess of rental revenue recognized on a straight-line basis over cash received under applicable lease provisions. Our leases generally contain provisions under which the tenants reimburse us for a portion of property operating expenses and real estate taxes incurred by us. Such reimbursements are recognized in the period that the expenses are incurred. Lease termination fees are recognized when the related leases are canceled and we have no continuing obligation to provide services to such former tenants.

       Hotel revenues are recognized when the services are rendered to the hotel guests. Property management fees are based on a percentage of the revenue earned by a property under management and are recorded on a monthly basis as earned. Generally, 50% of leasing fees are recognized upon the execution of the lease and the remainder upon tenant occupancy unless significant future contingencies exist. Development fees are recognized as the real estate development services are rendered using the percentage-of-completion method of accounting.

       We must make estimates related to the collectibility of our accounts receivable related to minimum rent, deferred rent, expense reimbursements, lease termination fees and other income. We specifically analyze accounts receivable and historical bad debts, tenant concentrations, tenant credit worthiness, and

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current economic trends when evaluating the adequacy of the allowance for doubtful accounts receivable. These estimates have a direct impact on our net income, because a higher bad debt allowance would result in lower net income.

Investments in Real Estate and Real Estate Entities

       Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life, increase capacity, or improve the efficiency of the asset. Repairs and maintenance are charged to expense as incurred.

       Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives as follows:

     
Buildings and improvements
  25 to 50 years
Tenant improvements
  Shorter of the useful lives or the terms of the related leases
Furniture, fixtures, and equipment
  5 years

       We are required to make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our investments in real estate. These assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our investments in real estate we would depreciate such investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.

       When circumstances such as adverse market conditions indicate a possible impairment of the value of a property, we review the recoverability of the property’s carrying value. The review of recoverability is based on an estimate of the future undiscounted cash flows (excluding interest charges) expected to result from the real estate investment’s use and eventual disposition. These cash flows consider factors such as expected future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. We are required to make subjective assessments as to whether there are impairments in the values of our investments in real estate, including indirect investments in real estate through entities which we do not control and which we account for using the equity method of accounting. These assessments have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income.

       We are required to make subjective assessments as to the fair value of assets and liabilities in connection with purchase accounting adjustments recorded related to additional interests in real estate entities acquired by us. For real estate acquired subsequent to June 30, 2001, the effective date of Statement of Financial Accounting Standards No. 141, Business Combinations, this includes allocating the value of real estate acquired among the building, land, tenant improvements, the value of leases and the fair market value (or negative value) of above or below market leases.

       We estimate the fair value of rental properties utilizing a discounted cash flow analysis that includes projections of future revenues, expenses and capital improvement costs, similar to the income approach that is commonly utilized by appraisers.

Results of Operations

Comparison of Three Months ended September 30, 2003 to Three Months ended September 30, 2002

Total Revenues

       Rental Revenues. Rental revenues increased $23.3 million, or 217.8%, to $34.0 million for the three months ended September 30, 2003 compared to $10.7 million for the three months ended September 30,

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2002. The increase was primarily due to the inclusion of rental revenues for US Bank Tower, Wells Fargo Tower and Cerritos Corporate Center Phase I and Phase II as a result of acquiring the third party interests in these properties upon consummation of our IPO, the inclusion of rental revenues for KPMG Tower for the full three months ending September 30, 2003, compared to the inclusion of only 19 days of rental revenues for the three months ended September 30, 2002, and the inclusion of rental revenues for Glendale Center upon the completion of our acquisition of all third party interests in that property on August 29, 2003.

       Tenant Reimbursements. Revenues from tenant reimbursements increased $11.0 million, or 215.7%, to $16.1 million for the three months ended September 30, 2003 compared to $5.1 million for the three months ended September 30, 2002. The increase was primarily due to the inclusion of tenant reimbursements for US Bank Tower, Wells Fargo Tower and Cerritos Corporate Center Phase I and Phase II as a result of acquiring the third party interests in these properties upon consummation of our IPO, the inclusion of tenant reimbursements for KPMG Tower for the full three months ending September 30, 2003, compared to the inclusion of only 19 days of tenant reimbursements for the three months ended September 30, 2002, and the inclusion of tenant reimbursements for Glendale Center upon the completion of our acquisition of all third party interests in that property on August 29, 2003.

       Hotel Operations. Hotel operations remained constant at $4.4 million for the three months ended September 30, 2003, compared to the three months ended September 30, 2002.

       Parking Revenues. Parking revenues increased $4.5 million, or 236.8%, to $6.4 million for the three months ended September 30, 2003 compared to $1.9 million for the three months ended September 30, 2002. The increase was primarily due to the inclusion of parking revenues for US Bank Tower and Wells Fargo Tower as a result of acquiring the third party interests in these properties upon consummation of our IPO, the inclusion of parking revenues for KPMG Tower for the full three months ending September 30, 2003, compared to the inclusion of only 19 days of parking revenues for the three months ended September 30, 2002, and the inclusion of parking revenues for Glendale Center upon the completion of our acquisition of all third party interests in that property on August 29, 2003.

       Management, Leasing and Development Services to Affiliates Revenue. Management, leasing and development services to affiliates revenue decreased $1.5 million, or 53.6%, to $1.3 million for the three months ended September 30, 2003 compared to $2.8 million for the three months ended September 30, 2002. The decrease relates primarily to increased elimination of inter-company management and leasing fees for the three months ended September 30, 2003, resulting from our increased ownership percentages in our properties compared to our ownership percentages for the three months ended September 30, 2002. The decrease was partially offset by $0.9 million in development fees recognized for the Western Asset Plaza development for the three months ended September 30, 2003. Pursuant to the development agreement between us and the entity that owns Western Asset Plaza, which entity is controlled by Mr. Maguire, these development fees are not payable until the property is stabilized and certain leasing and financial performance benchmarks have been attained or, at the latest, May 31, 2005. Development work at Western Asset Plaza is ongoing and we anticipate earning additional development fees, subject to these same payment provisions, in the near term.

 
Total Expenses

       Rental Property Operating and Maintenance Expenses. Rental property operating and maintenance expenses increased $9.0 million, or 183.7%, to $13.9 million for the three months ended September 30, 2003 compared to $4.9 million for the three months ended September 30, 2002. The increase was primarily due to the inclusion of rental property operating and maintenance expenses for US Bank Tower, Wells Fargo Tower and Cerritos Corporate Center Phase I and Phase II as a result of acquiring the third party interests in these properties upon consummation of our IPO, the inclusion of rental property operating and maintenance expenses for KPMG Tower for the full three months ending September 30, 2003, compared to the inclusion of only 19 days of rental property operating and maintenance expenses for the three months ended September 30, 2002, and the inclusion of rental property operating and

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maintenance expenses for Glendale Center upon the completion of our acquisition of all third party interests in that property on August 29, 2003.

       Real Estate Taxes. Real estate taxes increased $3.8 million, or 380.0%, to $4.8 million for the three months ended September 30, 2003 compared to $1.0 million for the three months ended September 30, 2002. The increase was primarily due to the inclusion of real estate taxes for US Bank Tower, Wells Fargo Tower and Cerritos Corporate Center Phase I and Phase II as a result of acquiring the third party interests in these properties upon consummation of our IPO, the inclusion of real estate taxes for KPMG Tower for the full three months ending September 30, 2003, compared to the inclusion of only 19 days of real estate taxes for the three months ended September 30, 2002, and the inclusion of real estate taxes for Glendale Center upon the completion of our acquisition of all third party interests in that property on August 29, 2003. Additionally, during the three months ended September 30, 2003, we began accruing estimated increases in property taxes that we may incur as a result of the changes in ownership of the properties in connection with our IPO.

       General and Administrative Expenses. General and administrative expenses decreased $1.4 million, or 28.6%, to $3.5 million for the three months ended September 30, 2003 compared to $4.9 million for the three months ended September 30, 2002. The decrease was primarily due to bonuses paid to a former employee for the three months ended September 30, 2002 and the relocation expenses and signing bonus related to the hiring of an officer of our company, during the three months ended September 30, 2002, offset by factors such as the addition of new personnel after our IPO, the addition of expenses relating to operating a public company, an increase in compensation expense related to unvested stock compensation awards accrued during the three months ended September 30, 2003 and increases resulting from the consolidation of US Bank Tower, Wells Fargo Tower and Cerritos Corporate Center Phase I and Phase II upon consummation of our IPO, the combination and consolidation of KPMG Tower for the full three months ending September 30, 2003, compared to the combination of KPMG Tower for only 19 days for the three months ended September 30, 2002, and the consolidation of Glendale Center upon the completion of our acquisition of all third party interests in that property on August 29, 2003.

       Depreciation and Amortization Expense. Depreciation and amortization expense increased $9.8 million, or 251.3%, to $13.7 million for the three months ended September 30, 2003 compared to $3.9 million for the three months ended September 30, 2002. The increase was primarily due to the inclusion of depreciation and amortization expense for US Bank Tower, Wells Fargo Tower and Cerritos Corporate Center Phase I and Phase II as a result of acquiring the third party interests in these properties upon consummation of our IPO, the inclusion of depreciation and amortization expense for KPMG Tower for the full three months ending September 30, 2003, compared to the inclusion of only 19 days of depreciation and amortization expense for the three months ended September 30, 2002, and the inclusion of depreciation and amortization expense for Glendale Center upon the completion of our acquisition of all third party interests in that property on August 29, 2003.

       Interest Expense. Interest expense increased $2.3 million, or 24.5%, to $11.7 million for the three months ended September 30, 2003 compared to $9.4 million for the three months ended September 30, 2002. This is primarily due to the consolidation of US Bank Tower and Wells Fargo Tower for the three months ended September 30, 2003 and the consolidation of KPMG Tower for the full three months ended September 30, 2003, whereas for the three months ended September 30, 2002 it was only combined after its acquisition on September 13, 2002. These increases were partially offset by decreases in interest resulting from the refinancing of our loans at the consummation of our IPO.

       Loss from early Extinguishment of Debt. Loss from early extinguishment of debt decreased $1.6 million to $2.4 million for the three months ended September 30, 2003 compared to $4.0 million for the three months ended September 30, 2002. The 2003 loss on extinguishment of debt is due to defeasance costs incurred and the write-off of unamortized loan costs, net of loan premiums recorded upon assumption of the debt, when the mortgage loan on Glendale Center was defeased on August 29, 2003. The 2002 loss on extinguishment of debt was due to the prepayment penalty incurred and reversal of the

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loan discount net of the change in estimate related to the accrued lender participation for the KPMG Tower mortgage, which was refinanced on September 13, 2002.

       Minority Interests. Minority interests increased $1.9 million, to $1.9 million for the three months ended September 30, 2003, as a result of allocating 22.8% of the consolidated income before minority interests to the limited partner unit holders of our operating partnership for the period July 1, 2003 to July 8, 2003 and 20.5% thereafter. The decrease in the percentage allocation resulted from the exercise of the underwriters’ over-allotment option in our IPO. Minority interests for the three months ended September 30, 2002 related to a minority interest held by a third party in the Gas Company Tower, which we acquired upon consummation of our IPO.

Comparison of Nine Months ended September 30, 2003 to Nine Months ended September 30, 2002

Total Revenues

       Rental Revenues. Rental revenue increased $33.9 million, or 112.6%, to $64.0 million for the nine months ended September 30, 2003 compared to $30.1 million for the nine months ended September 30, 2002. The increase was primarily due to the inclusion of rental revenues for US Bank Tower, Wells Fargo Tower and Cerritos Corporate Center Phase I and Phase II as a result of acquiring the third party interests in these properties upon consummation of our IPO, the inclusion of rental revenues for KPMG Tower for the full nine months ending September 30, 2003, compared to the inclusion of only 19 days of rental revenues for the nine months ended September 30, 2002, and the inclusion of rental revenues for Glendale Center upon the completion of our acquisition of all third party interests in that property on August 29, 2003.

       Tenant Reimbursements. Revenues from tenant reimbursements increased $17.0 million, or 132.8%, to $29.8 million for the nine months ended September 30, 2003 compared to $12.8 million for the full nine months ended September 30, 2002. The increase was primarily due to the inclusion of tenant reimbursements for US Bank Tower, Wells Fargo Tower and Cerritos Corporate Center Phase I and Phase II as a result of acquiring the third party interests in these properties upon consummation of our IPO, the inclusion of tenant reimbursements for KPMG Tower for the full nine months ending September 30, 2003, compared to the inclusion of only 19 days of tenant reimbursements for the nine months ended September 30, 2002, and the inclusion of tenant reimbursements for Glendale Center upon the completion of our acquisition of all third party interests in that property on August 29, 2003.

       Hotel Operations. Revenues from hotel operations decreased $1.6 million, or 10.7%, to $13.3 million for the nine months ended September 30, 2003 compared to $14.9 million for the nine months ended September 30, 2002. The decrease was primarily due to lower occupancy and lower room rates. Occupancy decreased in part due to several well-attended local events during the nine months ended September 30, 2002 that did not recur during the nine months ended September 30, 2003. Occupancy also decreased in part as a result of reduced travel in general during the nine months ended September 30, 2003 due to the expectation of war with Iraq and, beginning March 19, 2003, the outbreak of war with Iraq, as well as lower advance bookings by our former manager who was replaced when we converted from a Doubletree to Westin Hotel in late December 2002.

       Parking Revenues. Parking revenue increased $7.2 million, or 144.0%, to $12.2 million for the nine months ended September 30, 2003 compared to $5.0 million for the nine months ended September 30, 2002. The increase was primarily due to the inclusion of parking revenues for US Bank Tower and Wells Fargo Tower as a result of acquiring the third party interests in these properties upon consummation of our IPO, the inclusion of parking revenues for KPMG Tower for the full nine months ending September 30, 2003, compared to the inclusion of only 19 days of parking revenues for the nine months ended September 30, 2002, and the inclusion of parking revenues for Glendale Center upon the completion of our acquisition of all third party interests in that property on August 29, 2003.

       Management, Leasing and Development Services to Affiliates Revenue. Management, leasing and development services to affiliates revenue decreased $2.4 million, or 39.3%, to $3.7 million for the nine

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months ended September 30, 2003 compared to $6.1 million for the nine months ended September 30, 2002. The decrease relates primarily to increased elimination of inter-company management and leasing fees for the nine months ended September 30, 2003, resulting from our increased ownership percentages in our properties compared to our ownership percentages for the nine months ended September 30, 2002. Also, there were $0.8 million in development fees recognized for the Water’s Edge development in the nine months ended September 30, 2002, which did not recur in the nine months ended September 30, 2003 because the property was completed in August, 2002. All of these factors were partially offset by a $0.9 million increase in development fees recognized for the Western Asset Plaza development for the nine months ended September 30, 2003. Pursuant to the development agreement between us and the entity that owns Western Asset Plaza, which entity is controlled by Mr. Maguire, these development fees are not payable until the property is stabilized and certain leasing and financial performance benchmarks have been attained or, at the latest, May 31, 2005. Development work at Western Asset Plaza is ongoing and we anticipate earning additional development fees, subject to these same payment provisions, in the near term.

       Interest and other revenue. Interest and other revenue increased $2.7 million, to $2.9 million for the nine months ended September 30, 2003 compared to $0.2 million for the nine months ended September 30, 2002. The increase was due primarily to a $2.3 million lease termination fee received from a former tenant at Gas Company Tower, earned on June 27, 2003 and a lease termination fee from a tenant at KPMG Tower, which vacated a portion of their space during the nine months ended September 30, 2003, and an increase in interest income due to increased average balances in interest bearing cash equivalents.

 
Total Expenses

       Rental Property Operating and Maintenance Expenses. Rental property operating and maintenance expenses increased $15.4 million, or 140.0%, to $26.4 million for the nine months ended September 30, 2003 compared to $11.0 million for the nine months ended September 30, 2002. The increase was primarily due to the inclusion of rental property operating and maintenance expenses for US Bank Tower, Wells Fargo Tower and Cerritos Corporate Center Phase I and Phase II as a result of acquiring the third party interests in these properties upon consummation of our IPO, the inclusion of rental property operating and maintenance expenses for KPMG Tower for the full nine months ending September 30, 2003, compared to the inclusion of only 19 days of rental property operating and maintenance expenses for the nine months ended September 30, 2002, and the inclusion of rental property operating and maintenance expenses for Glendale Center upon the completion of our acquisition of all third party interests in that property on August 29, 2003.

       Hotel Operating and Maintenance Expenses. Hotel operating and maintenance expenses decreased $0.2 million, or 1.9%, to $10.2 million for the nine months ended September 30, 2003 compared to $10.4 million for the nine months ended September 30, 2002. The decrease was primarily due to decreased variable costs related to decreased occupancy offset by increased costs related to the Westin transition.

       Real Estate Taxes. Real estate taxes increased $5.1 million, or 182.1%, to $7.9 million for the nine months ended September 30, 2003 compared to $2.8 million for the nine months ended September 30, 2002. The increase was primarily due to the inclusion of real estate taxes for US Bank Tower, Wells Fargo Tower and Cerritos Corporate Center Phase I and Phase II as a result of acquiring the third party interests in these properties upon consummation of our IPO, the inclusion of real estate taxes for KPMG Tower for the full nine months ending September 30, 2003, compared to the inclusion of only 19 days of real estate taxes for the nine months ended September 30, 2002, and the inclusion of real estate taxes for Glendale Center upon the completion of our acquisition of all third party interests in that property on August 29, 2003.

       General and Administrative Expenses. General and administrative expenses increased $14.1 million, or 111.9%, to $26.7 million for the nine months ended September 30, 2003 compared to $12.6 million for the nine months ended September 30, 2002. The increase was primarily due to compensation expense

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related to the fully vested restricted common stock issued to certain employees, cash paid to those employees for their related tax obligations, accrued compensation expense related to unvested stock awards, the addition of new personnel after our IPO, the addition of expenses relating to operating a public company, and the consolidation of US Bank Tower, Wells Fargo Tower and Cerritos Corporate Center Phase I and Phase II upon consummation of our IPO, the combination and consolidation of KPMG Tower for the full nine months ending September 30, 2003, compared to the combination of KPMG Tower for only 19 days for the nine months ended September 30, 2002, and the consolidation of Glendale Center upon the completion of our acquisition of all third party interests in that property on August 29, 2003. This was offset by payments for relocation expenses and a signing bonus related to the hiring of an officer of our company and a guaranteed bonus through April 2002 for a former employee, during the nine months ended September 30, 2002 that did not recur in the nine months ended September 30, 2003. Included in general and administrative expenses for both the nine months ended September 30, 2003 and 2002 are $2.0 million of transaction related bonuses to a former employee.

       Depreciation and Amortization Expense. Depreciation and amortization expense increased $14.3 million, or 127.7%, to $25.5 million for the nine months ended September 30, 2003 compared to $11.2 million for the nine months ended September 30, 2002. The increase was primarily due to the inclusion of depreciation and amortization expense for US Bank Tower, Wells Fargo Tower and Cerritos Corporate Center Phase I and Phase II as a result of acquiring the third party interests in these properties upon consummation of our IPO, the inclusion of depreciation and amortization expense for KPMG Tower for the full nine months ending September 30, 2003, compared to the inclusion of only 19 days of depreciation and amortization expense for the nine months ended September 30, 2002, and the inclusion of depreciation and amortization expense for Glendale Center upon the completion of our acquisition of all third party interests in that property on August 29, 2003.

       Interest Expense. Interest expense increased $10.5 million, or 39.2%, to $37.3 million for the nine months ended September 30, 2003 compared to $26.8 million for the nine months ended September 30, 2002. The increase was due in part to the combination and consolidation of KPMG Tower for the full nine months ending September 30, 2003, compared to the combination of KPMG Tower for only 19 days for the nine months ended September 30, 2002, and the consolidation of US Bank Tower and Wells Fargo Tower as a result of acquiring the third party interests in these properties upon consummation of our IPO. The increase also resulted from interest expense associated with the $64.3 million reverse purchase agreement obtained on February 5, 2003 through the consummation of our IPO in connection with purchasing additional interests in Wells Fargo Tower, partially offset by decreases in interest expense resulting from paying off the Plaza Las Fuentes loan upon consummation of our IPO, reduced principal balances on our Gas Company Tower and 808 South Olive Garage mezzanine loans and lower borrowing rates on our variable rate debt for the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002.

       Loss From Early Extinguishment of Debt. Loss from early extinguishment of debt increased $49.4 million to $53.4 million for the nine months ended September 30, 2003, compared to $4.0 million for the nine months ended September 30, 2002. The 2003 loss from early extinguishment of debt is primarily due to prepayment penalties, exit fees, defeasance costs and the write-off of unamortized loan costs, net of loan premiums recorded upon assumption of the debt, when certain mortgages and other loans were repaid or defeased upon consummation of our IPO, as well as defeasance of the Glendale Center mortgage loan on August 29, 2003. The 2002 loss from early extinguishment of debt was due to the prepayment penalty incurred net of the loan discount and the change in estimate related to the accrued lender participation for the KPMG Tower mortgage, which was refinanced on September 13, 2002.

       Other Expenses. Other expenses increased $11.0 million, to $11.8 million for the nine months ended September 30, 2003 compared to $0.8 million for the nine months ended September 30, 2002. The increase was primarily due to the $5.0 million net cost of swaptions purchased prior to our IPO as a hedge against interest rate movements on debt we incurred upon consummation of our IPO, accrued transfer taxes of $1.2 million related to our IPO, write-off of $1.8 million of capitalized costs relating to a terminated lease, and the $3.0 million write-off of amounts due from an excluded property.

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       Equity in Net Income (Loss) of Real Estate Entities. Equity in net income (loss) of uncombined real estate entities increased $2.4 million, to $1.6 million for the nine months ended September 30, 2003 compared to $(0.8) million for the nine months ended September 30, 2002. The increase was primarily due to the net loss in KPMG Tower as an uncombined real estate affiliate for the period through its acquisition on September 13, 2002; for the nine months ended September 30, 2003 KPMG Tower was combined. We also recorded a larger share of net income on Wells Fargo Tower resulting from acquiring an additional interest in the property on February 5, 2003, and Glendale Center experienced a net loss resulting from a change in estimate related to tenant participation rights resulting from the expected purchase of such rights. We also began consolidating Wells Fargo Tower and US Bank Tower instead of using the equity method beginning June 27, 2003 as a result of acquiring the third party interests in these properties upon consummation of our IPO.

       Minority Interests. Minority interests increased to $(11.5) million for the nine months ended September 30, 2003 compared to $(0.3) million for the nine months ended September 30, 2002. Approximately 22.8% of the consolidated loss before minority interests was allocated to the limited partner unit holders of our operating partnership from June 27, 2003, upon consummation of our IPO, to July 8, 2003, upon which the allocation was reduced to 20.5% as a result of the exercise of the underwriters’ over-allotment option. Minority interests for the nine months ended September 30, 2002 related to a minority interest held by a third party in the Gas Company Tower, which we acquired upon consummation of our IPO.

 
Comparison of Year ended December 31, 2002 to Year ended December 31, 2001

       Our results of operations for the years ending December 31, 2002 and 2001 reflect the combination of the entities that own Plaza Las Fuentes (which includes the Plaza Las Fuentes Westin), Gas Company Tower, 808 South Olive garage and the property management, leasing and real estate development operations of Maguire Partners Development, Ltd. For both of these years, Wells Fargo Tower, US Bank Tower and Glendale Center were accounted for utilizing the equity method of accounting. On September 13, 2002, we acquired all of the third party interests in KPMG Tower. As a result, we have combined the entities owning KPMG Tower for a 109 day period ended December 31, 2002 and accounted for our investment in KPMG Tower utilizing the equity method of accounting for the remaining portion of the year ending December 31, 2002 and the entire year ending December 31, 2001.

 
Total Revenues

       Rental Revenues. Rental revenue increased $5,373,000, or 13.8%, to $44,401,000 for the year ended December 31, 2002 compared to $39,028,000 for the year ended December 31, 2001. The increase was primarily due to the inclusion of 109 days of rental revenue related to KPMG Tower for the year ended December 31, 2002.

       Tenant Reimbursements. Revenues from tenant reimbursements increased $5,187,000, or 35.5%, to $19,782,000 for the year ended December 31, 2002 compared to $14,595,000 for the year ended December 31, 2001. This increase was primarily due to the inclusion of 109 days of tenant reimbursements related to KPMG Tower for the year ended December 31, 2002 and increased reimbursable costs for security and insurance for our properties incurred subsequent to September 11, 2001. We expect security costs to continue to impact tenant reimbursements in the future.

       Hotel Operations. Revenues from hotel operations increased $659,000, or 3.4%, to $20,005,000 for the year ended December 31, 2002 compared to $19,346,000 for the year ended December 31, 2001. Although our Plaza Las Fuentes Westin hotel was affected by decreased travel subsequent to September 11, 2001 and as a result of a sluggish economy, there were several local events that resulted in increased demand for hotel rooms in Pasadena during 2002 and occupancy was positively impacted by contracts for hotel rooms with an airline and other companies.

       Other Revenues. Other revenues is comprised of revenues from parking operations, revenues from management, leasing and development services, interest income and other miscellaneous revenues. Other

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revenues increased $2,228,000, or 15.2%, to $16,864,000 for the year ended December 31, 2002 compared to $14,636,000 for the year ended December 31, 2001. This increase was primarily due to the inclusion of 109 days of other revenue related to KPMG Tower for the year ended December 31, 2002.
 
Total Expenses

       Rental Property Operating and Maintenance Expenses. Rental property operating and maintenance expenses increased $5,229,000, or 41.0%, to $17,986,000 for the year ended December 31, 2002 compared to $12,757,000 for the year ended December 31, 2001. The increase was primarily due to the inclusion of 109 days of rental property operating and maintenance expenses related to KPMG Tower for the year ended December 31, 2002 and increased security and insurance costs for our properties subsequent to September 11, 2001.

       Hotel Operating and Maintenance Expenses. Hotel operating and maintenance expenses increased $1,949,000, or 14.6%, to $15,310,000 for the year ended December 31, 2002 compared to $13,361,000 for the year ended December 31, 2001. This increase primarily relates to the conversion of our Plaza Las Fuentes hotel from a Doubletree to a Westin hotel, increased variable costs related to increased occupancy and increased insurance costs.

       Real Estate Taxes. Real estate taxes increased $558,000, or 13.5%, to $4,692,000 for the year ended December 31, 2002 compared to $4,134,000 for the year ended December 31, 2001. This increase was primarily due to the inclusion of 109 days of real estate taxes related to the KPMG Tower for the year ended December 31, 2002.

       General and Administrative Expenses. General and administrative expenses increased $2,645,000, or 19.5%, to $16,222,000 for the year ended December 31, 2002 compared to $13,577,000 for the year ended December 31, 2001. The increase was primarily due to consulting fees for services rendered by Mr. Gilchrist, our Co-Chief Executive Officer and President, increases in salary and bonus expense relating largely to transaction based bonuses, salary and bonus related to the hiring during 2002 of Mr. Lucas, our Chief Financial Officer, and a placement fee to an executive search firm related to the hiring of Mr. Lucas.

       Depreciation and Amortization Expense. Depreciation and amortization expense increased $2,364,000, or 16.4%, to $16,774,000 for the year ended December 31, 2002 compared to $14,410,000 for the year ended December 31, 2001. The increase was primarily due to the inclusion of 109 days of depreciation and amortization expense related to KPMG Tower for the year ended December 31, 2002.

       Interest Expense. Interest expense decreased $6,797,000 or 14.8% to $38,975,000 for the year ended December 31, 2002 compared to $45,772,000 for the year ended December 31, 2001. The decrease was primarily due to decreased interest expense on variable rate loans resulting from decreases in LIBOR for the year ended December 31, 2002 compared to the year ended December 31, 2001 offset by the increase due to inclusion of 109 days of interest expense for KPMG Tower for the year ended December 31, 2002.

       Loss From Early Extinguishment of Debt. Loss from early extinguishment of debt was $3,967,000 related to settling the previous mortgage encumbering KPMG Tower, including paying a prepayment penalty.

       Other Expenses. Other expenses increased $1,282,000, or 152.1%, to $2,125,000 for the year ended December 31, 2002 compared to $843,000 for the year ended December 31, 2001. The increase was primarily due to the $850,000 termination fee incurred as a result of terminating the Plaza Las Fuentes hotel management agreement with Doubletree for the year ended December 31, 2002.

       Equity in Net Income (Loss) of Uncombined Real Estate Entities. Equity in net income (loss) of uncombined real estate entities increased $2,517,000, or 94.0%, to a loss of $(162,000) for the year ended December 31, 2002 compared to a loss of $(2,679,000) for the year ended December 31, 2001. Set forth below is a summary of the condensed combined financial information for the uncombined real estate

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entities and the Maguire Properties Predecessor’s share of net income (loss) and total equity in net income (loss) for the years ended December 31, 2002 and 2001:
                   
Year Ended
December 31,

2002 2001


(In thousands)
Revenue
  $ 132,288     $ 142,544  
Operating and other expenses
    52,882       52,888  
Interest expense
    53,970       49,820  
Depreciation and amortization
    24,091       27,041  
     
     
 
 
Net income
  $ 1,345     $ 12,795  
     
     
 
Predecessor’s share of net income (loss)
  $ (1,276 )   $ (4,036 )
Intercompany eliminations and other entries
  $ 1,114     $ 1,357  
     
     
 
 
Equity in net income (loss) of uncombined real estate entities
  $ (162 )   $ (2,679 )
     
     
 

       Aggregate revenue and operating and other expenses shown above for the year ended December 31, 2002 compared to the year ended December 31, 2001 are affected by decreases in the 2002 amounts related to including KPMG Tower in these totals only through September 13, 2002. The aggregate revenue for the other properties included in the above totals was comparable for the year ended December 31, 2002 and the year ended December 31, 2001. However, there were increases in tenant reimbursement revenue primarily related to increased security and insurance costs, which were offset by a decrease in other income of Wells Fargo Tower of $3,780,000 resulting primarily from one-time lease termination fees recognized during the year ended December 31, 2001. Each of the uncombined properties experienced an increase in operating and other expenses for the year ended December 31, 2002 compared to the year ended December 31, 2001 related primarily to increases in security and insurance costs subsequent to September 11, 2001. Aggregate interest expense for the year ended December 31, 2002 increased $4,150,000 compared to the year ended December 31, 2001 primarily due to increased debt at US Bank Tower incurred in March 2002, partially offset by a decrease related to including interest for KPMG Tower only through September 13, 2002. The aggregate depreciation and amortization decreased $2,950,000 for the year ended December 31, 2002 compared to the year ended December 31, 2001, as a result of decreases related to US Bank Tower and decreases related to including KPMG Tower only through September 13, 2002. The decreased depreciation and amortization for US Bank Tower relates primarily to amounts recorded in 2001 to fully amortize assets related to tenants whose leases were terminated, partially offset by increases in depreciation related to the new security equipment placed into service in 2002.

       Minority Interests. Minority interest increased $1,894,000, or 80.3%, to $(465,000) for the year ended December 31, 2002 compared to $(2,359,000) for the year ended December 31, 2001. The increase was primarily due to decreased interest expense at Gas Company Tower which, due to the terms of our agreement with our minority interestholder in Gas Company Tower, was disproportionately allocated to the minority interestholder.

 
Comparison of Year Ended December 31, 2001 to Year Ended December 31, 2000

       On December 21, 2000, we acquired a controlling interest in Gas Company Tower and 808 South Olive garage. As a result, we have combined the entities that own these properties, for the entire period for the year ended December 31, 2001 as compared to only an 11 day period for Gas Company Tower and 808 South Olive garage for the year ended December 31, 2000. The combination of these accounts with those of previously combined accounts of Plaza Las Fuentes (which includes the Plaza Las Fuentes Westin), and the property management, leasing and real estate development operations of Maguire

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Partners Development, Ltd. significantly increased our combined total revenue and total expenses. For the period January 1, 2000 through December 20, 2000, Gas Company Tower and 808 South Olive garage were accounted for utilizing the equity method of accounting. For both of the years ended December 31, 2001 and 2000, our interests in Wells Fargo Tower, KPMG Tower, US Bank Tower and Glendale Center were accounted for utilizing the equity method of accounting.
 
Total Revenues

       Rental Revenues. Rental revenue increased $34,278,000, or 721.6%, to $39,028,000 for the year ended December 31, 2001 compared to $4,750,000 for the year ended December 31, 2000. The increase was due primarily to the inclusion of a full year of rental revenue related to the Gas Company Tower for the year ended December 31, 2001 compared to the inclusion of 11 days of rental revenue for the year ended December 31, 2000.

       Tenant Reimbursements. Revenues from tenant reimbursements increased $12,539,000, or 609.9%, to $14,595,000 for the year ended December 31, 2001 compared to $2,056,000 for the year ended December 31, 2000. The increase was primarily due to the inclusion of tenant reimbursements related to Gas Company Tower for the full year ended December 31, 2001, compared to inclusion of 11 days for the year ended December 31, 2000.

       Hotel Operations. Revenues from hotel operations decreased $4,533,000, or 19.0%, to $19,346,000 for the year ended December 31, 2001 compared to $23,879,000 for the year ended December 31, 2000. The decrease was primarily due to decreased business travel subsequent to September 11, 2001 and as a result of the weaker national economy in 2001.

       Other Revenues. Other revenues increased $6,625,000, or 82.7%, to $14,636,000 for the year ended December 31, 2001 compared to $8,011,000 for the year ended December 31, 2000. This increase was primarily due to the inclusion of a full year of revenues from parking operations at Gas Company Tower and 808 South Olive garage for the year ended December 31, 2001 compared to inclusion of 11 days of revenues for the year ended December 31, 2000.

Total Expenses

       Rental Property Operating and Maintenance Expenses. Rental property operating and maintenance expenses increased $10,816,000, or 557.2%, to $12,757,000 for the year ended December 31, 2001 compared to $1,941,000 for the year ended December 31, 2000. The increase was primarily due to the inclusion of a full year of property operating and maintenance expenses related to Gas Company Tower for the year ended December 31, 2001 compared to inclusion of 11 days thereof for the year ended December 31, 2000.

       Hotel Operating and Maintenance Expenses. Hotel operating and maintenance expenses decreased $1,805,000, or 11.9%, to $13,361,000 for the year ended December 31, 2001 compared to $15,166,000 for the year ended December 31, 2000. The decrease was primarily due to decreased business travel subsequent to September 11, 2001 and the soft economy in 2001, both of which resulted in lower variable costs at our hotel property.

       Real Estate Taxes. Real estate taxes increased $3,139,000, or 315.5%, to $4,134,000 for the year ended December 31, 2001 compared to $995,000 for the year ended December 31, 2000. The increase was primarily due to the inclusion of a full year of real estate taxes related to the Gas Company Tower and 808 South Olive garage for the year ended December 31, 2001 compared to inclusion of 11 days thereof for the year ended December 31, 2000.

       General and Administrative Expenses. General and administrative expenses increased $876,000, or 6.9%, to $13,577,000 for the year ended December 31, 2001 compared to $12,701,000 for the year ended December 31, 2000. The increase was primarily due to the inclusion of a full year of general and administrative expenses related to Gas Company Tower and 808 South Olive garage for the year ended December 31, 2001 compared to inclusion of 11 days thereof for the year ended December 31, 2000, and

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to an increase in bonuses to employees awarded for the year ended December 31, 2001 compared to bonuses awarded for the year ended December 31, 2000.

       Depreciation and Amortization Expense. Depreciation and amortization expense increased $10,864,000, or 306.4%, to $14,410,000 for the year ended December 31, 2001 compared to $3,546,000 for the year ended December 31, 2000. The increase was primarily due to the inclusion of a full year of depreciation and amortization related to Gas Company Tower and 808 South Olive garage for the year ended December 31, 2001 compared to inclusion of 11 days thereof for the year ended December 31, 2000.

       Interest Expense. Interest expense increased $11,261,000, or 32.6%, to $45,772,000 for the year ended December 31, 2001 compared to $34,511,000 for the year ended December 31, 2000. The increase relates largely to combining Gas Company Tower and 808 South Olive garage which resulted in combining interest expense on the Gas Company Tower and 808 South Olive garage mortgage loans beginning December 21, 2000. Interest expense on the mezzanine loans for Gas Company and 808 South Olive garage is included in our interest expense for both years, however, there was decreased interest expense resulting from a reduction in the principal balance for the refinanced Gas Company Tower mezzanine loan on December 21, 2000 offset by increased interest expense related to the higher borrowing rate on the new mezzanine loan, and decreased interest expense for variable rate loans due to decreases in LIBOR. The balance of the increase in interest for the year ended December 31, 2001 compared to the year ended December 31, 2000 relates primarily to increased borrowings under our $20 million credit facility, increased borrowings for Plaza Las Fuentes and increased interest expense resulting from recording the interest rate caps at fair value.

       Other Expenses. Other expenses for the year ended December 31, 2001 totaling $843,000 was comparable to other expenses for the year ended December 31, 2000 totaling $851,000.

       Equity in Net Income (Loss) of Uncombined Real Estate Entities. Equity in net income (loss) of uncombined real estate entities decreased $5,744,000 to a loss of $(2,679,000) for the year ended December 31, 2001 compared to net income of $3,065,000 for the year ended December 31, 2000, largely as a result of combining Gas Company Tower and 808 South Olive garage beginning December 21, 2000. Set forth below is a summary of the condensed combined financial information for the uncombined real estate entities and the Maguire Properties Predecessor’s share of net income (loss) and total equity in net income (loss) for the years ended December 31, 2001 and 2000:

                   
Year Ended
December 31,

2001 2000


(In thousands)
Revenue
  $ 142,544     $ 178,668  
Operating and other expenses
    52,888       65,354  
Interest expense
    49,820       66,063  
Depreciation and amortization
    27,041       34,817  
Appreciation of land distributed to members
          6,478  
     
     
 
 
Net income
  $ 12,795     $ 18,912  
     
     
 
Predecessor’s share of net income (loss)
  $ (4,036 )   $ 3,865  
Intercompany eliminations and other entries
  $ 1,357     $ (800 )
     
     
 
 
Equity in net income (loss) of uncombined real estate entities
  $ (2,679 )   $ 3,065  
     
     
 

       The decreases in the aggregate revenue and operating and other expenses shown above for the year ended December 31, 2001 compared to the year ended December 31, 2000 relate primarily to including

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Gas Company Tower and 808 South Olive garage in these totals only through December 21, 2000. The aggregate revenue for the other properties included in the above totals increased for the year ended December 31, 2001 compared to the year ended December 31, 2000. This increase was largely due to an increase of $3,153,000 of other income relating primarily to one-time lease termination fees at Wells Fargo Tower recognized during the year ended December 31, 2001 and an aggregate increase in tenant reimbursements of $3,561,000 for US Bank, KPMG and Wells Fargo Towers related primarily to increased operating costs along with increased reimbursements from certain tenants who occupied US Bank Tower in late 2000 and were charged a full year of reimbursements for 2001 and only a partial year for 2000. Aggregate operating and other expenses for such properties increased largely due to increased security costs subsequent to September 11, 2001.

       Gain on Forgiveness of Debt. On December 21, 2000, in connection with a bankruptcy court settlement in which we purchased the equity interest held by our former joint venture partner in Gas Company Tower and 808 South Olive garage, the joint venturer agreed to the settlement of its convertible mezzanine debt for a reduced amount. The settlement of the debt resulted in gains of $161,159,000 as further discussed in Note 1 to our combined financial statements.

       Minority Interests. Minority interest decreased $2,179,000 to $(2,359,000) during the year ended December 31, 2001 compared to $(180,000) during the year ended December 31, 2000. This decrease was primarily due to the inclusion of a full year of operations for Gas Company Tower for the year ended December 31, 2001 compared to the 11 days of operations included in the year ended December 31, 2000.

Pro Forma Operating Results

Comparison of Pro Forma Nine Months Ended September 30, 2003 to Historical Nine Months Ended September 30, 2003

       The pro forma condensed consolidated statement of operations for the nine months ended September 30, 2003 is presented as if each of the following had occurred as of January 1, 2003:

  •  this offering;
 
  •  our IPO, including the exercise of the underwriters’ over-allotment option and the related formation and refinancing transactions;
 
  •  the acquisitions of third party interests in Wells Fargo Tower and the related financing transactions, each on February 5, 2003;
 
  •  the acquisition of all third party interests in Glendale Center, and the defeasance of the mortgage formerly encumbering Glendale Center, each on August 29, 2003, and the $80.0 million mortgage financing on Glendale Center on October 15, 2003; and
 
  •  the acquisition of One California Plaza and the related financing transactions, each on November 6, 2003.

       In the formation transactions, we acquired the redeemable preferred equity interests in US Bank Tower from a third party investor and the remaining third party ownership interests in Wells Fargo Tower and Glendale Center, resulting in the consolidation of these three properties in the pro forma statement. In the formation transactions we also acquired Cerritos Corporate Center Phases I and II from a third party and all of the minority interests previously held by third parties in Gas Company Tower, 808 South Olive Garage and Plaza Las Fuentes. The effects of these acquisitions are also reflected in the pro forma statement.

       The real estate, other assets and liabilities contributed to us in the formation transactions by Mr. Maguire or entities owned by Mr. Maguire in exchange for common units in our operating partnership have been accounted for as a reorganization of entities under common control; accordingly, the assets and liabilities assumed were recorded at the Maguire Properties Predecessor’s historical cost. As a result, expenses such as depreciation and amortization included in our pro forma operating results are based on

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the Maguire Properties Predecessor’s historical costs of the related contributed assets. The interests in our properties purchased from third parties and contributed to us by the minority owners of the Maguire Properties Predecessor have been accounted for based on the fair value of the assets acquired and liabilities assumed.

       The consolidation of the operating results of US Bank Tower, Wells Fargo Tower, Glendale Center, Cerritos Corporate Center Phases I and II and One California Plaza resulted in significant increases in various components of our statement of operations. The net effect of all of our pro forma adjustments is to significantly increase net income on a pro forma basis, primarily as a result of additional pro forma net income resulting from a significant increase in rental revenues and tenant reimbursements related to the acquisition of Cerritos Corporate Center Phases I and II and One California Plaza and the acquisition of additional interests in US Bank Tower, Wells Fargo Tower and Glendale Center partially offset by a significant increase in interest expense and expenses from rental property operating and maintenance and depreciation and amortization.

       The components of the significant changes that would have been reflected in our financial statements on a pro forma basis for the nine months ended September 30, 2003 compared to the historical results are as follows:

       On a pro forma basis, total revenues would have increased to $215,930,000 for the nine months ended September 30, 2003 compared to $125,909,000 reported historically for the same period, an increase of 71.5%. This increase is primarily the result of increases in rental revenue, parking revenues and tenant expense reimbursements resulting from the consolidation of the US Bank Tower, Wells Fargo Tower, Glendale Center and the acquisition of Cerritos Corporate Center Phases I and II and One California Plaza.

       On a pro forma basis, total expenses would have decreased to $199,236,000 for the nine months ended September 30, 2003 compared to $199,254,000 reported historically for the same period, a decrease of 0.01%. The decrease in pro forma total expenses reflects significant decreases as a result of excluding loss from early extinguishment of debt and compensation expense associated with our IPO and related refinancing transactions, based on the assumption that the debt and equity structures resulting from our IPO and related refinancings had been in place for the entire period presented. These decreases are offset by significant expense increases resulting from the consolidation of US Bank Tower, Wells Fargo Tower, Glendale Center and the acquisition of Cerritos Corporate Center Phases I and II and One California Plaza. Pro forma interest expense reflects a net increase of $6,449,000 or 17.3%, resulting from the addition of indebtedness as a result of consolidating US Bank Tower, Wells Fargo Tower, Glendale Center and One California Plaza, which was partially offset by lower interest rates. Pro forma total expenses also reflect additional general and administrative expenses resulting from increases in compensation expense related to:

  •  vesting of restricted common stock awards to employees along with cash awards to mitigate the employees’ resulting tax liabilities, and
 
  •  additional salaries related to becoming a public company.

       On a pro forma basis, minority deficit for the nine months ended September 30, 2003 increased to a minority interest of $3,422,000 compared to $(11,527,000) of minority deficit reported historically for the same period. Pro forma minority interests consist of an allocation of pro forma net income to the limited partners of our operating partnership offset by reversal of minority interest historically allocated for the same period to the former third party investor in Gas Company Tower. This reversal results from our company acquiring the minority interest in Gas Company Tower.

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Comparison of Pro Forma Year Ended December 31, 2002 to Historical Year Ended December 31, 2002

       The pro forma condensed consolidated statement of operations for the year ended December 31, 2002 is presented as if each of the following had occurred on or immediately prior to January 1, 2002:

  •  this offering;
 
  •  our IPO, including the exercise of the underwriters’ over-allotment option and the related formation and refinancing transactions;
 
  •  the acquisition of all the third party interests in KPMG Tower and the related financing transactions, each on September 13, 2002;
 
  •  the acquisitions of third party interests in Wells Fargo Tower and the related financing transactions, each on February 5, 2003;
 
  •  the acquisition of all third party interests in Glendale Center, and the defeasance of the mortgage formerly encumbering Glendale Center, each on August 29, 2003, and the $80.0 million mortgage financing on Glendale Center on October 15, 2003; and
 
  •  the acquisition of One California Plaza and the related financing transactions, each on November 6, 2003.

       In the formation transactions, we acquired the redeemable preferred equity interests in US Bank Tower from a third party investor and the remaining third party ownership interests in Wells Fargo Tower and Glendale Center, resulting in the consolidation of these three properties in the pro forma statement. In the formation transactions we also acquired Cerritos Corporate Center Phases I and II from a third party and all of the minority interests previously held by third parties in Gas Company Tower, 808 South Olive Garage and Plaza Las Fuentes. The effects of these acquisitions are also reflected on the pro forma statement.

       The real estate, other assets and liabilities contributed to us by Mr. Maguire or entities owned by Mr. Maguire in exchange for common limited partnership units in the operating partnership have been accounted for as a reorganization of entities under common control; accordingly, the assets contributed and liabilities assumed were recorded at the Maguire Properties Predecessor’s historical cost. As a result, expenses such as depreciation and amortization included in our pro forma operating results are based on the Maguire Properties Predecessor’s historical costs of the related contributed assets. The interests in our properties purchased from third parties and contributed to us by the minority owners of the Maguire Properties Predecessor have been accounted for based on the fair value of the assets acquired and liabilities assumed.

       The consolidation of the operating results of the US Bank, KPMG, Wells Fargo Towers, One California Plaza, Glendale Center and Cerritos Corporate Center Phases I and II resulted in significant increases in various components of our statement of operations. The net effect of all of our pro forma adjustments is to significantly increase net income on a pro forma basis, primarily as a result of additional pro forma net income related to the acquisition of Cerritos Corporate Center Phases I and II and One California Plaza and acquisition of additional interests in the US Bank, KPMG and Wells Fargo Towers and Glendale Center, partially offset by a significant increase in general and administrative expense related largely to increased compensation expense.

       The components of the significant changes that would have been reflected in our financial statements on a pro forma basis for the year ended December 31, 2002 compared to the historical results are as follows:

       On a pro forma basis, total revenues would have increased to $276,255,000 for the year ended December 31, 2002 compared to $101,052,000 reported historically for the same period, an increase of 173.4%. This increase is primarily the result of increases in rental revenue, parking revenues and tenant expense reimbursements resulting from the consolidation of the US Bank, KPMG and Wells Fargo

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Towers, Glendale Center and the acquisition of Cerritos Corporate Center Phases I and II and One California Plaza.

       On a pro forma basis, total expenses would have increased to $248,134,000 for the year ended December 31, 2002 compared to $116,051,000 reported historically for the same period, an increase of 113.8%. The increase in pro forma total expenses reflects significant increases resulting from the consolidation of the US Bank, KPMG and Wells Fargo Towers, Glendale Center, Cerritos Corporate Center Phases I and II and One California Plaza. Pro forma interest expense reflects a net increase resulting from increases in indebtedness resulting from consolidating the US Bank, KPMG and Wells Fargo Towers, Glendale Center and One California Plaza, partially offset by reduced indebtedness at our historically combined properties and lower interest rates. Pro forma total expenses also reflect additional general and administrative expenses resulting from increases in compensation expense related to:

  •  vesting of restricted common stock awards to employees along with cash awards to mitigate the employees’ resulting tax liabilities; and
 
  •  additional salaries related to becoming a public company.

       On a pro forma basis, minority interests for the year ended December 31, 2002 increased to $5,765,000 compared to a minority deficit of $(465,000) reported historically for the same period. Pro forma minority interest consists of an allocation of pro forma net income to the limited partners of our operating partnership offset by reversal of minority interest historically allocated for the same period to the former third party investor in Gas Company Tower. This reversal results from our company acquiring the minority interest in Gas Company Tower.

Funds From Operations

       We calculate FFO, as defined by NAREIT. FFO represents net income (loss) (computed in accordance with accounting principles generally accepted in the United States of America, or GAAP), excluding gains (or losses) from sales of property, real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures.

       Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs.

       However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. Other equity REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to such other REITs’ FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. FFO also should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.

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       The following table reconciles our pro forma FFO and pro forma FFO available to common stockholders to our pro forma net income for the nine months ended September 30, 2003 and the year ended December 31, 2002.

                   
Pro Forma Pro Forma
Nine Months Ended Year Ended
September 30, 2003 December 31, 2002


(In thousands) (In thousands)
Reconciliation of pro forma net income to pro forma funds from operations and pro forma funds from operations available to common stockholders:
               
Pro forma net income
  $ 13,272     $ 22,356  
Adjustments:
               
 
Pro forma minority interests
    3,422       5,765  
 
Pro forma real estate depreciation and amortization
    49,200       61,835  
     
     
 
Pro forma FFO
    65,894       89,956  
Less pro forma preferred stock dividends
    12,867       17,156  
     
     
 
Pro forma FFO available to common stockholders(1)
  $ 53,027     $ 72,800  
     
     
 


(1)  The FFO available to common stockholders has been calculated assuming that the common units in our operating partnership are exchanged for common stock.

Liquidity and Capital Resources

Available Borrowings, Cash Balances and Capital Resources

       Our operating partnership has a $100 million secured revolving credit facility with a group of banks led by Citicorp North America, Inc. and Wachovia Bank, N.A., affiliates of two of our lead underwriters. This credit facility is secured by our interests in the entities that own Plaza Las Fuentes and Cerritos Corporate Center Phase I and Phase II. The credit facility has a borrowing limit based on a percentage of the value of our properties that secure this credit facility. Approximately $76.7 million will be available to us upon the consummation of this offering. The credit facility bears interest at a rate ranging between LIBOR + 1.375% and LIBOR + 2.125% depending on our operating partnership’s overall leverage. The credit facility matures in June 2006 with an option to extend the term for one year; we currently have not drawn on the credit facility. The terms of our credit facility include certain restrictions and covenants, which limit, among other things, the payment of dividends (as discussed below), the incurrence of additional indebtedness and liens and the disposition of assets. The terms also require compliance with financial ratios relating to the minimum amounts of tangible net worth, debt service coverage, fixed charge coverage and unencumbered property debt service coverage, the maximum amount of unsecured indebtedness, and certain investment limitations. The dividend restriction referred to above provides that, except to enable us to continue to qualify as a REIT for federal income tax purposes, we will not during any four consecutive fiscal quarters make distributions with respect to common stock or other equity interests in an aggregate amount in excess of 95% of funds from operations for such period, subject to certain other adjustments. As of September 30, 2003, we were in compliance with all such covenants.

       As of September 30, 2003, we had $92.9 million in cash and cash equivalents, including $43.8 million in restricted cash. Restricted cash primarily consists of interest bearing cash deposits required by our mortgage loans and cash impound accounts for real estate taxes and insurance and leasing reserves as required by several of our mortgage loans. As of September 30, 2003, approximately $25.4 million of

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tenant improvement and leasing commission reserves remain from the $35.2 million that was reserved upon consummation of our IPO.

       We expect to meet our short-term liquidity and capital requirements from existing unrestricted cash and cash equivalents (including the net proceeds of this offering), and generally through net cash provided by operating activities and proceeds from our credit facility. We believe these sources of liquidity will be sufficient to fund our short-term liquidity needs over the next twelve months, including capital expenditures and upgrades to our hotel, tenant improvements and leasing commissions, potential acquisitions and dividends on our common and preferred shares.

       We expect to meet our long-term liquidity and capital requirements such as scheduled principal repayments, development costs, property acquisitions, if any, and other capital expenditures through existing unrestricted cash and cash equivalents (including the net proceeds of this offering), net cash provided by operations, and refinancing of existing indebtedness, potential sales of full or partial ownership interests in our existing properties and the issuance of long-term debt and equity securities. Our long-term liquidity could be adversely affected if we do not invest the proceeds of the offering of our series A preferred stock into accretive income-generating assets.

 
Distributions

       We are required to distribute 90% of our REIT taxable income (excluding capital gains) on an annual basis in order to qualify as a REIT for federal income tax purposes. Accordingly, we intend to make, but are not contractually bound to make, regular quarterly distributions to preferred stockholders, common stockholders and unit holders from cash flow from operating activities. All such distributions are at the discretion of our board of directors. We may be required to use borrowings under the credit facility, if necessary, to meet REIT distribution requirements and maintain our REIT status. We consider market factors and our performance in addition to REIT requirements in determining distribution levels. Amounts accumulated for distribution to stockholders are invested primarily in interest-bearing accounts and short-term interest-bearing securities, which are consistent with our intention to qualify as a REIT.

       On September 15, 2003, we declared a dividend to common stockholders of record and our operating partnership declared a distribution to common unit holders of record, in each case as of September 30, 2003, totaling $22,402,000, or $0.4176 per common share and common unit. This dividend consisted of the regular quarterly dividend of $0.40 per common share and common unit for the period from July 1, 2003 through September 30, 2003 and a pro rata dividend of $0.0176 per common share and common unit covering the period from the consummation of our IPO on June 27, 2003 through June 30, 2003. The dividend and distribution were paid on October 31, 2003. The dividend was equivalent to an annual rate of $1.60 per common share and common unit.

 
Recent Developments

       On October 10, 2003, we sold the $72.0 million interest rate swap agreement associated with $72.0 million of the floating rate KPMG Tower mortgage for $1.6 million.

       On October 14, 2003, our subsidiary that is the fee simple owner of Glendale Center entered into a ten-year, interest-only $80.0 million loan with Greenwich Capital Financial Products secured by Glendale Center. This mortgage matures in November 2013 and bears interest at a fixed rate of 5.727% per annum.

       On November 6, 2003, a subsidiary of our operating partnership acquired an additional office property in the LACBD, One California Plaza, from Metropolitan Life Insurance Company for aggregate consideration of $225.0 million. We funded this purchase with cash on hand and a seven-year, $146.3 million mortgage bearing interest at a fixed rate of 4.73% per annum provided by Metropolitan Life Insurance Company.

       On December 15, 2003, we declared a dividend to common stockholders of record and our operating partnership declared a distribution to common unit holders of record, in each case as of December 31, 2003, totaling $21,458,000, or $0.40 per common share and common unit, for the quarter ended

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December 31, 2003. The dividend and distribution are payable on January 30, 2004. The dividend is equivalent to an annual rate of $1.60 per common share and common unit.
 
Consolidated Indebtedness

       As of November 30, 2003, we had approximately $1.21 billion of outstanding consolidated debt. This indebtedness was comprised of six mortgages secured by seven of our properties (the US Bank, Gas Company, Wells Fargo and KPMG Towers, One California Plaza, Glendale Center and 808 South Olive garage) and two mezzanine loans secured by a pledge of the equity interests of the fee owners of 808 South Olive garage and Gas Company Tower. The weighted average interest rate on this indebtedness as of November 30, 2003 was 4.25% (based on the 30-day LIBOR rate at November 28, 2003 of 1.12%). No scheduled loan principal payments will be due on this indebtedness until August 31, 2005. As of November 30, 2003, our ratio of debt to total market capitalization was approximately 50%. As of November 30, 2003, approximately $475.0 million, or 39%, of our total consolidated debt was variable rate debt. With respect to the $475.0 million principal amount of the variable rate debt, we have a four-year interest rate swap agreement in the amount of $250.0 million, to effectively fix the index (LIBOR) portion of the interest rate at approximately 2.17%. As a result, as of November 30, 2003, approximately 81% of our total indebtedness was subject to fixed interest rates for a minimum of four years.

       The following table sets forth certain information with respect to our indebtedness as of November 30, 2003, but does not give effect to the four-year interest rate swap agreement for approximately $250.0 million that we entered into in connection with our IPO.

                                           
Principal Annual Debt Maturity Balance at
Properties Interest Rate Amount Service(1) Date Maturity(2)






US Bank Tower Mortgage
    4.66%     $ 260,000,000     $ 12,284,278       7/1/13     $ 260,000,000  
Gas Company Tower and 808 South Olive garage
                                       
 
  Mortgage
    LIBOR +  0.824%(3)       230,000,000       4,649,897       7/6/07 (4)     230,000,000  
 
  Senior Mezzanine
    LIBOR +  3.750%(5)       30,000,000       1,496,500       7/7/08 (6)     30,000,000  
 
  Junior Mezzanine
    LIBOR +  6.625%(7)       20,000,000       1,833,111       7/6/07 (4)     20,000,000  
Wells Fargo Tower Mortgage
    4.68%       250,000,000       11,862,500 (8)     7/1/10       250,000,000 (8)
KPMG Tower Mortgage
    LIBOR +  1.875%(9)       195,000,000       6,020,219       8/31/05 (10)     195,000,000  
One California Plaza Mortgage
    4.73%       146,250,000       7,013,703 (11)     12/1/10       136,239,300 (11)
Glendale Center Mortgage
    5.727%       80,000,000       4,645,233       11/1/13       80,000,000  
             
     
             
 
Total:
          $ 1,211,250,000     $ 49,805,441             $ 1,201,239,300  
             
     
             
 


  (1)  Annual debt service for floating rate loans is calculated based on the 30-day LIBOR rate at November 28, 2003 which was 1.17%.
 
  (2)  Assuming no payment has been made on the principal in advance of its due date.
 
  (3)  As required by this loan, we have entered into an interest rate cap agreement with respect to this loan that limits the LIBOR portion of the interest rate to 7.92% during the term of this loan, excluding extension periods. Subsequently, however, we sold a similar interest rate cap instrument, effectively canceling out the 7.92% LIBOR cap.
 
  (4)  A one-year extension is available.
 
  (5)  As required by this loan, we have entered into an interest rate cap agreement with respect to this loan that limits the LIBOR portion of the interest rate to 3.5% during the term of this loan, excluding extension periods. Subsequently, however, we sold a similar interest rate cap instrument, effectively canceling out the 3.5% LIBOR cap.

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  (6)  This loan must be repaid on the maturity date of the Gas Company Tower and 808 South Olive garage mortgage financing if the mortgage is not extended.
 
  (7)  This loan is subject to a LIBOR floor of 2%. This loan also requires a monthly “interest floor differential” payment during any month in which LIBOR is less than 2% per annum; such payment must be made until the principal balance of the Gas Company Tower and 808 South Olive garage senior mezzanine loan no longer exceeds $20.0 million, and is equal to the positive difference between 2% and LIBOR, times a notional amount that is initially $10.0 million, but which decreases dollar for dollar as the first $10.0 million of senior mezzanine loan principal is repaid.
 
  (8)  This loan requires monthly payments of interest only for three years, and amortizes on a 30-year schedule thereafter.
 
  (9)  We have entered into an interest rate cap agreement with respect to this loan that limits the rate on the LIBOR portion of the interest rate, exclusive of the spread, to 6% during the term of this loan, excluding extension periods.

(10)  Two, one-year extensions available.
 
(11)  This loan requires monthly payments of interest only for four years, and amortizes on a 26-year schedule thereafter.

Material Provisions of Consolidated Indebtedness

       US Bank Tower — Mortgage Indebtedness. Our subsidiary that owns 100% of the fee interest of US Bank Tower is the borrower under a $260.0 million mortgage loan with Greenwich Capital Financial Products, Inc. as lender that is secured by:

  •  a first mortgage lien on US Bank Tower and related improvements, fixtures and real property rights;
 
  •  a general first lien on all related personal property;
 
  •  a general first lien on all related accounts and intangibles;
 
  •  an assignment of leases and rents; and
 
  •  all proceeds, products and profits from the foregoing.

       The maturity date of this loan is June 30, 2013. The loan bears interest at a fixed rate of 4.66% per annum and requires monthly payments of interest only. The borrower may prepay this loan during a “lockout period” that ends June 27, 2006 if the lender consents, subject to a prepayment penalty of 5%. This loan may be defeased on the earlier to occur of June 27, 2006 and the date that is two years from the start up date of the trust that will be established in connection with the securitization of this loan. The loan contains customary affirmative covenants such as financial reporting and standard lease requirements and negative covenants, including, among others, restrictions on the borrower’s ability to (i) create or incur additional liens or indebtedness, (ii) transfer the property or an interest in the property and (iii) merge or consolidate with or into, or convey, transfer or dispose of all or substantially all of its assets to or in favor of, any other person. The lender has an option to subsequently divide the loan amount into multiple notes with a portion as a mortgage and another as mezzanine with no economic impact to us. In connection with this mortgage, the borrower is subject to a cash management agreement pursuant to which all income generated by US Bank Tower is deposited directly into a clearing account and then swept into a cash collateral account for the benefit of the lender from which cash is distributed to us only after funding of improvement, leasing and maintenance reserves and the payment of debt service, insurance, taxes, operating expenses, and extraordinary capital expenditures and leasing expenses. Certain of such reserve accounts are subject to upward adjustment based on downward fluctuations in net operating income.

       Gas Company Tower and 808 South Olive Garage — Mortgage Indebtedness. Our subsidiaries that own 100% of the fee interests of Gas Company Tower and 808 South Olive garage are borrowers under a $230.0 million mortgage loan with Bank of America, N.A., an affiliate of one of our underwriters, as lender. This loan was part of a $250.0 million mortgage loan that the borrowers entered into in connection with our IPO and the related refinancing transactions that the lender subsequently split into this mortgage

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and the Gas Company Tower and 808 South Olive garage junior mezzanine loan in connection with securitizing such debt. This loan is secured by:

  •  a first mortgage lien on Gas Company Tower and 808 South Olive garage and related improvements, fixtures and real property rights;
 
  •  a general first lien on all related personal property;
 
  •  a general first lien on all related accounts and intangibles;
 
  •  an assignment of leases and rents; and
 
  •  all proceeds, products and profits from the foregoing.

       The maturity date of the loan is July 6, 2007, with one one-year extension option and bears interest at a rate of LIBOR plus 0.824% per annum. The loan requires monthly interest-only payments until the maturity date. The borrowers may prepay the loan during a “lockout period” that ends June 27, 2006 if the lender consents, subject to a prepayment penalty of 5%. The borrowers may prepay this loan without penalty on any monthly payment date after this lockout period, but only if the borrowers pay the loan in full upon between 60 and 90 days’ notice. The loan contains customary affirmative covenants such as financial reporting and standard lease requirements and negative covenants, including, among others, certain restrictions on the borrowers’ ability to (i) create or incur additional liens or indebtedness, (ii) transfer the property or an interest in the property and (iii) merge or consolidate with or into, or convey, transfer or dispose of all or substantially all of its assets to or in favor of, any other person. In connection with this loan, the borrowers are subject to a lockbox agreement and cash management provisions of the loan pursuant to which all income generated by Gas Company Tower and 808 South Olive garage is deposited directly into a lockbox account and then swept into a cash management account for the benefit of the lender from which cash is distributed to us only after funding of improvement, leasing, litigation and maintenance reserves and the payment of debt service, insurance, taxes, operating expenses, extraordinary capital expenditures and leasing expenses and any payments then due under the Gas Company Tower and 808 South Olive garage senior and junior mezzanine loans. In connection with this loan, the borrowers entered into a customary unsecured environmental indemnity agreement, and our operating partnership executed a customary non-recourse guaranty in favor of the lenders. The borrowers were required to enter into an interest rate cap agreement with respect to this loan that limits the LIBOR portion of the interest rate to 7.92% during the term of this loan. Subsequently, however, we sold a similar interest rate cap instrument, effectively canceling out the 7.92% LIBOR cap.

       Gas Company Tower and 808 South Olive Garage — Senior Mezzanine Indebtedness. Our subsidiaries that own 100% of the fee owners of Gas Company Tower and 808 South Olive garage are the borrowers under a $30.0 million senior mezzanine loan with Bank of America, N.A., an affiliate of one of our underwriters, as lender that is secured by our membership interests in the entities that are the fee owners of Gas Company Tower and 808 South Olive garage and a continuing first priority lien on the related interest rate cap agreement, including all proceeds under the agreement. The maturity date of this loan is July 7, 2008. This loan bears interest at a rate of LIBOR + 3.75% per annum and requires monthly interest-only payments until the maturity date. The borrowers may prepay this loan during a “lockout period” that ends June 27, 2006 if the lender consents, subject to a prepayment penalty of 5%. The borrowers may prepay this loan in full without penalty after this lockout period upon between 60 and 90 days’ notice. The borrowers may make a partial prepayment of up to $10.0 million of this loan upon between 60 and 90 days’ notice, but only in connection with or after a prepayment in full of the Gas Company Tower and 808 South Olive garage junior mezzanine loan. The loan contains customary affirmative covenants such as financial reporting and standard lease requirements and negative covenants, including, among others, restrictions on the borrowers’ ability to (i) create or incur additional liens or indebtedness, (ii) transfer the property or an interest in the property and (iii) merge or consolidate with or into, or convey, transfer or dispose of all or substantially all of its assets to or in favor of, any other person. This loan is subject to the same lockbox agreement and cash management arrangements as set forth in the Gas Company Tower and 808 South Olive garage mortgage. This loan must be repaid in full if, at any

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time, the Gas Company Tower and 808 South Olive garage mortgage loan is repaid or if the maturity date of the mortgage loan is not extended pursuant to its terms. In connection with this loan, the borrowers entered into a customary unsecured environmental indemnity agreement, and our operating partnership executed a customary non-recourse guaranty in favor of the lender. The borrowers were required to enter into an interest rate cap agreement with respect to this loan that limits the LIBOR portion of the interest rate to 3.5% during the term of this loan. Subsequently, however, we sold a similar interest rate cap instrument, effectively canceling out the 3.5% LIBOR cap. Certain terms of this loan, including the interest rate and prepayment provisions, were modified in connection with the splitting and securitization of the former $250.0 million Gas Company Tower and 808 South Olive garage mortgage into the current mortgage and junior mezzanine loan.

       Gas Company Tower and 808 South Olive Garage — Junior Mezzanine Indebtedness. Our subsidiaries that indirectly own 100% of the fee owners of Gas Company Tower and 808 South Olive garage are the borrowers under a $20.0 million junior mezzanine loan with Bank of America, N.A., an affiliate of one of our underwriters, as lender that is secured by our membership interests in the entities that are the fee owners of Gas Company Tower and 808 South Olive garage and a continuing first priority lien on the related interest rate cap agreement, including all proceeds under the agreement. The loan was part of a $250.0 million mortgage loan that the borrowers entered into in connection with our IPO and the related refinancing transactions that the lender subsequently split into the Gas Company Tower and 808 South Olive garage mortgage and this junior mezzanine loan in connection with securitizing such debt. The maturity date of this loan is July 6, 2007, with one one-year extension option that can be exercised only if the Gas Company Tower and 808 South Olive garage mortgage is also extended. This loan bears interest at a rate of LIBOR + 6.625% per annum, with a LIBOR floor of 2%, and requires monthly interest-only payments until the maturity date. The loan also requires a monthly “interest floor differential” payment during any month in which LIBOR is less than 2.0% per annum. The obligation to make this payment survives the repayment in full of the junior mezzanine loan, and does not terminate until the principal balance on the Gas Company Tower and 808 South Olive garage senior mezzanine loan no longer exceeds $20 million. The amount of the “interest floor differential” payment is calculated by multiplying the positive difference between 2% and LIBOR times a notional amount that, for so long as any portion of the junior mezzanine loan remains outstanding, is equal to $10 million. Thereafter, the notional amount decreases dollar for dollar as the first $10 million of outstanding principal on the senior mezzanine loan is repaid. The borrowers may prepay this loan during a “lockout period” that ends June 27, 2006 if the lender consents, subject to a prepayment penalty of 5%. The borrowers may prepay this loan without penalty after this lockout period but only in full upon between 60 and 90 days’ notice. The loan contains customary affirmative covenants such as financial reporting and standard lease requirements and negative covenants, including, among others, restrictions on the borrower’s ability to (i) create or incur additional liens or indebtedness, (ii) transfer the property or an interest in the property and (iii) merge or consolidate with or into, or convey, transfer or dispose of all or substantially all of its assets to or in favor of, any other person. This loan is subject to the same lockbox agreement and cash management arrangements as set forth in the Gas Company Tower and 808 South Olive garage mortgage. In connection with this loan, the borrowers entered into a customary unsecured environmental indemnity agreement, and our operating partnership executed a customary non-recourse guaranty in favor of the lender. The borrowers were required to enter into an interest rate cap agreement with respect to this loan that limits the LIBOR portion of the interest rate to 7.92% during the term of this loan. Subsequently, however, we sold a similar interest rate cap instrument, effectively canceling out the 7.92% LIBOR cap.

       KPMG Tower — Mortgage Indebtedness. Our subsidiary is the borrower under a $195 million mortgage loan with Deutsche Bank AG Cayman Islands Branch as the original senior lender and Deutsche Bank AG New York Branch as administrative agent and collateral agent. Deutsche Bank AG Cayman Islands Branch and Deutsche Bank AG New York Branch are each affiliates of Deutsche Bank Securities Inc., one of our underwriters. This mortgage loan is secured by:

  •  a first mortgage lien on KPMG Tower and related improvements and fixtures;
 
  •  all related personal property;

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  •  a continuing first priority lien on the related interest rate cap agreement including all proceeds under the agreement;
 
  •  a general first lien in a cash collateral account, lockbox account and a security deposit account including all of borrower’s right, title and interest in and to all cash, property or rights transferred to or deposited in the accounts from time to time; and
 
  •  an assignment of leases and rents.

       The maturity date of this loan is August 31, 2005, with two 12-month extension periods. This loan bears interest at LIBOR plus 1.875% per annum and requires monthly interest-only payments until the initial maturity date. If the maturity date is extended beyond August 31, 2005, monthly payments of interest and principal will be required, with the principal payments based on a 25-year amortization schedule. This loan may be prepaid in full at any time on 30 days notice subject to a prepayment penalty of 1% in the first 12 months and 0.5% in the second 12 months. The loan contains customary affirmative covenants such as financial reporting and standard lease requirements and negative covenants, including, among others, restrictions on the borrower’s ability to (i) create or incur additional liens or indebtedness, (ii) transfer the property or an interest in the property and (iii) merge or consolidate with or into, or convey, transfer or dispose of all or substantially all of its assets to or in favor of, any other person. In connection with this mortgage, the borrower entered into lockbox and cash management agreements pursuant to which all income generated by KPMG Tower is deposited directly into a lockbox account and then swept into a cash management account for the benefit of the lenders, from which cash is distributed to us only after funding of improvement, leasing and maintenance reserves and the payment of debt service, insurance, taxes, operating expenses, and extraordinary capital expenditures and leasing expenses. In connection with this loan, the borrower entered into a customary unsecured environmental indemnity agreement, and our operating partnership executed a customary non-recourse guaranty in favor of the lender.

       Wells Fargo Tower — Mortgage Indebtedness. Our subsidiary that owns 100% of the fee interest of Wells Fargo Tower is the borrower under a $250.0 million mortgage loan with Greenwich Capital Financial Products, Inc. as lender that is secured by:

  •  a first mortgage lien on Wells Fargo Tower and related improvements, fixtures and real property rights;
 
  •  a general first lien on all related personal property;
 
  •  a general first lien on all related accounts and intangibles;
 
  •  an assignment of leases and rents; and
 
  •  all proceeds, products and profits from the foregoing.

       The maturity date of this loan is June 30, 2010. This mortgage bears interest at a fixed rate of 4.68% and requires monthly payments of interest only for three years and will amortize thereafter on a 30-year schedule. The borrower is prohibited from prepaying any portion of the loan during a “lockout” period that ends March 31, 2010. This loan may be defeased after the earlier to occur of June 27, 2007 and the date that is two years from the start-up date of the trust established in connection with the securitization of this loan. The loan contains customary affirmative covenants such as financial reporting and standard lease requirements and negative covenants, including, among others, certain restrictions on the borrower’s ability to (i) create or incur additional liens or indebtedness, (ii) transfer the property or an interest in the property and (iii) merge or consolidate with or into, or convey, transfer or dispose of all or substantially all of its assets to or in favor of, any other person. In connection with this mortgage, the borrower is subject to a cash management agreement pursuant to which all income generated by Wells Fargo Tower is deposited directly into a clearing account and then swept into a cash collateral account for the benefit of the lender from which cash is distributed to us only after funding of improvement, leasing and maintenance reserves and the payment of debt service, insurance, taxes, operating expenses, and extraordinary capital expenditures and leasing expenses. Certain of such reserve accounts are subject to

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upward adjustment based on downward fluctuations in net operating income. In connection with this loan, the borrower entered into a customary unsecured environmental indemnity agreement, and our operating partnership executed a customary non-recourse guaranty in favor of the lender.

       One California Plaza — Mortgage Indebtedness. On November 6, 2003, a subsidiary of our operating partnership entered into a seller-finan