Acquisitions

Operating Properties

During the years ended December 31, 2012 and 2011, we acquired the 24 operating office properties listed below from unrelated third parties. Unless otherwise noted, we funded these acquisitions with proceeds from the Company's public offerings of common stock (see Note 10), borrowings under the unsecured line of credit (see Note 7), disposition proceeds (see Note 17), the assumption of existing debt and the issuance of common units of the Operating Partnership.



Property	Acquisition	Number of Buildings	Rentable Square Feet (unaudited)	Occupancy as of December 31, 2012 (unaudited)	Purchase Price (in millions) ⁽¹⁾
Property	Acquisition	Number of Buildings	Rentable Square Feet (unaudited)	Occupancy as of December 31, 2012 (unaudited)	Purchase Price (in millions) ⁽¹⁾
2012 Acquisitions
4100-4700 Bohannon Drive, Menlo Park, CA	February 29, 2012	7	374,139	84.7%	$	162.5
701 and 801 N. 34th Street, Seattle, WA ⁽³⁾	June 1, 2012	2	308,407	99.4%	105.4
837 N. 34th Street, Seattle, WA	June 1, 2012	1	111,580	100.0%	39.2
10900 NE 4th Street, Bellevue, WA ⁽²⁾⁽⁴⁾	July 24, 2012	1	416,755	90.5%	186.1
6255 W. Sunset Boulevard, Los Angeles, CA ⁽⁵⁾	July 31, 2012	1	321,883	85.2%	78.8
12233 Olympic Blvd, Los Angeles, CA ⁽⁶⁾	October 5, 2012	1	151,029	96.8%	72.9
599 N. Mathilda Avenue, Sunnyvale, CA ⁽²⁾⁽⁷⁾	December 17, 2012	1	75,810	100.0%	29.1
Total		14	1,759,603		$	674.0

2011 Acquisitions
250 Brannan Street, San Francisco, CA	January 28, 2011	1	92,948	100.0%	$	33.0
10210, 10220, and 10230 NE Points Drive; 3933 Lake Washington Boulevard NE, Kirkland, WA ⁽⁸⁾	April 21, 2011	4	279,924	90.0%	100.1
10770 Wateridge Circle, San Diego, CA	May 12, 2011	1	174,310	97.5%	32.7
601 108th Avenue N.E., Bellevue, WA	June 3, 2011	1	488,470	90.4%	215.0
4040 Civic Center Drive, San Rafael, CA	June 9, 2011	1	126,787	98.1%	32.2
201 Third Street, San Francisco, CA	September 15, 2011	1	332,076	99.5%	103.3
301 Brannan Street, San Francisco, CA	November 15, 2011	1	74,430	100.0%	30.0
Total		10	1,568,945		$	546.3

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(1)	Excludes acquisition-related costs and non-lease related accrued liabilities assumed. Includes assumed unpaid leasing commissions and tenant improvements.


(2)	As of December 31, 2012, these properties were temporarily being held in separate VIEs to facilitate potential Section 1031 Exchanges (see Note 2). The VIE was terminated subsequent to year-end.

(3)

We acquired these properties through the acquisition of the ownership interest of the bankruptcy remote LLC that owned the properties. In connection with this acquisition we also acquired cash of approximately $4.0 million and other assets of approximately $0.2 million and we assumed current liabilities of approximately $0.6 million and secured debt with an outstanding principal balance of $34.0 million and a premium of $1.7 million as a result of recording the debt at fair value at the acquisition date (see Note 7).


(4)	In connection with this acquisition, we assumed secured debt with an outstanding principal balance of $83.6 million and a premium of $1.4 million as a result of recording

this debt at fair value on the acquisition date. In January 2013, we repaid this loan prior to the stated maturity (see Note 7).

(5) As part of the consideration for this transaction, we issued 118,372 common units of the Operating Partnership valued at $47.34 per unit, which was the Company's closing

stock price on the NYSE on the acquisition date. In connection with this acquisition we also assumed secured debt with an outstanding principal balance of $53.9 million and a

premium of $3.1 million as a result of recording this debt at fair value on the acquisition date (see Note 7). We also assumed $4.7 million of accrued liabilities in connection

with this acquisition that are not included in the purchase price above.


(6)	In connection with this acquisition, we assumed secured debt with an outstanding principal balance of $40.7 million and a premium of $2.7 million as a result of recording this debt at fair value on the acquisition date (see Note 7).

(7)

This operating property was acquired in connection with the purchase of the 555 N. Mathilda Ave. development property discussed in further detail in the "Development and Redevelopment Project Site" section of this footnote, for a total purchase price of $137.6 million. The acquisition of both the operating property and the development site in a single transaction constituted our third largest acquisition of 2012.


(8)	In connection with this acquisition, we assumed secured debt with an outstanding principal balance of $30.0 million and an initial premium of $1.0 million as a result of recording this debt at fair value on the acquisition date (see Note 7).

The related assets, liabilities, and results of operations of the acquired properties are included in the consolidated financial statements as of the date of acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the respective acquisition dates for our 2012 and 2011 acquisitions:



2012 Acquisitions
	4100-4700 Bohannon Drive, Menlo Park, CA		10900 NE 4th Street, Bellevue, WA		599 N. Mathilda, Sunnyvale, CA		All Other Acquisitions ⁽¹⁾		Total
	(in thousands)
Assets
Land and improvements⁽²⁾	$	38,810	$	25,080	$	13,538	$	40,211	$	117,639
Buildings and improvements ⁽³⁾	124,617		150,877		12,558		257,458		545,510
Cash and cash equivalents	—		—		—		3,973		3,973
Restricted cash	—		—		—		5,329		5,329
Deferred leasing costs and acquisition-related intangible assets ⁽⁴⁾	9,470		16,469		3,004		30,570		59,513
Prepaid expenses and other assets	—		—		—		184		184
Total assets acquired	172,897		192,426		29,100		337,725		732,148
Liabilities
Deferred revenue and acquisition-related intangible liabilities ⁽⁵⁾	10,380		4,940		—		19,700		35,020
Secured debt, net ⁽⁶⁾	—		84,984		—		136,048		221,032
Accounts payable, accrued expenses and other liabilities	137		627		—		5,584		6,348
Total liabilities assumed	10,517		90,551		—		161,332		262,400
Net assets and liabilities acquired ⁽⁷⁾	$	162,380	$	101,875	$	29,100	$	176,393	$	469,748



2011 Acquisitions
	601 108th Avenue N.E., Bellevue, WA		201 Third Street San Francisco, CA		All Other Acquisitions⁽¹⁾		Total
	(in thousands)
Assets
Land and improvements ⁽²⁾	$	—	$	19,260	$	42,650	$	61,910
Buildings and improvements ⁽³⁾	214,095		84,018		165,995		464,108
Undeveloped land and construction in progress	—		—		2,560		2,560
Deferred leasing costs and acquisition-related intangible assets⁽⁸⁾	13,790		8,700		20,140		42,630
Total assets acquired	227,885		111,978		231,345		571,208
Liabilities
Deferred revenue and acquisition-related intangible liabilities⁽⁹⁾	12,850		8,700		2,390		23,940
Secured debt, net ⁽¹⁰⁾	—		—		30,997		30,997
Accounts payable, accrued expenses, and other liabilities	2,380		76		2,059		4,515
Total liabilities assumed	15,230		8,776		35,446		59,452
Net assets and liabilities acquired ⁽¹¹⁾	$	212,655	$	103,202	$	195,899	$	511,756

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(1)	The purchase price of all other acquisitions during the years ended December 31, 2012 and 2011 were individually less than 5% and in aggregate less than 10% of the Company's total assets as of December 31, 2012 and 2011, respectively.

(2)

In connection with the acquisitions of 701, 801, and 837 N. 34th Street, Seattle, WA, we assumed the lessee obligations under a ground lease with an initial expiration in December 2041. The ground lease obligation contains three 10-year extension options and one 45-year extension option. In connection with the acquisitions of 601 108th Avenue N.E., Bellevue, WA, we assumed the lessee obligation under a ground lease that is scheduled to expire in November 2093 (see Note 15 for additional information pertaining to these ground leases).


(3)	Represents buildings, building improvements, and tenant improvements.

(4)

Represents in-place leases (approximately $43.4 million with a weighted average amortization period of 4.7 years), above-market leases (approximately $1.4 million with a weighted average amortization period of 3.8 years), leasing commissions (approximately $14.2 million with a weighted average amortization period of 3.4 years), and a below-market ground lease obligation (approximately $0.5 million with a weighted average amortization period of 59.6 years).


(5)	Represents below-market leases (approximately $33.9 million with a weighted average amortization period of 6.5 years) and an above-market ground lease obligation (approximately $1.1 million with a weighted average amortization period of 29.6 years).


(6)	Represents the fair value of the mortgage loans assumed, which includes an aggregate unamortized premium balance of approximately $8.9 million at the dates of acquisition (see Note 7).


(7)	Reflects the purchase price plus cash and restricted cash received, net of assumed secured debt, lease-related obligations and other accrued liabilities.


(8)	Represents in-place leases (approximately $27.4 million with a weighted average amortization period of 3.8 years), above-market leases (approximately $6.8 million with a weighted average amortization period of 4.5 years years) and unamortized leasing commissions (approximately $8.5 million with a weighted average amortization period of 2.5 years).


(9)	Represents below-market leases (approximately $18.7 million with a weighted average amortization period of 3.9 years) and an above-market ground lease obligation (approximately $5.2 million with a weighted average amortization period of 82.5 years), under which we are the lessee.


(10)	Represents the mortgage loan, which includes an unamortized premium of approximately $1.0 million at the date of acquisition, assumed in connection with the properties acquired in April 2011 (see Note 7).


(11)	Reflects the purchase price net of assumed secured debt and other lease-related obligations.

Development and Redevelopment Project Sites

During the years ended December 31, 2012 and 2011, we acquired seven development and redevelopment project sites from unrelated third parties. Unless otherwise noted, we funded these acquisitions with proceeds from the Company's public offering of common stock (see Note 10), disposition proceeds (see Note 17) and borrowings under the unsecured line of credit (see Note 7).



Project	Date of Acquisition	Type	Purchase Price (in millions) ⁽¹⁾
2012 Acquisitions
690 E. Middlefield Road, Mountain View, CA ⁽²⁾⁽³⁾	May 9, 2012	Development	$	74.5
333 Brannan Street, San Francisco, CA	July 20, 2012	Development	18.5
Columbia Square, Los Angeles, CA ⁽⁴⁾	September 28, 2012	Development and Redevelopment	65.0
350 Mission Street, San Francisco, CA	October 23, 2012	Development	52.0
331 Fairchild Drive, Mountain View, CA ⁽²⁾⁽⁵⁾	December 4, 2012	Development	21.8
555 N. Mathilda Avenue, Sunnyvale, CA ^(2)(6)(7)	December 17, 2012	Development	108.5
Total			$	340.3

2011 Acquisitions
360 Third Street, San Francisco, CA	December 15, 2011	Redevelopment	$	91.5
Total			$	91.5

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(1)	Excludes leasing costs and/or other accrued liabilities assumed in connection with the acquisitions.


(2)	Acquisition of these development sites are accounted for as business combinations because the projects were 100% pre-leased upon acquisition.


(3)	The total purchase price for this acquisition was comprised of a cash purchase price of $74.5 million plus $9.5 million of assumed leasing commissions and other accrued liabilities.


(4)	In connection with this acquisition we also assumed $1.1 million of other accrued liabilities which are not included in the purchase price above.


(5)	The total purchase price for this acquisition was comprised of a cash purchase price of $18.9 million plus $2.9 million of development costs reimbursed to the seller. In addition, we assumed $2.1 million of leasing commissions and other accrued liabilities which are not included in the purchase price above.


(6)	As of December 31, 2012, this property was temporarily being held in a separate VIE to facilitate a potential Section 1031 Exchange (see Note 2). The VIE was terminated subsequent to year-end.


(7)	This development site was acquired with the purchase of the 555 Mathilda operating property for a total cash purchase price of $137.6 million plus $2.4 million of development costs reimbursed to the seller. In addition, we assumed $11.8 million of other accrued liabilities which are not included in the purchase price above.

The related assets and liabilities of the acquired projects are included in the consolidated financial statements as of the date of acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the respective acquisition dates for our 2012 and 2011 development and redevelopment acquisitions:



2012 Acquisitions
	555 N. Mathilda, Sunnyvale, CA		All Other Acquisitions		Total
	(in thousands)
Assets
Undeveloped land and construction in progress	$	120,243	$	244,584	$	364,827
Restricted cash ⁽¹⁾	11,250		—		11,250
Prepaid expenses and other assets	—		1,300		1,300
Total assets acquired	131,493		245,884		377,377

Liabilities
Accounts payable, accrued expenses and other liabilities ⁽¹⁾	23,071		9,752		32,823
Total liabilities assumed	23,071		9,752		32,823
Net assets and liabilities acquired ⁽²⁾	$	108,422	$	236,132	$	344,554



2011 Acquisition
	360 Third Street, San Francisco, CA
	(in thousands)
Assets
Undeveloped land and construction in progress ⁽³⁾	$	89,345
Deferred leasing costs and acquisition-related intangible assets	2,930
Total assets acquired	92,275
Liabilities
Deferred revenue and acquisition-related intangible liabilities	730
Total liabilities assumed	730
Net assets and liabilities acquired	$	91,545

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(1)	In connection with this acquisition, restricted cash is being held in escrow to pay for potential environmental costs and contingent development costs. Any unused amounts will be released to the seller.


(2)	Reflects the purchase price including assumed leasing commissions, net of assumed accrued liabilities.

(3)

In connection with this acquisition we assumed the lessee obligation under a ground lease that is scheduled to expire in December 2022. We exercised the $27.5 million land purchase option, which was not included in the purchase price, during 2012 and anticipate we will close on the purchase of the land during the second quarter of 2013 (see Note 15 for additional information pertaining to this ground lease).