Acquisitions

Operating Properties

During the nine months ended September 30, 2013, we acquired the four operating office properties, listed below, in two transactions from unrelated third parties. The January 2013 acquisition was funded with a portion of the remaining proceeds from the sale of our industrial portfolio that was included in restricted cash at December 31, 2012 and the assumption of existing mortgage debt (see Note 5). The September 2013 acquisition was funded with proceeds from our September 2013 equity offering (see Note 7).



Property	Date of Acquisition	Number of Buildings	Rentable Square Feet	Occupancy as of September 30, 2013	Purchase Price (in millions) ⁽¹⁾
320 Westlake Ave. N. and 321 Terry Ave. N. ⁽²⁾⁽³⁾
Seattle, WA	January 16, 2013	2	320,398	100.0%	$	170.0
12780 and 12790 El Camino Real ⁽⁴⁾
San Diego, CA	September 19, 2013	2	218,940	100.0%	126.4
Total		4	539,338		$	296.4

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(1)	Excludes acquisition-related costs and includes assumed tenant improvements.


(2)	We acquired these properties through a new special purpose entity wholly owned by the Finance Partnership.


(3)	In connection with this acquisition, we assumed secured debt with an outstanding principal balance of $83.9 million that was recorded at fair value on the acquisition date, resulting in a premium of approximately $11.6 million (see Note 5).


(4)	As of September 30, 2013, these properties, together the “Heights of Del Mar” project, are temporarily being held in a separate VIE to facilitate potential Section 1031 Exchanges (see Note 1). The $126.4 million purchase price includes $9.4 million for 4.2 acres of undeveloped land the Company acquired in connection with this acquisition.

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 acquisition date:



	Total 2013 Acquisitions ⁽¹⁾
	(in thousands)
Assets
Land and improvements	$	53,790
Buildings and improvements ⁽²⁾	218,211
Undeveloped land and construction in progress ⁽³⁾	9,360
Deferred leasing costs and acquisition-related intangible assets ⁽⁴⁾	30,789
Total assets acquired	312,150

Liabilities
Deferred revenue and acquisition-related intangible liabilities ⁽⁵⁾	4,190
Secured debt ⁽⁶⁾	95,496
Accounts payable, accrued expenses and other liabilities	422
Total liabilities assumed	100,108
Net assets and liabilities acquired ⁽⁷⁾	$	212,042

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(1)	The purchase price of the two acquisitions completed during the nine months ended September 30, 2013 were individually less than 5% and in aggregate less than 10% of the Company’s total assets as of September 30, 2013.


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


(3)	In connection with one of the acquisitions, we acquired undeveloped land of approximately 4.2 acres that was added to the Company’s future development pipeline upon acquisition.


(4)	Represents in-place leases (approximately $19.6 million with a weighted average amortization period of 4.7 years), above-market leases (approximately $3.2 million with a weighted average amortization period of 6.1 years), and leasing commissions (approximately $7.9 million with a weighted average amortization period of 5.9 years).


(5)	Represents below-market leases (approximately $4.2 million with a weighted average amortization period of 7.7 years).


(6)	Represents the mortgage loan, which includes an unamortized premium of approximately $11.6 million at the date of acquisition, assumed in connection with the properties acquired in January 2013 (see Note 5).


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

Undeveloped Land/Formation of New Consolidated Subsidiary

On June 27, 2013, the Company entered into an agreement with an unaffiliated third party and formed a new consolidated subsidiary, Redwood City Partners, LLC. In connection with this transaction, the Company acquired a 0.35 acre land site, completing the first phase of the land assemblage for its plans to develop an approximate 300,000 square foot office project (the “Crossing 900” project) in Redwood City, California. The related assets, liabilities, and noncontrolling interest acquired in connection with this transaction are included in the consolidated financial statements as of the date of acquisition. The following table summarizes the allocation of the assets acquired and liabilities assumed at the acquisition date (in thousands):



Assets
Undeveloped land and construction in progress	$	11,222
Total assets	11,222

Liabilities
Secured debt ⁽¹⁾	1,750
Accounts payable, accrued expenses and other liabilities	1,952
Total liabilities	3,702

Noncontrolling interest in consolidated subsidiary	4,885

Net assets and liabilities acquired	$	2,635

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(1) This note was repaid as of September 30, 2013.

In October 2013, the Company acquired a 2.0 acre undeveloped land parcel for $17.0 million, completing the final phase of the land assemblage for the Crossing 900 project (see Note 15 for additional information).