5. Secured and Unsecured Debt of the Operating Partnership

Secured Debt

In January 2011, the Operating Partnership borrowed $135.0 million under a mortgage loan that is scheduled to mature on February 1, 2018. The mortgage loan is secured by our 303 Second Street property in San Francisco, bears interest at an annual rate of 4.27%, and requires interest-only payments for the first two years with a 30-year amortization schedule thereafter. We used a portion of the proceeds to repay borrowings under the Operating Partnership's unsecured line of credit (the "Credit Facility").

In April 2011, in connection with the acquisition of four office buildings in Kirkland, Washington, the Operating Partnership assumed a mortgage loan that is secured by the project. The assumed mortgage loan had a principal balance of $30.0 million at the acquisition date and is scheduled to mature on April 15, 2015. The loan bears contractual interest at an annual rate of 4.94% and requires monthly principal and interest payments based on a 30-year amortization period. This mortgage loan was recorded at fair value at the date of acquisition resulting in a premium of approximately $1.0 million. This premium will be accreted on a straight-line basis, which approximates the effective interest method, as a reduction to interest expense from the acquisition date through the maturity date of the mortgage loan. This will result in interest being recorded at an effective interest rate of 4.00% for financial reporting purposes.

Although both new mortgage loans are secured and non-recourse to the Company and the Operating Partnership, the Company provides limited customary secured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of payments, and environmental liabilities.

Exchangeable Senior Notes

The following table summarizes the balance and significant terms of the Company's 3.25% Exchangeable Notes due 2012 (the "3.25% Exchangeable Notes") and 4.25% Exchangeable Notes due 2014 (the "4.25% Exchangeable Notes" and together with the 3.25% Exchangeable Notes, the "Exchangeable Notes") outstanding as of September 30, 2011 and December 31, 2010:



	3.25% Exchangeable Notes						4.25% Exchangeable Notes
	September 30, 2011			December 31, 2010			September 30, 2011			December 31, 2010
	(in thousands)
Principal amount	$	148,000		$	148,000		$	172,500		$	172,500
Unamortized discount	(1,714		)	(4,004		)	(13,671		)	(16,532		)
Net carrying amount of liability component	$	146,286		$	143,996		$	158,829		$	155,968
Carrying amount of equity component	$33,675						$19,835
Maturity date	April 2012						November 2014
Stated coupon rate ⁽¹⁾⁽²⁾	3.25%						4.25%
Effective interest rate ⁽³⁾	5.45%						7.13%
Exchange rate per $1,000 principal value of the Exchangeable Notes, as adjusted ⁽⁴⁾	11.3636						27.8307
Exchange price, as adjusted ⁽⁴⁾	$88.00						$35.93
Number of shares on which the aggregate consideration to be delivered on conversion is determined ⁽⁴⁾	1,681,813						4,800,796

_____________________


(1)	Interest on the 3.25% Exchangeable Notes is payable semi-annually in arrears on April 15^th and October 15^th of each year.


(2)	Interest on the 4.25% Exchangeable Notes is payable semi-annually in arrears on May 15^th and November 15^th of each year.


(3)	The rate at which we record interest expense for financial reporting purposes, which reflects the amortization of the discounts on the Exchangeable Notes. This rate

represents our conventional debt borrowing rate at the date of issuance.


(4)	The exchange rate, exchange price, and the number of shares to be delivered upon conversion are subject to adjustment under certain circumstances including increases in our

common dividends.

Capped Call Transactions

In connection with the offerings of the Exchangeable Notes, we entered into capped call option transactions ("capped calls") to mitigate the dilutive impact of the potential exchange of the Exchangeable Notes. The following table summarizes our capped call option positions as of both September 30, 2011 and December 31, 2010:



	3.25% Exchangeable Notes⁽¹⁾		4.25% Exchangeable Notes⁽²⁾
Referenced shares of common stock	1,121,201		4,800,796
Exchange price including effect of capped calls	$	102.72	$	42.81

________________________


(1)	The capped calls mitigate the dilutive impact to us of the potential exchange of two-thirds of the 3.25% Exchangeable Notes into shares of common stock.


(2)	The capped calls mitigate the dilutive impact to us of the potential exchange of all of the 4.25% Exchangeable Notes into shares of common stock.

For the nine months ended September 30, 2011, the per share average trading price of the Company's common stock on the NYSE of $37.92 was higher than the $35.93 exchange price for the 4.25% Exchangeable Notes. Even though the 4.25% Exchangeable Notes were not convertible as of September 30, 2011, if they were convertible as of September 30, 2011, the approximate fair value of the shares upon conversion at that date would have been equal to approximately $180.4 million, which would exceed the $172.5 million principal amount of the 4.25% Exchangeable Notes by approximately $7.9 million. See Notes 15 and 16 for a discussion of the impact of the Exchangeable Notes on our diluted earnings per share and unit calculations for the periods presented.

Interest Expense for the Exchangeable Notes

The unamortized discount on the Exchangeable Notes is accreted as additional interest expense from the date of issuance through the maturity date of the applicable Exchangeable Notes. The following table summarizes the total interest expense attributable to the Exchangeable Notes based on the effective interest rates set forth above, before the effect of capitalized interest, for the three and nine months ended September 30, 2011 and 2010:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
	(in thousands)
Contractual interest payments	$	3,035	$	3,035	$	9,106	$	11,530
Amortization of discount	1,742		1,818		5,151		6,497
Interest expense attributable to the Exchangeable Notes	$	4,777	$	4,853	$	14,257	$	18,027

Unsecured Senior Notes

In July 2011, the Operating Partnership issued unsecured senior notes in a public offering with an aggregate principal balance of $325.0 million that are scheduled to mature on July 15, 2018. The unsecured senior notes require semi-annual interest payments each January and July based on a stated annual interest rate of 4.80%. The unsecured senior notes are shown net of the initial issuance discount of $0.5 million on the consolidated balance sheets. This discount is being amortized on a straight-line basis, which approximates the effective interest method, as additional interest expense from the date of issuance through the maturity date of the unsecured senior notes, resulting in interest expense being recorded at a net effective interest rate of 4.83%, before the impact of debt issuance costs, for financial reporting purposes. The Company used a portion of the net proceeds for general corporate purposes, including the repayment of borrowings under the Operating Partnership's Credit Facility.

Unsecured Line of Credit

In June 2011, we amended the terms of our Credit Facility to extend the maturity date, and reduce the interest rate and facility fee. The following table summarizes the terms of our Credit Facility as of December 31, 2010 and as amended as of September 30, 2011:



	September 30, 2011			December 31, 2010
	(in thousands)
Outstanding borrowings⁽¹⁾	$	—		$	159,000
Remaining borrowing capacity	500,000			341,000
Total borrowing capacity⁽²⁾	$	500,000		$	500,000
Interest rate⁽³⁾				2.99		%
Facility fee-annual rate⁽⁴⁾	0.350		%	0.575		%
Maturity date⁽⁵⁾	August 2015			August 2013

________________________

(1) As of September 30, 2011, there were no borrowings outstanding on the Credit Facility.

(2) We may elect to borrow, subject to lender approval, up to an additional $200 million under an accordion feature under the terms of the Credit Facility.

(3) The Credit Facility interest rate was calculated based on an annual rate of LIBOR plus 1.750% and 2.675% as of September 30, 2011 and December 31, 2010, respectively. No interest rate is shown as of September 30, 2011 because no borrowings were outstanding.

(4) The facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we also incurred debt origination and legal costs

of approximately $5.0 million when we entered into the Credit Facility in 2010 and an additional $3.3 million when we amended the Credit Facility in 2011. The unamortized

balance of these costs will be amortized as additional interest expense over the extended term of the Credit Facility.

(5) Under the original and amended terms of the Credit Facility, we may exercise an option to extend the maturity date by one year.

The Company intends to borrow amounts under the Credit Facility from time to time for general corporate purposes, to fund potential acquisitions, to finance development and redevelopment expenditures, and to potentially repay long-term debt.

Debt Covenants and Restrictions

The Credit Facility, the unsecured senior notes, and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Some of the more restrictive financial covenants include a maximum ratio of total debt to total asset value, a minimum fixed-charge coverage ratio, a minimum unsecured debt ratio, and a minimum unencumbered asset pool debt service coverage ratio. Noncompliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the associated debt becoming immediately due and payable. We believe we were in compliance with all of our debt covenants as of September 30, 2011.

Debt Maturities

The following table summarizes the stated debt maturities and scheduled amortization payments, excluding debt discounts and premiums, as of September 30, 2011:



Year Ending	(in thousands)
Remaining 2011	$	70,371
2012	305,303
2013	6,373
2014	262,443
2015	357,382
Thereafter	775,028
Total	$	1,776,900	⁽¹⁾

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(1)	Includes gross principal balance of outstanding debt before impact of all debt discounts and premiums.

Capitalized Interest and Loan Fees

The following table sets forth our gross interest expense, including debt discount/premium and loan cost amortization, net of capitalized interest, for the three and nine months ended September 30, 2011 and 2010. The capitalized amounts are a cost of development and redevelopment, and increase the carrying value of undeveloped land and construction in progress.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(in thousands)
Gross interest expense	$	26,449		$	18,543		$	72,597		$	48,980
Capitalized interest	(2,398		)	(2,690		)	(6,442		)	(8,083		)
Interest expense	$	24,051		$	15,853		$	66,155		$	40,897