Real Estate

6 Months Ended

Jun. 30, 2011

Real Estate

Real Estate

NOTE 2. REAL ESTATE

As noted above, as part of the Formation Transactions, we acquired the controlling interests in the Waikiki Beach Walk entities and the Solana Beach Centre entities for Operating Partnership units and common shares with a value of approximately $33.9 million. The contribution or acquisition by merger of interests in these entities was accounted for as an acquisition under the acquisition method of accounting and recognized at the estimated fair value of acquired assets and assumed liabilities on the date of such contribution or acquisition. Prior to acquisition, our Predecessor had an 80% noncontrolling interest in the Waikiki Beach Walk entities and a 50% noncontrolling interest in the Solana Beach Centre entities. Upon acquisition, we remeasured the assets and liabilities at fair value and recorded gains of $4.8 million and $41.6 million on the Waikiki Beach Walk entities and the Solana Beach Centre entities, respectively, which are classified as gain on acquisition in the accompanying statement of operations. These gains were calculated based on the difference between the fair value of our Predecessor's ownership interests of $31.3 million and $26.0 million compared to the Predecessor's historical cost interests of $26.5 million and $(15.6) million in the Waikiki Beach Walk entities and Solana Beach Centre entities, respectively.

The fair values assigned to identifiable intangible assets acquired were based on estimates and assumptions determined by management. Using information available at the time the acquisition closed, we allocated the total consideration to tangible assets and liabilities and identified intangible assets and liabilities.

The allocation of the consideration paid for the acquired assets and liabilities was as follows (in thousands):

	Solana Beach Towne Centre		Solana Beach Corporate Centre			Waikiki Beach Walk Retail and Hotel			Total
Land	$	40,980	$	14,896		$	76,635		$	132,511
Building		35,605		42,094			122,985			200,684
Land improvements		1,750		974			2,276			5,000
Tenant improvements		1,487		1,919			1,801			5,207
Furniture and fixtures		—		—			7,910			7,910
Total real estate		79,822		59,883			211,607			351,312
Cash and cash equivalents		957		718			13,547			15,222
Restricted cash		282		200			1,297			1,779
Accounts receivable, net		67		—			2,168			2,235
Lease intangibles		6,995		5,536			15,997			28,528
Prepaid expenses and other assets		22		45			266			333
Total assets	$	88,145	$	66,382		$	244,882		$	399,409
Secured notes payable	$	39,738	$	49,252		$	198,618		$	287,608
Fair market favorable debt value		—		(600	)		(19,000	)		(19,600	)
Notes payable to affiliates		—		—			14,824			14,824
Accounts payable and accrued expenses		924		542			6,520			7,986
Security deposits payable		238		320			861			1,419
Lease intangibles		11,390		125			3,530			15,045
Other liabilities and deferred credits		192		331			442			965
Total liabilities	$	52,482	$	49,970		$	205,795		$	308,247

We have included the results of operations for each of these acquired entities in our consolidated statements of operations from January 19, 2011, the date of acquisition. For the period January 19, 2011 through June 30, 2011, the acquired entities contributed $26.6 million to total revenue, $22.2 million to operating expenses, $4.4 million to operating income and $(4.3) million to net income.

On March 11, 2011, we acquired an approximately 364,000 square foot, 16-story, LEED Platinum certified office building located at 100 SW Main Street, in Portland, Oregon ("First & Main"). The purchase price for First & Main was approximately $128.9 million, excluding closing costs of approximately $0.1 million, which are included in other income (expense), net on the statement of operations. The purchase was funded using cash on hand and structured to accommodate a possible tax deferred exchange pursuant to the provisions of Section 1031 of the Code and applicable state revenue and taxation code sections.

The fair values assigned to identifiable intangible assets acquired were based on estimates and assumptions determined by management. Using information available at the time the acquisition closed, we allocated the total consideration to tangible assets and liabilities and identified intangible assets and liabilities. We may adjust the preliminary purchase price allocation after obtaining more information about asset valuations and liabilities assumed. The allocation of the purchase price of the acquired First & Main assets and liabilities was as follows (in thousands):

Land	$	14,697
Building		102,597
Land improvements		151
Tenant improvements		6,991
Total real estate		124,436
Accounts receivable, net		153
Lease intangibles		9,578
Prepaid expenses and other assets		296
Total assets	$	134,463
Accounts payable and accrued expenses	$	387
Below market lease intangible		5,199
Total liabilities	$	5,586

We have included the results of operations for First & Main in our consolidated statements of operations from March 11, 2011, the date of acquisition. For the period March 11, 2011 through June 30, 2011, First & Main contributed $3.4 million to total revenue, $2.5 million to operating expenses, $0.9 million to operating income and $0.6 million to net income.

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined results of operations of the Solana Beach Centre entities, the Waikiki Beach Walk entities and First & Main with the historical results of operations of the Company/Predecessor on a pro forma basis, as though the entities had been acquired on January 1, 2010. The pro forma financial information for the six months ended June 30, 2010, also includes the pro forma results of operations for The Landmark at One Market, which was acquired by the Predecessor on June 30, 2010, as though the entity had been acquired on January 1, 2010. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place on January 1, 2010. The pro forma financial information includes adjustments to depreciation expense for acquired property and equipment, adjustments to amortization charges for acquired intangible assets and liabilities, adjustments to straight-line rent revenue and the removal of the gain on acquisition of the controlling interests of the Solana Beach Centre entities and Waikiki Beach Walk entities for the six months ended June 30, 2011 and The Landmark at One Market for the six months ended June 30, 2010.

The following table summarizes the unaudited pro forma financial information (in thousands):

	Six Months Ended June 30,
	2011			2010
Total revenue	$	104,398		$	96,303
Total operating expenses		73,536			63,127
Operating income		30,862			33,176
Net loss	$	(31,823	)(1)	$	(433	)

(1) The net loss for the six months ended June 30, 2011 includes one-time expenses for the early extinguishment of debt and loan transfer and consent fees but excludes the gain on acquisition of the controlling interests in the Solana Beach Centre entities and the Waikiki Beach Walk entities.