Real Estate

12 Months Ended

Dec. 31, 2011

Real Estate [Abstract]

Real Estate

NOTE 2. REAL ESTATE

A summary of our real estate investments is as follows (in thousands):

	Retail			Office			Multifamily			Mixed-Use			Total
December 31, 2011
Land	$	239,152		$	120,890		$	18,477		$	76,635		$	455,154
Buildings		480,511			435,524			41,632			122,985			1,080,652
Land improvements		38,887			8,723			2,835			2,363			52,808
Tenant improvements		39,818			33,369			—			1,766			74,953
Furniture, fixtures, and equipment		457			1,054			4,570			9,022			15,103
Construction in progress		2,473			5,889			—			244			8,606	(1)
		801,298			605,449			67,514			213,015			1,687,276
Accumulated depreciation		(145,848	)		(53,494	)		(30,327	)		(4,926	)		(234,595	)
Net real estate	$	655,450		$	551,955		$	37,187		$	208,089		$	1,452,681
December 31, 2010
Land	$	190,325		$	72,637		$	18,477		$	—		$	281,439
Buildings		442,791			235,564			41,315			—			719,670
Land improvements		36,921			6,155			2,829			—			45,905
Tenant improvements		42,064			22,249			—			—			64,313
Furniture, fixtures, and equipment		456			2,008			8,029			—			10,493
Construction in progress		590			4,427			—			—			5,017	(1)
		713,147			343,040			70,650			—			1,126,837
Accumulated depreciation		(130,954	)		(46,449	)		(32,263	)		—			(209,666	)
Net real estate	$	582,193		$	296,591		$	38,387		$	—		$	917,171

(1) Construction in progress related to land held for development is included in the Held for Development classification on the consolidated balance sheets.

Acquisitions

2011 Acquisitions

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 identified intangible assets and liabilities are being amortized over a weighted average life of 5.4 years and 10.5 years for the Waikiki Beach Walk entities and Solana Beach Centre entities, respectively.

The allocation of the consideration paid for the assets and liabilities acquired in the Formation Transactions 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 December 31, 2011, the acquired entities contributed $57.7 million to total revenue, $48.0 million to operating expenses, $9.7 million to operating income and $(6.8) million to net income (loss).

On March 11, 2011, we acquired an approximately 361,000 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 reverse tax deferred exchange in conjunction with the sale of Valencia Corporate Center pursuant to the provisions of Section 1031 of the Code and applicable state revenue and taxation code sections.

On July 1, 2011, we acquired the Lloyd District Portfolio, consisting of approximately 610,000 rentable square feet on more than 16 acres located in the Lloyd District of Portland, Oregon. The Lloyd District Portfolio is comprised of six office buildings within four contiguous blocks, including (i) a condominium interest in the 20-story Lloyd Tower, (ii) the 16-story Lloyd 700 Building and (iii) four low-rise landmark buildings within Oregon Square. The purchase price was approximately $91.6 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.

On September 20, 2011, we acquired the Solana Beach—Highway 101 property, consisting of approximately 1.7 acres located in Solana Beach, California. The purchase price was approximately $6.8 million, excluding closing costs of approximately $0.2 million, which are included in other income (expense), net on the statement of operations. The purchase was funded through cash on hand. On December 14, 2011, we acquired an additional parcel adjacent to the original property, consisting of approximately 0.2 acres. The purchase price was approximately $1.3 million. The purchase was funded through cash on hand. The property consists primarily of land held for future development.

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 identified intangible assets and liabilities are being amortized over a weighted average life of 11.4 years, 3.8 years and 1.5 years for First & Main, Lloyd District Portfolio and Solana Beach—Highway 101, respectively. The allocation of the purchase prices was as follows (in thousands):

	First & Main		Lloyd District Portfolio		Solana Beach— Highway 101		Total
Land	$	14,697	$	18,660	$	7,847	$	41,204
Building		102,597		53,325		190		156,112
Land improvements		151		1,444		—		1,595
Tenant improvements		6,991		5,909		12		12,912
Construction in progress		—		723		—		723
Total real estate		124,436		80,061		8,049		212,546
Accounts receivable, net		153		—		—		153
Lease intangibles		9,578		13,164		51		22,793
Prepaid expenses and other assets		296		10		—		306
Total assets	$	134,463	$	93,235	$	8,100	$	235,798
Accounts payable and accrued expenses	$	387	$	188	$	12	$	587
Security deposits payable		—		426		7		433
Lease intangibles		5,199		502		—		5,701
Other liabilities and deferred credits		—		519		—		519
Total liabilities	$	5,586	$	1,635	$	19	$	7,240

We have included the results of operations for First & Main, Lloyd District Portfolio and Solana Beach—Highway 101 in our consolidated statements of operations from the date of acquisition. For the period of acquisition through December 31, 2011, First & Main, Lloyd District Portfolio and Solana Beach—Highway 101, collectively, contributed $16.1 million to total revenue, $12.9 million to operating expenses, $3.2 million to operating income and $1.1 million to net income.

2010 Acquisitions

On June 30, 2010, our Predecessor acquired the controlling interests in an office building located in San Francisco, California, known as The Landmark at One Market. Prior to the acquisition of the controlling interests in The Landmark at One Market, our Predecessor owned a 35% noncontrolling interest in the entity owning the property, which was accounted for under the equity method of accounting. The aggregate net acquisition cost for this property approximated $23.0 million. Upon acquisition, our Predecessor remeasured the assets and liabilities at fair value and recorded a gain of $4.3 million which is shown as gain on acquisition in the accompanying statement of operations. The gain was calculated based on the difference between the estimated fair value of the ownership interest of $12.1 million compared to the historical cost interest of $7.8 million. The fair value was estimated utilizing the price paid for the outside ownership interest as an indicator of value; and our Predecessor compared this value to market data. 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, our Predecessor allocated the purchase price to tangible assets and liabilities and identified intangible assets and liabilities. Subsequently, our Predecessor adjusted the preliminary purchase price allocation after obtaining more information about asset valuations and liabilities assumed. The identified intangible assets are being amortized over a weighted average life of 6.4 years.

The allocation of the estimated fair value of the acquired The Landmark at One Market assets and liabilities was as follows (in thousands):

Land	$	34,575
Building		136,015
Land improvements		41
Tenant improvements		5,140
Total real estate		175,771
Cash and cash equivalents		3,249
Accounts receivable, net		193
Lease intangibles		12,298
Prepaid expenses and other assets		25
Total assets	$	191,536
Secured notes payable	$	133,000
Accounts payable and accrued expenses		928
Security deposits payable		162
Lease intangibles		21,232
Other liabilities and deferred credits		1,099
Total liabilities	$	156,421

We have included The Landmark at One Market's results of operations in our combined results of operations from the date of acquisition of June 30, 2010. For the year ended December 31, 2011, The Landmark at One Market contributed $20.5 million to total revenue, $12.8 million to operating expenses, $7.7 million to operating income and $(1.3) million to net income (loss). For the year ended December 31, 2010, The Landmark at One Market contributed $10.2 million to total revenue, $8.0 million to operating expenses, $2.2 million to operating income and $(1.6) million to net income (loss).

On November 10, 2010, our Predecessor purchased an 80,000 rentable square foot vacant building on 6.77 acres of land located at the Carmel Mountain Plaza property for $13.2 million. The building was vacated by Mervyn's in conjunction with its bankruptcy. The purchase price was allocated $4.9 million to buildings and is being depreciated over a useful life of 35 years. The remainder was allocated to the land value.

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined results of operations of the Waikiki Beach Walk entities, Solana Beach Centre entities, First & Main, Lloyd District Portfolio and Solana Beach—Highway 101 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 year ended December 31, 2010, also includes the pro forma results of operations for The Landmark at One Market, 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 year ended December 31, 2011 and The Landmark at One Market for the year ended December 31, 2010.

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

	Year Ended December 31, 2011					Year Ended December 31, 2010
	As Reported		Pro Forma			As Reported		Pro Forma
Total revenue	$	209,823	$	221,060		$	124,527	$	210,691
Total operating expenses		151,047		161,535			79,760		149,901
Operating income		58,776		59,525			44,767		60,790
Net income (loss)	$	19,324	$	(26,587	)(1)	$	2,174	$	(5,706	)

(1) The net loss for the year ended December 31, 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.

Dispositions

On August 30, 2011, we sold Valencia Corporate Center for a sales price of $31.0 million. The property is located in Santa Clarita, California and was previously included in our office segment. The decision to sell Valencia Corporate Center was a result of our desire to focus resources on our core, high-barrier-to-entry markets. The sale was completed as a reverse tax deferred exchange in conjunction with the acquisition of First & Main pursuant to the provisions of Section 1031 of the Code and applicable state revenue and taxation code sections. As a result of the sale, Valencia Corporate Center no longer serves as a borrowing base property under our revolving credit facility.

We determined that Valencia Corporate Center became a discontinued operation in the third quarter of 2011. We have, therefore, classified Valencia Corporate Center's net assets, liabilities and operating results as discontinued operations on our balance sheets and our statements of operations for all periods prior to the sale.

Net revenue and net income from the property's discontinued operations were as follows (in thousands):

	Year Ended December 31,
	2011		2010		2009
Net revenue from discontinued operations	$	3,096	$	4,422	$	4,457
Results from discontinued operations
Income from discontinued operations		1,099		331		494
Gain on sale of real estate from discontinued operations		3,981		—		—
Total income from discontinued operations	$	5,080	$	331	$	494