Real Estate

9 Months Ended

Sep. 30, 2012

Real Estate [Abstract]

Real Estate

NOTE 2. REAL ESTATE

Acquisitions

On January 24, 2012, we acquired One Beach Street, consisting of approximately 97,000 rentable square feet in a 3-story fully renovated historic office building located along the Embarcadero in San Francisco’s North Waterfront District. The purchase price was approximately $36.5 million, excluding closing costs of approximately $0.02 million. The identified intangible assets and liabilities are being amortized over a weighted average life of 7.0 years.

On August 21, 2012, we acquired City Center Bellevue, a 27-story LEED-EB Gold certified office tower, consisting of approximately 497,000 square feet, located in Bellevue, Washington. The purchase price was approximately $228.8 million, excluding closing costs of approximately $0.1 million. Additionally, we received credits to our purchase price of approximately $6.9 million that primarily relate to outstanding tenant improvement obligations and rent abatements. The identified intangible assets and liabilities are being amortized over a weighted average life of 5.8 years.

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 purchase price allocation after obtaining more information about asset valuations and liabilities assumed. The allocation of the purchase price for each of One Beach Street and City Center Bellevue is as follows (in thousands):

	One Beach Street		City Center Bellevue		Total
Land	$	15,332	$	25,135	$	40,467
Building		16,764		185,653		202,417
Land improvements		30		154		184
Tenant improvements		1,223		5,191		6,414
Total real estate		33,349		216,133		249,482
Lease intangibles		4,141		11,870		16,011
Prepaid expenses and other assets		1		2,596		2,597
Total assets	$	37,491	$	230,599	$	268,090
Accounts payable and accrued expenses	$	94	$	456	$	550
Security deposits payable		75		740		815
Lease intangibles		1,382		8,733		10,115
Other liabilities and deferred credits		22		497		519
Total liabilities	$	1,573	$	10,426	$	11,999

We have included the results of operations for One Beach Street and City Center Bellevue in our consolidated statements of income from the date of acquisition. For the period of acquisition through September 30, 2012, One Beach Street contributed $2.9 million to total revenue, $0.7 million to operating expenses, $2.2 million to operating income and $0.6 million to net income. For the period of acquisition through September 30, 2012, City Center Bellevue contributed $2.2 million to total revenue, $0.4 million to operating expenses, $1.8 million to operating income and $0.1 million to net income.

On August 28, 2012, we entered into an agreement to acquire Geary Marketplace, a newly constructed, approximately 35,000 square foot, 100% leased, grocery anchored shopping center in Walnut Creek, California. The purchase price is approximately $21.0 million. The acquisition is expected to close early in the first quarter of 2013, subject to customary closing conditions.

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined results of operations of One Beach Street and City Center Bellevue with the historical results of operations of the Company, as though the entities were acquired on January 1, 2011. The pro forma financial information for the nine months ended September 30, 2011 also includes the pro forma results of operations of the Waikiki Beach Walk entities, Solana Beach Centre entities, First & Main, Lloyd District Portfolio and Solana Beach-Highway 101, each of which were acquired at various times during 2011. 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, 2011. 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 nine months ended September 30, 2011.

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

	Nine Months Ended September 30, 2012				Nine Months Ended September 30, 2011
	As Reported		Pro Forma		As Reported		Pro Forma
Total revenue	$	177,683	$	186,776	$	154,276	$	179,780
Total operating expenses		123,980		134,068		110,222		133,590
Operating income		53,703		52,708		44,054		46,190
Net income (loss)	$	9,993	$	9,126	$	13,569	$	(31,199	)(1)

(1) The net loss for the nine months ended September 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.

Dispositions

On August 30, 2011, we sold Valencia Corporate Center and determined that the property was a discontinued operation in the third quarter of 2011. During the third quarter of 2012, we received a supplemental tax billing related to Valencia Corporate Center for approximately $0.3 million, which we recorded against related reserves. The net tax billing of approximately $0.2 million is recorded in discontinued operations.