18.

Variable Interest Entities

Consolidated Variable Interest Entities

Consolidated variable interest entities are those where the Trust is the primary beneficiary of a variable interest entity. The primary beneficiary is the party that has a controlling financial interest in the VIE, which is defined by the entity having both of the following characteristics: 1) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance, and 2) the obligation to absorb losses and right to receive the returns from the VIE that could be significant to the VIE. The Trust has identified two consolidated variable interest entities.

Although the Trust holds 100% of the equity interests in the Cerritos office property, the B-Note collateralized by the property enables the senior lender to participate in the entity’s expected residual returns, the Trust will need to fund expected losses and infuse additional capital to lease and stabilize property operations. Through its equity interests in the property, the Trust has both the right to the returns of the entity and power to direct the activities of Cerritos. Accordingly, the Trust is the primary beneficiary and has consolidated Cerritos since its acquisition on October 5, 2012.

At June 30, 2013, the carrying value of the Cerritos assets and liabilities included: land and building of $22,304,000 net of accumulated depreciation of $597,000; lease intangibles of $3,375,000 net of accumulated amortization of $464,000; mortgage debt comprised of an A Note totaling $23,163,000; and participating B Note totaling $845,000. The outstanding mortgage debt collateralized by the property is non-recourse to the Trust.

In connection with the loan modification of 1515 Market Street, the Trust acquired a 49% equity interest in the entity that holds the property. This equity interest includes the general partner interest. The Trust determined that the 1515 Market Street entity was a variable interest entity due to the lender’s right to participate in the entity’s expected residual returns. Through its equity interest, the Trust has both the right to the returns of the entity and power to direct the activities of 1515 Market Street. Accordingly, the Trust is the primary beneficiary and has consolidated the property effective February 1, 2013.

At June 30, 2013, the carrying value of the 1515 Market Street assets and liabilities include land and building of $43,142,000 net of accumulated depreciation of $364,000 and lease intangibles of $16,982,000 net of accumulated amortization of $972,000; mortgage debt of a first note of $42,922,000 and a second note that is eliminated in consolidation. The outstanding mortgage debt collateralized by the property is non-recourse to the Trust.

Variable Interest Entities Not Consolidated

Equity Method and Preferred Equity Investments - The Trust has reviewed its various equity method and preferred equity investments and identified 11 investments for which the Trust holds a variable interest in a VIE. Of these 11 interests there are seven investments for which the underlying entities do not have sufficient equity at risk to permit them to finance their activities without additional subordinated financial support. There are four additional entities for which the VIE assessment was primarily based on the fact that the voting rights of the equity holders are not proportional to their obligations to absorb expected losses and rights to receive residual returns of the legal entities. These 11 unconsolidated joint ventures are those where the Trust is not the primary beneficiary of a VIE.

Loans Receivable and Loan Securities - The Trust has reviewed its loans receivable and loan securities and four of these assets have been identified as variable interests in a VIE because the equity investment at risk at the borrowing entity level is not considered sufficient for the entity to finance its activities without additional subordinated financial support. There is one investment where the equity holders lack the right to receive returns due to the lender’s participation interest in the debt.

Certain loans receivable and loan securities which have been determined to be VIEs are performing assets, meeting their debt service requirements. In these cases the borrower holds legal title to the real estate collateral and has the power to direct the activities that most significantly impact the economic performance of the VIE, including management and leasing activities. In the event of default under these loans, the Trust only has protective rights and its obligation to absorb losses is limited to the extent of its loan investment. The borrower has been determined to be the primary beneficiary for these performing assets.

The Trust has determined that it does not currently have the power to direct the activities of the properties collateralizing any of its loans receivable and loan securities. For this reason, management believes that it does not control, nor is it the primary beneficiary of these properties. Accordingly, the Trust accounts for these investments under the guidance for loans receivable and real estate debt investments.