Investment in Real Estate

A summary of the activity of our investment in real estate including investment in real estate held for sale (First Financial, Tierrasanta and City Plaza) is as follows:



	Year Ended December 31, 2014			Year Ended December 31, 2013			Year Ended December 31, 2012
Investment in real estate
Beginning balance	$	2,035,330		$	1,475,955		$	1,060,504
Acquisitions	114,008			538,322			390,370
Improvements, capitalized costs	128,018			89,707			27,901
Disposal	(37,615		)	(9,638		)	(2,820		)
Cost of property sold	—			(59,016		)	—
Ending Balance	$	2,239,741		$	2,035,330		$	1,475,955
Reclassification to assets associated with real estate held for sale	(68,446		)	(82,305		)	—
Total Investment in real estate	$	2,171,295		$	1,953,025		$	1,475,955

Accumulated depreciation
Beginning balance	$	(116,342	)	$	(85,184	)	$	(53,329	)
Additions	(50,044		)	(41,454		)	(34,675		)
Deletions	23,825			10,296			2,820
Ending Balance	$	(142,561	)	$	(116,342	)	$	(85,184	)
Reclassification to assets associated with real estate held for sale	7,904			7,931			—
Total Accumulated depreciation	$	(134,657	)	$	(108,411	)	$	(85,184	)

Acquisitions

On December 6, 2014, the Company entered into an asset purchase agreement to acquire the EOP Northern California Portfolio from Blackstone Real Estate Partners V and VI ("Blackstone"). The EOP Northern California Portfolio consists of 26 high-quality office assets totaling approximately 8.2 million square feet and two development parcels located throughout the San Francisco Peninsula, Redwood Shores, Palo Alto Silicon Valley and San Jose Airport submarkets. The total consideration to be paid for the EOP Northern California Portfolio before certain credits, proration, and closing costs will be a cash payment equal to $1.75 billion and equity consideration totaling 63,474,791 shares of our common stock or common units of limited partnership interest in the Operating Partnership. The Company expects the transaction to close in late first quarter or early second quarter subject to customary closing conditions, including the receipt of the requisite stockholder approval for the equity issued in connection with the transaction.

During 2014, we acquired the following properties: Merrill Place, 3402 Pico Blvd., and 12655 Jefferson. The results of operations for each of these acquisitions are included in our consolidated statements of operations from the date of acquisition. The following table represents our purchase price accounting for each of these acquisitions:



	Merrill Place			3402 Pico Blvd.		12655 Jefferson
Date of Acquisition	February 12, 2014			February 28, 2014		October 17, 2014		Total
Consideration paid
Cash consideration	$	57,034		$	18,546	$	38,000	$	113,580
Total consideration	$	57,034		$	18,546	$	38,000	$	113,580
Allocation of consideration paid
Investment in real estate, net	$	57,508		$	18,500	$	38,000	$	114,008
Above-market leases	173			—		—		173
Deferred leasing costs and lease intangibles, net	3,163			—		—		3,163
Below-market leases	(3,315		)	—		—		(3,315		)
Other (liabilities) asset assumed, net	(495		)	46		—		(449		)
Total consideration paid	$	57,034		$	18,546	$	38,000	$	113,580

During 2013, we acquired the following properties: 3401 Exposition, Pinnacle II, the Seattle Portfolio, and 1861 Bundy. The results of operations for each of these acquisitions are included in our consolidated statements of operations from the date of acquisition. The following table represents our purchase price accounting for each of these acquisitions:



	3401 Exposition		Pinnacle II			Seattle Portfolio			1861 Bundy
Date of Acquisition	May 22, 2013		June 14, 2013			July 31, 2013			September 26, 2013		Total
Consideration paid
Cash consideration	$	8,489	$	1,505		$	368,389		$	11,500	$	389,883
Notes Receivable	4,000		—			—			—		4,000
Debt Assumed	13,233		89,066			—			—		102,299
Non-controlling interest in consolidated real estate entity	—		45,704			—			—		45,704
Total consideration	$	25,722	$	136,275		$	368,389		$	11,500	$	541,886
Allocation of consideration paid
Investment in real estate, net	$	25,439	$	134,289		$	367,094		$	11,500	$	538,322
Deferred leasing costs and lease intangibles, net	—		12,637			21,619			—		34,256
Fair market unfavorable debt value	—		(5,820		)	—			—		(5,820		)
Below-market leases	—		(7,783		)	(14,666		)	—		(22,449		)
Other (liabilities) asset assumed, net	283		2,952			(5,658		)	—		(2,423		)
Total consideration paid	$	25,722	$	136,275		$	368,389		$	11,500	$	541,886

During 2012, we acquired the following properties: 10900 Washington, 901 Market Street, Element LA (Olympic Bundy), 1455 Gordon Street and Pinnacle I. The results of operations for each of these acquisitions are included in our consolidated statements of operations from the date of acquisition. The following table represents our purchase price accounting for each of these acquisitions:



	10900 Washington		901 Market			Element LA			1455 Gordon Street			Pinnacle I
Date of Acquisition	April 5, 2012		June 1, 2012			September 5, 2012			September 21, 2012			November 8, 2012			Total
Consideration paid
Cash consideration	$	2,605	$	90,871		$	88,436		$	2,385		$	208,023		$	392,320
Non-controlling interest in consolidated real estate entity	—		—			—			—			1,481			1,481
Total consideration	$	2,605	$	90,871		$	88,436		$	2,385		$	209,504		$	393,801
Allocation of consideration paid
Investment in real estate, net	$	2,600	$	97,187		$	88,024		$	2,384		$	200,175		$	390,370
Above-market leases	—		—			—			—			167			167
Leases in place	—		2,968			1,325			96			11,710			16,099
Other lease intangibles	—		548			46			22			3,456			4,072
Below-market leases	—		(10,249		)	(666		)	(27		)	(5,076		)	(16,018		)
Other (liabilities) asset assumed, net	5		417			(293		)	(90		)	(928		)	(889		)
Total consideration paid	$	2,605	$	90,871		$	88,436		$	2,385		$	209,504		$	393,801

The table below shows the pro forma financial information for the years ended December 31, 2014 and 2013 as if these properties had been acquired as of January 1, 2013.



	Year Ended December 31,
	2014		2013
Total revenues	$	253,924	$	224,102
Net loss	$	23,540	$	(5,620	)

Dispositions

On December 29, 2014, the Company entered into a purchase and sale agreement to sell its First Financial office property for $89.0 million (before certain credits, prorations, and closing costs). As a result, the Company has reclassified First Financial's assets and liabilities to held for sale as of December 31, 2014 and 2013. The transaction is subject to assumption of an existing $42.4 million loan and is expected to close in the first quarter of 2015. Pursuant to the Company's adoption of ASU No. 2014-08, the Company has not presented the operating results in net income (loss) from discontinued operations.

On July 16, 2014, the Company sold its Tierrasanta property for $19.5 million (before certain credits, prorations, and closing costs) and therefore, reclassified Tierrasanta's assets and liabilities to held for sale at July 16, 2014 and December 31, 2013. Pursuant to the Company's adoption of ASU No. 2014-08, the Company has not presented the operating results in net income (loss) from discontinued operations.

On May 31, 2013, the Company entered into an agreement to sell its City Plaza property for approximately $56.0 million (before certain credits, prorations, and closing costs). The transaction closed on July 12, 2013. The transaction resulted in an approximately $5.6 million impairment loss. The Company reclassified City Plaza’s results of operations for the years ended December 31, 2014, 2013 and 2012 to discontinued operations on its consolidated statements of operations.

The following table sets forth the discontinued operations for the years ended December 31, 2014, 2013 and 2012 for the City Plaza:



	Year Ended December 31,
	2014			2013			2012
Total office revenues	$	—		$	4,321		$	5,695
Office operating expenses	(164		)	(1,961		)	(2,978		)
Depreciation and amortization	—			(789		)	(2,266		)
Income from discontinued operations	$	(164	)	$	1,571		$	451

The following table summarizes the components that comprise the assets and liabilities associated with real estate held for sale as of December 31, 2014 and 2013:



	Year Ended December 31,
	2014		2013
ASSETS
Investment in real estate, net	$	60,542	$	74,374
Restricted cash	2,839		2,821
Straight-line rent receivables	2,151		1,997
Deferred leasing costs and lease intangibles, net	2,457		3,693
Other	545		360
Assets associated with real estate held for sale	$	68,534	$	83,245

LIABILITIES AND EQUITY
Liabilities:
Notes payable	$	42,449	$	43,000
Accounts payable and accrued liabilities	322		1,393
Other	443		731
Liabilities associated with real estate held for sale	43,214		45,124
Equity	25,320		38,121
Total liabilities and equity associated with real estate held for sale	$	68,534	$	83,245