Investment in Real Estate

Acquisitions

During 2016, the Company acquired 11601 Wilshire, Hill7 and Page Mill Hill. During 2015, the Company completed the EOP Acquisition, and acquired 4th & Traction and 405 Mateo. The following table summarizes the information on our acquisitions completed in 2016 and 2015:



Property	Submarket	Date of Acquisition	Square Feet (unaudited)	Purchase Price⁽¹⁾(in millions)
11601 Wilshire⁽²⁾	West Los Angeles	7/1/2016	500,475	$	311.0
Hill7⁽³⁾	South Lake Union	10/7/2016	285,680	179.8
Page Mill Hill⁽⁴⁾	Palo Alto	12/12/2016	182,676	150.0
Total acquisitions in 2016			968,831	640.8

EOP Acquisition⁽⁵⁾	Various	4/1/2015	8,201,456	3,815.7
4th & Traction	Downtown Los Angeles	5/22/2015	120,937	49.3
405 Mateo	Downtown Los Angeles	8/17/2015	83,285	40.0
Total acquisitions in 2015			8,405,678	$	3,905.0

_____________


(1)	Represents purchase price before certain credits, prorations and closing costs.


(2)	Previously owned by an affiliate of Blackstone, the property has served as the Company’s corporate headquarters since its IPO. The Company funded this acquisition with proceeds from the unsecured revolving credit facility.


(3)	The Company purchased the property through a joint venture with the Canadian Pension Plan Investment Board. The Company owns 55% of the ownership interest in the consolidated joint venture. In conjunction with the acquisition, the joint venture closed a secured non-recourse loan in the amount of $101.0 million. Refer to Note 5 for details.


(4)	The Company funded this acquisition with proceeds from the unsecured revolving credit facility.


(5)	The EOP Acquisition consisted of 26 office assets and two development parcels located throughout the San Francisco Peninsula, Redwood Shores, Palo Alto, Silicon Valley and North San Jose submarkets.

The Company evaluated the Hill7 and Page Mill Hill acquisitions under the new framework for determining whether an integrated set of assets and activities meet the definition of a business (pursuant to ASU 2017-01). Substantially all of the fair value of the gross assets is concentrated in either a single identifiable asset or group of similar identifiable assets (e.g., operating property). Accordingly, Hill7 and Page Mill Hill did not meet the definition of a business and were accounted for as asset acquisitions.

In previous reporting periods, the purchase price accounting for 11601 Wilshire was preliminary because the Company was in the process of evaluating the terms of certain contracts related to the Company’s interest in the land, which affected the identification and valuation of assets acquired and liabilities assumed. The fair value of the Company’s interest in the land has reflected below in the final purchase price accounting. If the measurement-period adjustment was made as of the acquisition date, the Company would have recognized an additional $33 thousand of depreciation and amortization expense in the third quarter of 2016. The following table represents the final aggregate purchase price accounting for each of the Company’s acquisitions completed in 2016:



	11601 Wilshire			Hill7			Page Mill Hill			Total
Investment in real estate, net	$	292,382		$	173,967		$	131,402		$	597,751
Land interest⁽¹⁾	7,836			—			—			7,836
Above-market leases⁽²⁾	167			—			307			474
Below-market ground leases⁽³⁾	212			—			12,125			12,337
Deferred leasing costs and in-place intangibles⁽⁴⁾	13,884			7,617			14,697			36,198
Below-market leases⁽⁵⁾	(6,562		)	(1,417		)	(8,636		)	(16,615		)
Net asset and liabilities assumed	$	307,919		$	180,167		$	149,895		$	637,981

_____________


(1)	Represents the fair value of the Company’s interest in the land which is included in investment in unconsolidated entities in the Consolidated Balance Sheets.


(2)	Represents weighted-average amortization period of 5.4 years.


(3)	Represents weighted-average amortization period of 33.2 years.


(4)	Represents weighted-average amortization period of 5.8 years.


(5)	Represents weighted-average amortization period of 6.4 years.

Included in the Company’s consolidated financial statements for the year ended December 31, 2016 were revenues and net loss totaling $14.0 million and $3.5 million, respectively, from the acquisitions completed in 2016.

The table below shows the pro forma financial information (unaudited) for the years ended December 31, 2016 and 2015 as if the acquisitions in 2016 had completed as of January 1, 2015:



	Year Ended December 31,
	2016		2015
Total revenues	$	677,313	$	572,482
Net income (loss)	41,685		(21,652		)

The following table represents the final purchase price accounting for each of the Company’s acquisitions completed in 2015:



	EOP Northern California Portfolio			4th & Traction		405 Mateo		Total
Consideration paid
Cash consideration	$	1,715,346		$	49,250	$	40,000	$	1,804,596
Common stock	87			—		—		87
Additional paid-in capital	285,358			—		—		285,358
Non-controlling common units in the Operating Partnership	1,814,936			—		—		1,814,936
Total consideration	3,815,727			49,250		40,000		3,904,977
Allocation of consideration paid
Investment in real estate, net	3,610,039			49,250		40,000		3,699,289
Above-market leases⁽¹⁾	28,759			—		—		28,759
Below-market ground leases⁽²⁾	52,065			—		—		52,065
Deferred leasing costs and in-place intangibles⁽³⁾	225,431			—		—		225,431
Below-market leases⁽⁴⁾	(99,472		)	—		—		(99,472		)
Above-market ground leases⁽⁵⁾	(1,095		)	—		—		(1,095		)
Total consideration paid	$	3,815,727		$	49,250	$	40,000	$	3,904,977

_____________


(1)	Represents weighted-average amortization period of 3.0 years.


(2)	Represents weighted-average amortization period of 27.7 years.


(3)	Represents weighted-average amortization period of 3.6 years.


(4)	Represents weighted-average amortization period of 4.3 years.


(5)	Represents weighted-average amortization period of 25.4 years.

Dispositions

The following table summarizes the properties sold in 2016, 2015 and 2014. These properties were considered non-strategic to the Company’s portfolio:



Property	Date of Disposition	Square Feet (unaudited)	Sales Price⁽¹⁾ (in millions)
Bayhill Office Center	1/14/2016	554,328	$	215.0
Patrick Henry Drive	4/7/2016	70,520	19.0
One Bay Plaza	6/1/2016	195,739	53.4
12655 Jefferson	11/4/2016	100,756	80.0
Total dispositions in 2016⁽²⁾		921,343	$	367.4

First Financial	3/6/2015	223,679	$	89.0
Bay Park Plaza	9/29/2015	260,183	90.0
Total dispositions in 2015⁽³⁾		483,862	$	179.0

Tierrasanta	7/16/2014	112,300	$	19.5
Total disposition in 2014		112,300	$	19.5

_____________


(1)	Represents gross sales price before certain credits, prorations and closing costs.


(2)	Excludes the sale of an option to acquire land at 9300 Culver on December 6, 2016.


(3)	Excludes the disposition of 45% interest in 1455 Market Street office property on January 7, 2015.

The disposition of these properties resulted in a gain of $22.9 million, $30.5 million and $5.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. The gains on sale of real estate is included in the gains on sales in the Consolidated Statements of Operations. Also included in gains on sales in 2016 is a gain of $7.5 million related to a sale of an option to purchase land at 9300 Culver.

Held for sale

On December 30, 2016, the Company entered into an agreement to sell its 222 Kearny Street property for $51.8 million (before certain credits, prorations and closing costs). The Company determined that this property met the criteria to be classified as held for sale and reclassified the balances related to such property within the Consolidated Balance Sheets as of December 31, 2016 and 2015. 222 Kearny Street was subsequently sold on February 14, 2017.

The following table summarizes the components of assets and liabilities associated with real estate held for sale as of:



	December 31, 2016		December 31, 2015
ASSETS
Investment in real estate, net	$	32,601	$	344,202
Straight-line rent receivables, net	777		2,641
Deferred leasing costs and lease intangible assets, net	1,945		15,968
Other	1,285		699
Assets associated with real estate held for sale	$	36,608	$	363,510

LIABILITIES
Accounts payable and accrued liabilities	$	2,918	$	4,578
Lease intangible liabilities, net	27		10,233
Other	861		2,764
Liabilities associated with real estate held for sale	$	3,806	$	17,575