REAL ESTATE HELD FOR INVESTMENT

As of March 31, 2018, the Company’s portfolio of real estate held for investment was composed of eight office properties and an office campus consisting of six office buildings, encompassing in the aggregate approximately 4.6 million rentable square feet. As of March 31, 2018, the Company’s real estate portfolio was 82% occupied. The following table summarizes the Company’s real estate portfolio as of March 31, 2018 (in thousands):



Property	Date Acquired	City	State	Property Type	Total Real Estate at Cost		Accumulated Depreciation and Amortization			Total Real Estate, Net
100 & 200 Campus Drive Buildings	09/09/2008	Florham Park	NJ	Office	$	149,908	$	(12,287	)	$	137,621
300-600 Campus Drive Buildings	10/10/2008	Florham Park	NJ	Office	162,300		(17,902		)	144,398
Willow Oaks Corporate Center	08/26/2009	Fairfax	VA	Office	104,886		(19,793		)	85,093
Pierre Laclede Center	02/04/2010	Clayton	MO	Office	81,221		(10,645		)	70,576
Union Bank Plaza	09/15/2010	Los Angeles	CA	Office	185,549		(24,188		)	161,361
Emerald View at Vista Center	12/09/2010	West Palm Beach	FL	Office	31,622		(7,121		)	24,501
Granite Tower	12/16/2010	Denver	CO	Office	154,590		(44,474		)	110,116
Fountainhead Plaza	09/13/2011	Tempe	AZ	Office	119,384		(19,150		)	100,234
Corporate Technology Centre ⁽¹⁾	03/28/2013	San Jose	CA	Office	180,984		(24,344		)	156,640
					$	1,170,444	$	(179,904	)	$	990,540

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⁽¹⁾Two of the eight office buildings at this property were held for sale as of March 31, 2018. Information related to the two properties held for sale is included at Note 6, “Real Estate Held for Sale.”

As of March 31, 2018, the following properties represented more than 10% of the Company’s total assets:



Property	Location	Rentable Square Feet	Total Real Estate, Net (in thousands)		Percentage of Total Assets		Annualized Base Rent (in thousands) ⁽¹⁾		Average Annualized Base Rent per Sq. Ft.		Occupancy
Union Bank Plaza	Los Angeles, CA	627,334	$	161,361	13.2	%	$	21,105	$	41.10	82	%
Corporate Technology Centre	San Jose, CA	492,110	156,640		12.8	%	14,243		36.02		80	%
300-600 Campus Drive Buildings	Florham Park, NJ	578,424	144,398		11.8	%	17,865		33.63		92	%
100 & 200 Campus Drive Buildings	Florham Park, NJ	589,625	137,621		11.2	%	12,062		30.31		67	%

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⁽¹⁾Annualized base rent represents annualized contractual base rental income as of March 31, 2018, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

Operating Leases

The Company’s real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of March 31, 2018, the leases had remaining terms, excluding options to extend, of up to 13.6 years with a weighted-average remaining term of 5.0 years. Some of the leases have provisions to extend the term of the leases, options for early termination for all or part of the leased premises after paying a specified penalty, rights of first refusal to purchase the property at competitive market rates, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from the tenant in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective lease and the creditworthiness of the tenant, but generally is not a significant amount. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $2.4 million and $2.6 million as of March 31, 2018 and December 31, 2017, respectively.

During the three months ended March 31, 2018 and 2017, the Company recognized deferred rent from tenants, net of lease incentive amortization, of $(0.9) million and $0.9 million, respectively. As of March 31, 2018 and December 31, 2017, the cumulative deferred rent balance was $58.0 million and $58.9 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $9.0 million and $9.5 million of unamortized lease incentives as of March 31, 2018 and December 31, 2017, respectively.

As of March 31, 2018, the future minimum rental income from the Company’s properties under non-cancelable operating leases was as follows (in thousands):



April 1, 2018 through December 31, 2018	$	87,634
2019	106,109
2020	100,111
2021	88,708
2022	66,670
Thereafter	218,399
	$	667,631

As of March 31, 2018, the Company had approximately 185 tenants over a diverse range of industries and geographic areas. The Company’s highest tenant industry concentrations (greater than 10% of annualized base rent) were as follows:



Industry	Number of Tenants	Annualized Base Rent ⁽¹⁾ (in thousands)		Percentage of Annualized Base Rent
Finance	32	$	27,831	23.2	%
Legal Services	32	15,092		12.6	%
Mining, Oil & Gas Extraction	4	13,950		11.7	%
		$	56,873	47.5	%

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⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of March 31, 2018, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

No other tenant industries accounted for more than 10% of annualized base rent. The Company had not identified any material tenant credit issues as of March 31, 2018. During the three months ended March 31, 2018 and 2017, the Company recorded bad debt expense of $0.1 million and $0.2 million, respectively. As of March 31, 2018, the Company had a bad debt expense reserve of approximately $0.2 million, which represented less than 1% of its annualized base rent.

As of March 31, 2018, the Company had a concentration of credit risk related to the following tenant lease that represented more than 10% of the Company’s annualized base rent:

Annualized Base Rent Statistics

Tenant

Property

Tenant Industry

Square Feet

% of Portfolio

(Net Rentable Sq. Ft.)

Annualized Base Rent

(in thousands) ⁽¹⁾

% of Portfolio Annualized Base Rent

Annualized Base Rent per Sq. Ft.

Lease Expiration ^{(2) (3)}

Union Bank

Union Bank Plaza

Finance

342,712

9.1%

14,587

12.2%

42.56

01/31/2022

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⁽²⁾ Represents the expiration date of the lease as of March 31, 2018 and does not take into account any tenant renewal or termination options. Pursuant to a lease amendment that the Company entered into with Union Bank on December 31, 2017, Union Bank surrendered 15,829 rentable square feet of its total rentable square footage on March 31, 2018 and will surrender 31,320 rentable square feet of its total rentable square footage by June 30, 2018. In addition, Union Bank also surrendered 321 parking area passes on March 31, 2018. During the three months ended March 31, 2018, the Company received $6.5 million of lease termination fees from Union Bank, of which $0.8 million was recognized as rental income in the accompanying consolidated statements of operations and $5.7 million was deferred as of March 31, 2018 and included in other liabilities on the accompanying consolidated balance sheets. The Company expects to receive an additional $4.9 million in lease termination fees from Union Bank in 2018.

⁽³⁾ Union Bank has two options to extend the term of this lease for three, four, five, six or seven years per option term, provided that the combined renewal option terms do not exceed 10 years. If Union Bank elects to exercise its extension options, it must extend the lease on (i) the entire office premises or (ii) no less than 200,000 rentable square feet consisting of full floors only plus either all or none of both the retail and vault space.

No other tenant accounted for more than 10% of annualized base rent.

Geographic Concentration Risk

As of March 31, 2018, the Company’s net investments in real estate in California and New Jersey represented 25.9% and 23.0% of the Company’s total assets, respectively. As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the California and New Jersey real estate markets. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Company’s operating results and its ability to make distributions to stockholders.