PCE-2013.9.30-10Q

10-Q 1 pce-2013930x10q.htm 10-Q PCE-2013.9.30-10Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission file number: 1-9900

PACIFIC OFFICE PROPERTIES TRUST, INC.

(Exact name of registrant as specified in its charter)



Maryland	86-0602478
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

841 Bishop Street, Suite 1700

Honolulu, Hawaii 96813

(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code): (808) 521-7444

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):



Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller Reporting Company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of November 5, 2013 there were issued and outstanding 3,941,142 shares of Class A Common Stock, par value $0.0001 per share; 100 shares of Class B Common Stock, par value $0.0001 per share; and 2,410,839 shares of Senior Common Stock, par value $0.0001 per share.

PACIFIC OFFICE PROPERTIES TRUST, INC.

TABLE OF CONTENTS

FORM 10-Q



	Page No.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	40
Item 4. Controls and Procedures	40

PART II – OTHER INFORMATION
Item 1. Legal Proceedings	42
Item 1A. Risk Factors	42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3. Defaults Upon Senior Securities	42
Item 4. Mine Safety Disclosures	42
Item 5. Other Information	42
Item 6. Exhibits	42
Signature	44

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited).

Pacific Office Properties Trust, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share data)



	September 30, 2013			December 31, 2012
ASSETS	(unaudited)
Investments in real estate, net	$	215,730		$	217,283
Cash and cash equivalents	16,496			21,304
Restricted cash	3,914			3,719
Rents and other receivables, net	1,156			1,218
Deferred rents	3,804			3,612
Intangible assets, net	7,620			8,343
Other assets, net	1,967			1,618
Goodwill	39,111			39,111
Investments in unconsolidated joint ventures	2,602			3,680
Total assets	$	292,400		$	299,888

LIABILITIES AND EQUITY (DEFICIT)
Mortgage and other loans, net	$	297,490		$	297,759
Unsecured notes payable to related parties	21,104			21,104
Accounts payable and other liabilities (Note 7)	48,776			33,412
Acquired below-market leases, net	3,789			3,989
Total liabilities	371,159			356,264

Commitments and contingencies (Note 10)
Equity (cumulative deficit):
Preferred Stock, $0.0001 par value per share, 100,000,000 shares authorized, one share of Proportionate Voting Preferred Stock issued and outstanding at September 30, 2013 and December 31, 2012	—			—
Senior Common Stock, $0.0001 par value per share (liquidation preference $10 per share, $24,108 as of September 30, 2013 and December 31, 2012) 40,000,000 shares authorized, 2,410,839 shares issued and outstanding at September 30, 2013 and December 31, 2012	21,459			21,459
Class A Common Stock, $0.0001 par value per share, 599,999,900 shares authorized, 3,941,142 shares issued and outstanding at September 30, 2013 and December 31, 2012	185			185
Class B Common Stock, $0.0001 par value per share, 100 shares authorized, issued and outstanding at September 30, 2013 and December 31, 2012	—			—
Additional paid-in capital	110			110
Cumulative deficit	(164,964		)	(160,074		)
Total stockholders’ equity (deficit)	(143,210		)	(138,320		)
Non-controlling interests:
Preferred unitholders in the Operating Partnership	127,268			127,268
Common unitholders in the Operating Partnership	(62,817		)	(45,324		)
Total equity (deficit)	(78,759		)	(56,376		)
Total liabilities and equity (deficit)	$	292,400		$	299,888

See accompanying notes to consolidated financial statements.

Pacific Office Properties Trust, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)



	For the three months ended
	September 30,
	2013			2012
Revenue
Rental	$	5,399		$	5,847
Tenant reimbursements	4,544			4,352
Parking	1,416			1,463
Other	72			53
Total revenue	11,431			11,715
Expenses
Rental property operating	7,009			7,271
General and administrative	508			333
Tax indemnity (Note 10)	8,725			—
Depreciation and amortization	2,771			2,917
Interest	5,084			5,059
Total expenses	24,097			15,580
Loss from continuing operations before equity in net (loss) earnings of unconsolidated joint ventures	(12,666		)	(3,865		)
Equity in net (loss) earnings of unconsolidated joint ventures	(98		)	141
Loss from continuing operations	(12,764		)	(3,724		)
Income from discontinued operations	—			49
Net loss	(12,764		)	(3,675		)

Net (income) loss attributable to non-controlling interests:
Preferred unitholders in the Operating Partnership	(568		)	(568		)
Common unitholders in the Operating Partnership	10,760			3,656
Net loss attributable to non-controlling interests	10,192			3,088

Net loss attributable to common stockholders before dividends paid and accrued on Senior Common Stock	(2,572		)	(587		)
Dividends paid and accrued on Senior Common Stock	(436		)	(436		)
Net loss attributable to common stockholders	$	(3,008	)	$	(1,023	)

Income (loss) per common share:
Loss from continuing operations	$	(0.76	)	$	(0.26	)
Income from discontinued operations	—			—
Net loss per common share - basic and diluted	$	(0.76	)	$	(0.26	)

Weighted average number of common shares outstanding - basic and diluted	3,941,242			3,941,242

See accompanying notes to consolidated financial statements.

Pacific Office Properties Trust, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)



	For the nine months ended
	September 30,
	2013			2012
Revenue
Rental	$	16,241		$	17,517
Tenant reimbursements	13,145			12,343
Property management and other services	—			1,408
Parking	4,248			4,280
Other	296			376
Total revenue	33,930			35,924
Expenses
Rental property operating	20,702			21,218
General and administrative	1,482			3,609
Tax indemnity (Note 10)	8,725			—
Depreciation and amortization	8,182			8,778
Interest	15,065			15,020
Total expenses	54,156			48,625
Loss from continuing operations before equity in net earnings of unconsolidated joint ventures	(20,226		)	(12,701		)
Equity in net earnings of unconsolidated joint ventures	858			668
Loss from continuing operations	(19,368		)	(12,033		)
Discontinued operations:
Income from discontinued operations before gains on extinguishment of debt and sale of property	—			749
Gain on extinguishment of debt	—			2,251
Gain on sale of property	—			5,365
Income from discontinued operations	—			8,365
Net loss	(19,368		)	(3,668		)
Net (income) loss attributable to non-controlling interests:
Preferred unitholders in the Operating Partnership	(1,704		)	(1,704		)
Common unitholders in the Operating Partnership	17,493			5,222
Net loss attributable to non-controlling interests	15,789			3,518

Net loss attributable to common stockholders before dividends paid and accrued on Senior Common Stock	(3,579		)	(150		)
Dividends paid and accrued on Senior Common Stock	(1,311		)	(1,311		)
Net loss attributable to common stockholders	$	(4,890	)	$	(1,461	)

Income (loss) per common share:
Loss from continuing operations	$	(1.24	)	$	(0.83	)
Income from discontinued operations	—			0.46
Net loss per common share - basic and diluted	$	(1.24	)	$	(0.37	)

Weighted average number of common shares outstanding - basic and diluted	3,941,242			3,941,242

See accompanying notes to consolidated financial statements.

Pacific Office Properties Trust, Inc. Consolidated Statements of Cash Flows (in thousands and unaudited)

	For the nine months ended
	September 30,
	2013			2012
Operating activities
Net loss	$	(19,368	)	$	(3,668	)
Income from discontinued operations	—			8,365
Loss from continuing operations	(19,368		)	(12,033		)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities - continuing operations:
Depreciation and amortization	8,182			8,778
Tax indemnity	8,725			—
Deferred rent	(192		)	(38		)
Deferred ground rents	1,531			1,535
Interest amortization	1,868			1,762
Above- and below-market lease amortization, net	(176		)	(193		)
Equity in net earnings of unconsolidated joint ventures	(858		)	(668		)
Bad debt expense	(18		)	588
Changes in operating assets and liabilities:
Restricted cash for operating activities	(82		)	501
Rents and other receivables	264			(148		)
Other assets	(525		)	(310		)
Accounts payable and other liabilities	45			(1,153		)
Net cash used in operating activities - continuing operations	(604		)	(1,379		)
Net cash provided by operating activities - discontinued operations	—			1,587
Net cash (used in) provided by operating activities	(604		)	208

Investing activities
Additions to and improvement of real estate	(3,524		)	(8,982		)
Distributions from unconsolidated joint ventures	1,966			888
Contributions to unconsolidated joint ventures	(30		)	(121		)
Net sales proceeds from sale of property	—			17,298
Payment of leasing commissions	(932		)	(539		)
Interim financing provided to unconsolidated joint venture	(183		)	—
Restricted cash used for capital expenditures	(113		)	31
Net cash (used in) provided by investing activities	(2,816		)	8,575

Pacific Office Properties Trust, Inc. Consolidated Statements of Cash Flows, continued (in thousands and unaudited)

	For the nine months ended
	September 30,
	2013			2012

Financing activities
Repayment of mortgage notes payable	(374		)	(356		)
Proceeds from mortgage note payable	—			4,875
Payment on settlement of debt	—			(415		)
Security deposits	6			(64		)
Senior Common Stock dividends	(1,020		)	(1,311		)
Net cash (used in) provided by financing activities	(1,388		)	2,729

(Decrease) increase in cash and cash equivalents	(4,808		)	11,512
Cash and cash equivalents at beginning of period	21,304			10,757
Cash and cash equivalents at end of period	$	16,496		$	22,269

Supplemental cash flow information
Interest paid	$	13,244		$	15,339

Supplemental disclosure of non-cash investing and financing activities
Accrued dividends and distributions	$	1,995		$	1,704
Change in accrued capital expenditures	$	1,476		$	(461	)
Decrease in mortgage notes payable due to foreclosure	$	—		$	11,452
Decrease in net operating assets/liabilities due to foreclosure	$	—		$	8,267

See accompanying notes to consolidated financial statements.

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

(unaudited)

1. Organization and Ownership

Pacific Office Properties -

The terms “Pacific Office Properties,” “us,” “we,” and “our” as used in this Quarterly Report on Form 10-Q refer to Pacific Office Properties Trust, Inc., a Maryland corporation (the “Company”), and its subsidiaries and joint ventures. Through our controlling interest in Pacific Office Properties, L.P. (the “Operating Partnership”), of which we are the sole general partner, and the subsidiaries of the Operating Partnership, we own and operate primarily institutional-quality office properties in Hawaii. We operate in a manner that permits us to satisfy the requirements for taxation as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986 (the “Code”).

Following our formation transactions and through January 2011, we were externally advised by Pacific Office Management, Inc., a Delaware corporation (“Pacific Office Management”), an entity that was owned and controlled by Jay H. Shidler (“Mr. Shidler”), our Chairman of the Board, certain of our current and former executive officers and James C. Reynolds, who beneficially owns 12% of our Class A Common Stock. Pacific Office Management was responsible for our day-to-day operation and management. Effective as of February 1, 2011, we acquired all of the outstanding stock of Pacific Office Management and internalized management. From February 1, 2011 through March 31, 2012, we remained self-managed.

Effective April 1, 2012, we became externally advised once again. Our advisor is Shidler Pacific Advisors, LLC (“Shidler Pacific Advisors”), an entity that is owned and controlled by Mr. Shidler. Lawrence J. Taff, formerly our Executive Vice President and now our President, Chief Executive Officer, Chief Financial Officer and Treasurer effective as of March 29, 2012, also serves as President of Shidler Pacific Advisors. Shidler Pacific Advisors is responsible for the day-to-day operation and management of the Company. In addition, effective April 1, 2012, all of our wholly-owned properties are managed by Shidler Pacific Advisors and all of our joint venture properties are managed by Parallel Capital Partners, Inc. (“Parallel Capital Partners”), an entity owned by James R. Ingebritsen, our former Chief Executive Officer; Matthew J. Root, our former Chief Investment Officer; and Mr. Reynolds, all of whom combined beneficially own 22% of our Class A Common Stock.

Through our Operating Partnership, as of September 30, 2013, we owned four office properties comprising 1.2 million rentable square feet and interests (ranging from 5.0% to 32.2%) in seven joint venture properties (including a sports club associated with our City Square property in Phoenix, Arizona), of which we have managing ownership interests in three of the joint venture properties, comprising 1.1 million rentable square feet (the “Property Portfolio”). As of September 30, 2013, our Property Portfolio included office buildings in Honolulu, San Diego, Los Angeles and Phoenix.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements and related disclosures included herein have been prepared in accordance with United States generally accepted accounting principles (“GAAP”).

Certain amounts in the consolidated financial statements for prior periods have been reclassified to conform to the current period presentation with no corresponding net effect on the previously reported consolidated results of operations, or financial position of the Company.

Principles of Consolidation

The accompanying consolidated financial statements include the account balances and transactions of consolidated subsidiaries, which are wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates in Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

Liquidity

We expect to meet our short-term liquidity and capital requirements primarily through existing cash on hand, net cash provided by rental activities, the contribution of existing wholly-owned assets to joint ventures and/or asset dispositions. We expect to meet our long-term capital requirements through net cash provided by operating activities, borrowings under our revolving credit facility (if available), refinancing of existing debt or through other available investment and financing activities, including the contribution of existing wholly-owned assets to joint ventures (partial sell-down of equity interests in wholly-owned assets), asset dispositions and/or additional secured or unsecured debt financings. In June 2012, we completed the sale of our fee and leasehold interests in the First Insurance Center property. In February 2013, we completed the sale of our Bank of Hawaii Waikiki Center joint venture property to an unrelated third party. We may also consider strategic alternatives, including a sale, merger, other business combination or recapitalization, of the Company.

We are focused on ensuring our properties are operating as efficiently as possible. We have taken steps to identify opportunities to reduce discretionary operating costs wherever possible and at the same time maintaining the quality of our buildings and the integrity of our management services.

As previously mentioned, effective April 1, 2012, we became externally advised by Shidler Pacific Advisors. In addition, effective April 1, 2012, all of our wholly-owned properties are managed by Shidler Pacific Advisors and all of our joint venture properties are managed by Parallel Capital Partners. Our return to external management and related actions reflect our determination to reduce costs as much as reasonably practicable. This streamlining reduced the full-time workforce previously dedicated to our investment, divestment and capital markets activities. We do not expect to pursue these activities in the near future. We therefore believe that Shidler Pacific Advisors and Parallel Capital Partners can provide adequate personnel resources, at lower cost to us, for our current and prospective business. We expect to require additional personnel if we resume substantial activities of this nature.

Capital expenditures fluctuate in any given period, subject to the nature, extent and timing of improvements required to maintain our properties. Leasing costs also fluctuate in any given period, depending upon such factors as the type of property, the term of the lease, the type of lease and overall market conditions. Our costs for capital expenditures and leasing fall into two categories: (1) amounts that we are contractually obligated to spend and (2) discretionary amounts. As of September 30, 2013, we were obligated to spend $3.3 million in capital expenditures and leasing costs through 2014.

As of September 30, 2013, we had a fully-drawn $25.0 million unsecured credit facility scheduled to mature on December 31, 2013. We also had promissory notes payable to certain affiliates in the aggregate principal amount of $21.1 million, scheduled to mature on various dates commencing on March 19, 2013 through August 31, 2013, subject to our option to extend maturity for one additional year. We have extended the maturity of these promissory notes for the additional year.

While we may be able to anticipate and plan for certain liquidity needs, there may be unexpected increases in uses of cash that are beyond our control and which would affect our financial condition and results of operations. For example, we may be required to comply with new laws or regulations that cause us to incur unanticipated capital expenditures for our properties, thereby increasing our liquidity needs. Even if there are no material changes to our anticipated liquidity requirements, our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or needed.

Investments in Real Estate

We account for acquisitions of real estate utilizing the purchase method and, accordingly, the results of operations of acquired properties are included in our results of operations from the respective dates of acquisition.

Investments in real estate properties are stated at cost, less accumulated depreciation, amortization and impairment. A portion of certain assets comprising the properties contributed at the time of our formation transactions (the “Contributed Properties”) are

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

stated at their historical net cost basis in an amount attributable to the ownership interests in the Contributed Properties owned by Mr. Shidler. Additions to land, buildings and improvements, furniture, fixtures and equipment and construction in progress are recorded at cost.

Transaction costs related to acquisitions are expensed. Costs associated with developing space for its intended use are capitalized and amortized over their estimated useful lives, commencing at the later of the improvement completion date or the lease commencement date.

Estimates of future cash flows and other valuation techniques are used to allocate the acquisition cost of acquired properties among land, buildings and improvements, and identifiable intangible assets and liabilities such as amounts related to in-place at-market leases, acquired above- and below-market leases, and acquired above- and below-market ground leases.

The fair values of real estate assets acquired are determined on an “as-if-vacant” basis. The “as-if-vacant” fair value is allocated to land, and where applicable, buildings, tenant improvements and equipment based on comparable sales and other relevant information obtained in connection with the acquisition of the property.

Fair value is assigned to above-market and below-market leases based on the difference between (a) the contractual amounts to be paid by the tenant based on the existing lease and (b) management’s estimate of current market lease rates for the corresponding in-place leases, over the remaining terms of the in-place leases. Capitalized above- and below-market lease amounts are reflected in “Intangible assets, net” and “Acquired below-market leases, net,” respectively, in the consolidated balance sheets. Capitalized above-market lease amounts are amortized as a decrease to rental revenue over the remaining initial non-cancellable lease terms. Capitalized below-market lease amounts are amortized as an increase in rental revenue over the remaining initial non-cancellable lease terms plus the terms of any below-market fixed rate renewal options that are considered bargain renewal options. If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance, net of the security deposit, of the related intangible is written off.

Fair value is also assigned to tenant relationships. Capitalized tenant relationship amounts are included in “Intangible assets, net” in the accompanying consolidated balance sheets and are amortized to “Depreciation and amortization” in the accompanying consolidated statements of operations. Amounts are amortized over the remaining terms of the respective leases even if a tenant vacates prior to the contractual termination of the lease. An adjustment to tenant relationship amounts occurs should the property experience an impairment loss.

The aggregate value of other acquired intangible assets consists of acquired in-place leases. The fair value allocated to acquired in-place leases consists of a variety of components including, but not necessarily limited to: (a) the value associated with avoiding the cost of originating the acquired in-place lease (i.e. the market cost to execute a lease, including leasing commissions and legal fees, if any); (b) the value associated with lost revenue related to tenant reimbursable operating costs estimated to be incurred during the assumed lease-up period (i.e. real estate taxes, insurance and other operating expenses); (c) the value associated with lost rental revenue from existing leases during the assumed lease-up period; and (d) the value associated with any other inducements to secure a tenant lease. The value assigned to acquired in-place leases is amortized over the remaining lives of the related leases.

We record the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed as goodwill. Goodwill is not amortized but is tested for impairment at a level of reporting referred to as a reporting unit on an annual basis, during the fourth quarter of each calendar year, or more frequently, if events or changes in circumstances indicate that the asset might be impaired. An impairment loss for an asset group is allocated to the long-lived assets of the group on a pro-rata basis using the relative carrying amounts of those assets, except that the loss allocated to an individual long-lived asset shall not reduce the carrying amount of that asset below its fair value. A description of our testing policy is set forth in “Impairment of Long-Lived Assets” below.

Impairment of Long-Lived Assets

In accordance with the provisions of the Impairment or Disposal of Long-Lived Assets Subsections of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, Property, Plant and Equipment, we assess the potential for impairment of our long-lived assets, including real estate properties, whenever events occur or a change in circumstances indicate that the recorded carrying value might not be fully recoverable. Indicators of potential impairment include significant decreases in occupancy levels and/or rental rates or a change in strategy that results in a decreased holding period. We determine whether impairment in value has occurred by comparing the estimated future cash flows, undiscounted and excluding interest, expected from the use and eventual disposition of the asset to its carrying value. If the undiscounted cash flows do not

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

exceed the carrying value, the real estate or intangible carrying value is reduced to fair value and impairment loss is recognized. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. No impairment charges for our wholly-owned properties were recorded for the three and nine month periods ended September 30, 2013 and 2012.

Investments in Unconsolidated Joint Ventures

Our investments in joint ventures are accounted for under the equity method of accounting because we exercise significant influence over, but do not control, our joint ventures. Our joint venture partners have substantive participating rights, including approval of and participation in setting operating budgets. Accordingly, we have determined that the equity method of accounting is appropriate for our investments in joint ventures.

Investments in unconsolidated joint ventures are initially recorded at cost and are subsequently adjusted for our proportionate equity in the net income or net loss of the joint ventures, contributions made to, or distributions received from, the joint ventures and other adjustments. We record distributions of operating profit from our investments in unconsolidated joint ventures as part of cash flows from operating activities and distributions related to a capital transaction, such as a refinancing transaction or sale, as investing activities in the consolidated statements of cash flows.

The difference between the initial cost of the investment in our joint ventures included in our consolidated balance sheet and the underlying equity in net assets of the respective joint ventures (“JV Basis Differential”) is amortized as an adjustment to equity in net income or net loss of the joint ventures in our consolidated statements of operations over the estimated useful lives of the underlying assets of the respective joint ventures.

We evaluate all investments in accordance with the guidance of FASB Accounting Standards Update 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, which requires ongoing assessments of the investments to determine whether or not they are variable interest entities (“VIEs”) and if they are VIEs, whether or not we are determined to be the primary beneficiary. We would consolidate a VIE if it is determined that we are the primary beneficiary. We use qualitative analyses to determine whether we are the primary beneficiary of a VIE. Consideration of various factors could include, but is not limited to, the purpose and design of the VIE, risks that the VIE was designed to create and pass through, the form of our ownership interest, our representation of the entity’s governing body, the size and seniority of our investment, our ability to participate in policy making decisions, and the rights of the other investors to participate in the decision making process and to replace us as manager and/or liquidate the venture, if applicable. We currently do not hold any investments in VIEs.

Impairment of Investments in Unconsolidated Joint Ventures

Our investment in unconsolidated joint ventures is subject to a periodic impairment review and is considered to be impaired when a decline in fair value is judged to be other-than-temporary. An investment in an unconsolidated joint venture that we identify as having an indicator of impairment is subject to further analysis to determine if the investment is other than temporarily impaired, in which case we write down the investment to its estimated fair value. No impairment charges were recorded in our investments in unconsolidated joint ventures for the three and nine month periods ended September 30, 2013 and 2012.

Discontinued Operations

The revenue, expenses, impairment and/or gain on sale of operating properties that meet the applicable criteria are reported as discontinued operations in the consolidated statement of operations. A gain on sale, if any, is recognized in the period the property is disposed of.

In determining whether to report the results of operations, impairment and/or gain on sale of operating properties as discontinued operations, we evaluate whether we have any significant continuing involvement in the operations, leasing or management of the property after disposition. If we determine that we have significant continuing involvement after disposition, we report the revenue, expenses, impairment and/or gain on sale as part of continuing operations.

We classify properties as held for sale when certain criteria set forth in the Long-Lived Assets Classified as Held for Sale Subsections of FASB ASC 360, Property, Plant and Equipment, are met. At that time, we present the non-cash assets and liabilities of the property held for sale separately in our consolidated balance sheet. We cease recording depreciation and amortization expense at the time a property is classified as held for sale. Properties held for sale are reported at the lower of their carrying amount or their estimated fair value, less estimated costs to sell. In June 2012, we completed the sale of our fee and leasehold interests in the

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

First Insurance Center. Accordingly, the associated assets and liabilities have been removed from our consolidated balance sheet and the results of its operations before the sale for the period ended September 30, 2012, including the gain on the sale of the property, are included in “Discontinued operations” in the accompanying consolidated statements of operations.

Properties in default do not meet the criteria to be held for sale as they are expected to be disposed of other than by sale. Accordingly, the assets and liabilities of properties in default are included in our consolidated balance sheets and their results of operations are presented as part of continuing operations in the consolidated statements of operations for all periods presented. The assets and liabilities of these properties will be removed from our consolidated balance sheet and the results of operations will be reclassified to discontinued operations in our consolidated statements of operations upon the ultimate disposition of each property. On January 5, 2012, the lender foreclosed on the loan secured by the Sorrento Technology Center property and took back the property. Accordingly, the associated assets and liabilities have been removed from our consolidated balance sheet and the results of its operations are included in “Discontinued operations” in the accompanying consolidated statements of operations for the period ended September 30, 2012.

Goodwill

We record the excess cost of an acquired entity over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed as goodwill. Goodwill is not amortized but is tested for impairment on an annual basis during the fourth quarter of each calendar year, or more frequently if circumstances indicate that a possible impairment has occurred. The assessment of impairment involves a two-step process whereby an initial assessment for potential impairment is performed, followed by a measurement of the amount of impairment, if any. Impairment testing is performed using the fair value approach, which requires the use of estimates and judgment, at the “reporting unit” level. A reporting unit is the operating segment, or a business that is one level below the operating segment if discrete financial information is prepared and regularly reviewed by management at that level. The reporting unit’s fair value is calculated as the discounted future cash flows based on management’s best estimate of the applicable capitalization and discount rates. If the carrying value of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. An impairment charge is recognized as a charge against income equal to the excess of the carrying value of goodwill over its implied value on the date of the impairment. Factors that may cause goodwill to be impaired include, but may not be limited to, a sustained decline in our stock price and the occurrence, or sustained existence, of adverse economic conditions or decreased cash flow from our properties.

We consider our consolidated properties one reporting unit due to similar geographic and economic characteristics. As of September 30, 2013, goodwill of our consolidated properties amounted to $39.1 million.

Revenue Recognition

The following four criteria must be met before we recognize revenue and gains:


•	persuasive evidence of an arrangement exists;


•	the delivery has occurred or services rendered;


•	the fee is fixed and determinable; and


•	collectability is reasonably assured.

All of our tenant leases are classified as operating leases. For all leases with scheduled rent increases or other adjustments, minimum rental income is recognized on a straight-line basis over the terms of the related leases. Straight-line rent receivable represents rental revenue recognized on a straight-line basis in excess of billed rents and this amount is included in “Deferred rents” on the accompanying consolidated balance sheets. The straight line rent adjustment included in “Rental revenues” in the accompanying consolidated statements of operations was $0.06 million for the three months ended September 30, 2013 and not significant for the three months ended September 30, 2012, and $0.19 million and $0.03 million for the nine months ended September 30, 2013 and 2012, respectively. Reimbursements from tenants for real estate taxes, excise taxes and other recoverable operating expenses are recognized as revenues in the period the applicable costs are incurred.

Capitalized above-market and below-market lease amounts are amortized as a decrease and increase, respectively, to rental revenue over the remaining initial non-cancellable lease terms plus the terms of any below-market fixed rate renewal options that are considered bargain renewal options.

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

We have leased space to certain tenants under non-cancellable operating leases, which provide for percentage rents based upon tenant revenues. Percentage rental income is recorded in “Rental revenues” in the accompanying consolidated statements of operations.

Rental revenue from parking operations and month-to-month leases or leases with no scheduled rent increases or other adjustments is recognized on a monthly basis when earned.

Lease termination fees, which are included in “Other revenues” of the accompanying consolidated statements of operations, are recognized when the related leases are canceled and we have no continuing obligation to provide services to such former tenants.

Other revenue on the accompanying consolidated statements of operations generally includes income incidental to our operations and is recognized when earned.

Tenant Receivables

Tenant receivables are recorded and carried at the amount billable per the applicable lease agreement, less any allowance for doubtful accounts. An allowance for doubtful accounts is made when collection of the full amounts is no longer considered probable. Tenant receivables are included in “Rents and other receivables, net,” in the accompanying consolidated balance sheets. If a tenant fails to make contractual payments beyond any allowance, we may recognize bad debt expense in future periods equal to the amount of unpaid rent and deferred rent. We take into consideration factors including historical termination, default activity and current economic conditions to evaluate the level of reserve necessary. We had an allowance for doubtful accounts of $0.6 million and $0.8 million, as of September 30, 2013 and December 31, 2012, respectively.

We had a total of $1.8 million of lease security available in security deposits, as of both September 30, 2013 and December 31, 2012.

Cash and Cash Equivalents

We consider all short-term cash investments with maturities of three months or less when purchased to be cash equivalents. Restricted cash is excluded from cash and cash equivalents for the purpose of preparing our consolidated statements of cash flows.

We maintain cash balances in various financial institutions. At times, the amounts of cash held in financial institutions may exceed the maximum amount insured by the Federal Deposit Insurance Corporation. We do not believe that we are exposed to any significant credit risk on our cash and cash equivalents.

Restricted Cash

Restricted cash includes escrow accounts for real property taxes, insurance, capital expenditures and tenant improvements, debt service and leasing costs held by lenders.

Mortgage and Other Loans

Mortgage and other loans assumed upon acquisition of related real estate properties are stated at estimated fair value upon their respective dates of assumption, net of unamortized discounts or premiums to their outstanding contractual balances. Amortization of discount and the accretion of premiums on mortgage and other loans assumed upon acquisition of related real estate properties are recognized from the date of assumption through their contractual maturity date using the straight line method, which approximates the effective interest method.

Deferred Loan Fees

Deferred loan fees include fees and costs incurred in conjunction with long-term financings and are amortized over the terms of the related debt using a method that approximates the effective interest method. Deferred loan fees are included in “Other assets, net” in the accompanying consolidated balance sheets. Amortization of deferred loan fees is included in “Interest” in the accompanying consolidated statements of operations.

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

Repairs, Maintenance and Major Improvements

The costs of ordinary repairs and maintenance are included when incurred in “Rental property operating” expenses in the accompanying consolidated statements of operations. Major improvements that extend the life of an asset are capitalized and depreciated over the remaining useful life of the asset. Various lenders have required us to maintain reserve accounts for the funding of future repairs and capital expenditures, and the balances of these accounts are included in “Restricted cash” on the accompanying consolidated balance sheets.

Leasing Commissions

Leasing commissions are capitalized and amortized on a straight line basis over the life of the related lease. The payment of leasing commissions is included in “Investing activities” on the accompanying consolidated statements of cash flows because we believe that paying leasing commissions for good tenants is a prudent investment in increasing the value of our income-producing assets.

Depreciation and Amortization

Depreciation and amortization are computed using the straight-line method for financial reporting purposes. Buildings and improvements are depreciated over their estimated useful lives which range from five to 42 years. Tenant improvement costs recorded as capital assets are depreciated over the shorter of the tenant’s remaining lease term or the life of the improvement. Furniture, fixtures and equipment are depreciated over three to seven years. Properties that are acquired that are subject to ground leases are depreciated over the lesser of the useful life or the remaining life of the related leases as of the date of assumption of the lease.

Non-Controlling Interests

We account for non-controlling interests in accordance with FASB ASC 810, Consolidation. In accordance with FASB ASC 810, we report non-controlling interests in subsidiaries within equity in the consolidated financial statements, but separate from the parent stockholders’ equity. Net income attributable to non-controlling interests is presented as a reduction from net income in calculating net income available to common stockholders on the statement of operations. Acquisitions or dispositions of non-controlling interests that do not result in a change of control are accounted for as equity transactions. In addition, FASB ASC 810 requires that a parent company recognize a gain or loss in net income when a subsidiary is deconsolidated upon a change in control. In accordance with FASB ASC 480-10, Distinguishing Liabilities from Equity, non-controlling interests that are determined to be redeemable are carried at their redemption value as of the balance sheet date and reported as temporary equity. We periodically evaluate individual non-controlling interests for the ability to continue to recognize the non-controlling interest as permanent equity in the consolidated balance sheets. Any non-controlling interest that fails to qualify as permanent equity will be reclassified as temporary equity and adjusted to the greater of (a) the carrying amount, or (b) its redemption value as of the end of the period in which the determination is made, the resulting adjustment is recorded in the consolidated statement of operations. See Note 11 for a more detailed discussion.

Preferred Units

The Class A convertible preferred units of the Operating Partnership (“Preferred Units”) have fixed rights to distributions at an annual rate of 2% of their liquidation preference of $25 per Preferred Unit. Accordingly, income or loss of the Operating Partnership is allocated among the general partner interest and limited partner common interests after taking into consideration distribution rights allocable to the Preferred Units.

Earnings (Loss) per Share

We present both basic and diluted earnings (loss) per share (“EPS”). Basic EPS is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during each period.

Diluted EPS is computed by dividing net income (loss) available to common stockholders for the period by the weighted average number of common shares that would have been outstanding for the period, assuming the issuance of common shares for all potentially dilutive common shares outstanding during such period.

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

Income Taxes

We have elected to be taxed as a REIT under the Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we currently distribute at least 90% of our REIT taxable income to our stockholders. Also, at least 95% of gross income in any year must be derived from qualifying sources. We intend to adhere to these requirements and maintain our REIT status. As a REIT, we generally will not be subject to corporate level federal income tax on taxable income that we distribute currently to our stockholders. However, we may be subject to certain state and local taxes on our income and property, and to federal income and excise taxes on our undistributed taxable income, if any. Management believes that we have distributed and will continue to distribute a sufficient majority of our taxable income, if any, in the form of dividends and distributions to our stockholders and unit holders. Accordingly, we have not recognized any provision for income taxes.

Pursuant to the Code, we may elect to treat certain of our newly created corporate subsidiaries as taxable REIT subsidiaries (“TRS”). In general, a TRS may perform non-customary services for our tenants, hold assets that we cannot hold directly and generally engage in any real estate or non-real estate related business. A TRS is subject to corporate federal income tax. Pacific Office Management has elected to be treated as a TRS for federal income tax purposes.

3. Investments in Real Estate, net

Our investments in real estate, net, at September 30, 2013 (unaudited), and at December 31, 2012, are summarized as follows (in thousands):



	September 30, 2013			December 31, 2012
Land and land improvements	$	39,290		$	39,290
Building and building improvements	198,224			197,626
Tenant improvements	31,185			27,992
Construction in progress	901			602
Furniture, fixtures and equipment	1,320			1,305
Investments in real estate	270,920			266,815
Less: accumulated depreciation	(55,190		)	(49,532		)
Investments in real estate, net	$	215,730		$	217,283

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

4. Intangible Assets and Acquired Below-Market Leases, net

Our identifiable intangible assets and acquired below-market leases, net, at September 30, 2013 (unaudited), and at December 31, 2012, are summarized as follows (in thousands):



	September 30, 2013			December 31, 2012
Acquired leasing commissions:
Gross amount	$	6,854		$	6,918
Accumulated amortization	(3,655		)	(4,082		)
Acquired leasing commissions, net	3,199			2,836

Acquired leases in place:
Gross amount	6,008			6,315
Accumulated amortization	(5,845		)	(6,078		)
Acquired leases in place, net	163			237

Acquired tenant relationship costs:
Gross amount	9,740			9,740
Accumulated amortization	(7,530		)	(6,590		)
Acquired tenant relationship costs, net	2,210			3,150

Acquired other intangibles:
Gross amount	3,082			3,121
Accumulated amortization	(1,034		)	(1,026		)
Acquired other intangibles, net	2,048			2,095

Acquired above-market leases:
Gross amount	1,359			1,392
Accumulated amortization	(1,359		)	(1,367		)
Acquired above-market leases, net	—			25

Intangible assets, net	$	7,620		$	8,343

Acquired below-market leases:
Gross amount	$	6,781		$	6,900
Accumulated amortization	(2,992		)	(2,911		)
Acquired below-market leases, net	$	3,789		$	3,989

5. Investments in Unconsolidated Joint Ventures

At September 30, 2013, we were partners with third parties in five joint ventures (of which we have managing ownership interests in two), holding seven properties, comprised of 12 office buildings and 1.1 million rentable square feet, including a sports club associated with our City Square property in Phoenix, Arizona. Our ownership interest percentages in these joint ventures range from 5.0% to 32.2%. For some of these joint ventures, in exchange for our managing ownership interest and related equity investment, we are entitled to fees, preferential allocations of earnings and cash flows. Following our April 1, 2012 externalization of management, certain of these amounts are payable to Parallel Capital Partners for property management and other services.

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

At September 30, 2013 and December 31, 2012, the JV Basis Differential was $(0.1) million and is included in “Investments in unconsolidated joint ventures” in the accompanying consolidated balance sheets. For each of the nine month periods ended September 30, 2013 and 2012, we recognized an insignificant amount of amortization expense attributable to the JV Basis Differential, which is included in “Equity in net (loss) earnings of unconsolidated joint ventures” in the accompanying consolidated statements of operations.

We account for our investments in joint ventures under the equity method of accounting.

The following tables summarize financial information for our unconsolidated joint ventures (in thousands):



	For the three months ended September 30,						For the nine months ended September 30,
	2013			2012			2013			2012
Revenues:
Rental	$	3,683		$	9,512		$	12,956		$	30,537
Other	973			2,391			3,600			8,074
Total revenues	4,656			11,903			16,556			38,611
Expenses:
Rental operating	2,590			6,853			9,768			20,219
Depreciation and amortization	1,215			4,056			4,173			13,362
Interest	1,498			6,451			5,327			28,054
Acquisition costs	—			1			—			1
Total expenses	5,303			17,361			19,268			61,636
Loss before net gains (losses) on sale of properties and extinguishment of debts	(647		)	(5,458		)	(2,712		)	(23,025		)
Net gain on sale of properties	—			—			26,907			—
Net gain (loss) on extinguishment of debts	—			2,586			(946		)	244
Net income (loss)	$	(647	)	$	(2,872	)	$	23,249		$	(22,781	)

Equity in net (loss) earnings of unconsolidated joint ventures⁽¹⁾	$	(98	)	$	141		$	858		$	668



	September 30, 2013		December 31, 2012
Investment in real estate, net	$	95,697	$	224,903
Other assets	21,649		50,346
Total assets	$	117,346	$	275,249

Mortgage and other loans	$	81,136	$	230,684
Other liabilities	4,555		29,251
Total liabilities	$	85,691	$	259,935

Investments in unconsolidated joint ventures	$	2,602	$	3,680

(1)

The total earnings of all the joint ventures were in a loss position for the three and nine month periods ended September 30, 2012. However, the Company’s equity in the unconsolidated joint ventures was positive for the same period. This occurred because the Company’s effective ownership in the various joint ventures ranges from 5.0% to 32.2% and therefore only a portion of the losses of the joint ventures was attributable to the Company. In addition, the Company earned priority returns from certain joint ventures that exceeded its proportionate equity ownership in the joint ventures.

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

6. Other Assets, net

Other assets, net, at September 30, 2013 (unaudited), and at December 31, 2012, consist of the following (in thousands):



	September 30, 2013		December 31, 2012
Deferred loan fees, net of accumulated amortization of $1.4 million and $1.3 million at September 30, 2013 and December 31, 2012, respectively	$	639	$	817
Prepaid expenses	1,328		801
Total other assets, net	$	1,967	$	1,618

7. Accounts Payable and Other Liabilities

Accounts payable and other liabilities at September 30, 2013 (unaudited), and at December 31, 2012, consist of the following (in thousands):



	September 30, 2013		December 31, 2012
Accounts payable	$	267	$	491
Interest payable	10,532		9,025
Deferred revenue	914		996
Security deposits	1,783		1,777
Deferred straight-line ground rent	14,077		12,547
Accrued expenses	11,835		7,947
Tax indemnity accrual (Note 10)	8,725		—
Asset retirement obligations	643		629
Total accounts payable and other liabilities	$	48,776	$	33,412

8. Mortgage and Other Loans

The following table sets forth a summary of our mortgage and other loans, net of discount, at September 30, 2013 (unaudited), and at December 31, 2012 (in thousands). The interest rate of each loan is fixed unless otherwise indicated in the footnotes to the table:



	Outstanding Principal Balance, Net at
Property	September 30, 2013		December 31, 2012		Interest Rate		Maturity Date
Clifford Center⁽¹⁾	$	2,243	$	2,527	4.375	%	8/15/2014
Clifford Center Land	4,684		4,774		4.00	%	2/17/2017
Pan Am Building	59,984		59,980		6.17	%	8/11/2016
Waterfront Plaza	100,000		100,000		6.37	%	9/11/2016
Waterfront Plaza	11,000		11,000		6.37	%	9/11/2016
Davies Pacific Center	94,579		94,478		5.86	%	11/11/2016
Subtotal	272,490		272,759
Revolving line of credit⁽²⁾	25,000		25,000		1.10	%	12/31/2013
Total mortgage and other loans, net	$	297,490	$	297,759


(1)	The interest rate is a fluctuating annual rate equal to the lender’s prime rate.


(2)	The revolving line of credit matures on December 31, 2013. Amounts borrowed under the revolving line of credit bear interest at a fluctuating annual rate equal to the effective rate of interest paid by the lender on time certificates of deposit, plus 1.00%. See “Revolving Line of Credit” below.

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

The lenders’ collateral for notes payable, with the exception of the Clifford Center note payable, is the property and, in some instances, cash reserve accounts, ownership interests in the underlying entity owning the real property, leasehold interests in certain ground leases and rights under certain service agreements. The lenders’ collateral for the Clifford Center note payable is the leasehold property as well as guarantees from affiliates of the Company. The Operating Partnership has agreed to indemnify these affiliates (Messrs. Shidler and Reynolds) to the extent of their guaranty liability. In management’s judgment, it would be a remote possibility for us to incur any material liability under these indemnities that would have a material adverse effect on our financial condition, results of operations or cash flows.

The existing and scheduled maturities for our mortgages and other loans for the periods succeeding September 30, 2013 are as follows (in thousands and includes scheduled principal paydowns):



2013	$	25,125
2014	2,273
2015	130
2016	266,135
2017	4,264
Total mortgage and other loans⁽¹⁾	$	297,927


(1)	This balance is the gross amount and does not include the discount of $0.4 million which is included in the outstanding balance of $297.5 million as shown in “Mortgage and other loans, net,” in the accompanying consolidated balance sheet.

Revolving Line of Credit

On September 2, 2009, we entered into a Credit Agreement (the “FHB Credit Facility”) with First Hawaiian Bank (the “Lender”). The FHB Credit Facility initially provided us with a revolving line of credit in the principal sum of $10 million. On December 31, 2009, we amended the FHB Credit Facility to increase the maximum principal amount available for borrowing under the revolving line of credit to $15 million. On May 25, 2010, we entered into an amendment with the Lender to increase the maximum principal amount available for borrowing thereunder from $15 million to $25 million and to extend the maturity date from September 2, 2011 to December 31, 2013. Amounts borrowed under the FHB Credit Facility bear interest at a fluctuating annual rate equal to the effective rate of interest paid by the lender on time certificates of deposit, plus 1.00%. We are permitted to use the proceeds of the line of credit for working capital and general corporate purposes, consistent with our real estate operations and for such other purposes as the Lender may approve. As of September 30, 2013 and December 31, 2012, we had outstanding borrowings of $25.0 million under the FHB Credit Facility. During each of the three month periods ended September 30, 2013 and 2012, we recognized $0.1 million in interest to the Lender. During each of the nine month periods ended September 30, 2013 and 2012, we recognized $0.2 million in interest to the Lender.

As security for the FHB Credit Facility, as amended, Shidler Equities, L.P., a Hawaii limited partnership controlled by Mr. Shidler (“Shidler LP”), has pledged to the Lender a certificate of deposit in the principal amount of $25.0 million. As a condition to this pledge, the Operating Partnership and Shidler LP entered into an indemnification agreement pursuant to which the Operating Partnership agreed to indemnify Shidler LP from any losses, damages, costs and expenses incurred by Shidler LP in connection with the pledge. In addition, to the extent that all or any portion of the certificate of deposit is withdrawn by the Lender and applied to the payment of principal, interest and/or charges under the FHB Credit Facility, the Operating Partnership agreed to pay to Shidler LP interest on the withdrawn amount at a rate of 7.0% per annum from the date of the withdrawal until the date of repayment in full by the Operating Partnership to Shidler LP. Pursuant to this indemnification agreement, as amended, the Operating Partnership also agreed to pay to Shidler LP an annual fee of 2.0% of the entire $25.0 million principal amount of the certificate of deposit. During each of the three month periods ended September 30, 2013 and 2012, we recognized $0.1 million in interest to Shidler LP for the annual fee. During each of the nine month periods ended September 30, 2013 and 2012, we recognized $0.4 million in interest to Shidler LP for the annual fee.

The FHB Credit Facility contains various customary covenants, including covenants relating to disclosure of financial and other information to the Lender, maintenance and performance of our material contracts, our maintenance of adequate insurance, payment of the Lender’s fees and expenses, and other customary terms and conditions.

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

9. Unsecured Notes Payable to Related Parties

At September 30, 2013 and December 31, 2012, we had promissory notes payable by the Operating Partnership to certain affiliates in the aggregate principal amount of $21.1 million, at both dates, which were originally issued as consideration to the affiliates, for having funded certain capital improvements prior to the completion of our formation transactions and upon the exercise of options granted to us by POP Venture, LLC (“Venture”) and its affiliates as part of our formation transactions in 2008. The promissory notes accrue interest at a rate of 7%, per annum, with interest payable quarterly, subject to the Operating Partnership’s right to defer the payment of interest for any or all periods up until the date of maturity. The promissory notes were scheduled to mature on various dates commencing on March 19, 2013 through August 31, 2013, but the Operating Partnership could elect to extend maturity for one additional year. We have extended the maturity of these promissory notes for the additional year. Maturity accelerates upon the occurrence of a) an underwritten public offering of at least $75 million of our common stock; b) the sale of substantially all the assets of the Company; or c) the merger of the Company with another entity. The promissory notes are unsecured obligations of the Operating Partnership.

For the period from March 20, 2008 through September 30, 2013, interest payments on the unsecured notes payable to related parties have been deferred with the exception of $0.3 million which was related to notes exchanged for shares of common stock in 2009. At September 30, 2013 and December 31, 2012, $9.6 million and $8.1 million, respectively, of accrued interest attributable to unsecured notes payable to related parties is included in “Accounts payable and other liabilities” in the accompanying consolidated balance sheets.

10. Commitments and Contingencies

Minimum Future Ground Rents

We hold a long-term ground leasehold interest in our Waterfront Plaza property. The Waterfront Plaza ground lease expires December 31, 2060. The annual rental obligation has fixed increases at 5-year intervals until it resets on January 1, 2036, 2041, 2046, 2051, and 2056 to an amount equal to the greater of (i) 8.0% of the fair market value of the land and (ii) the ground rent payable for the prior period.

Prior to February 23, 2012, we also held a long-term ground leasehold interest in our Clifford Center property. However, on February 23, 2012, we completed the acquisition of the fee interest in the land underlying the property for aggregate consideration of $6.5 million, through a new wholly-owned subsidiary. As a result, the financial statement impact related to the ground lease obligation is eliminated in consolidation.

Contingencies

From time to time, we may be subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance, subject to deductibles and other customary limitations on recoveries. We believe that the ultimate settlement of these actions will not have a material adverse effect on our consolidated financial position and results of operations or cash flows.

Concentration of Credit Risk

Our operating wholly-owned properties are located in Honolulu. Our operating properties owned in joint ventures are located in Honolulu, San Diego, Los Angeles and Phoenix. The ability of the tenants to honor the terms of their respective leases is dependent upon the economic, regulatory and social factors affecting the markets in which the tenants operate. As of September 30, 2013, no single tenant accounts for 10% or more of our total annualized base rents. We perform ongoing credit evaluations of our tenants for potential credit losses.

Financial instruments that subject us to credit risk consist primarily of cash, accounts receivable and deferred rents receivable. We maintain our cash and cash equivalents and restricted cash on deposit with what management believes are relatively stable financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to the maximum amount; and, to date, we have not experienced any losses on our invested cash. Restricted cash held by lenders is held by those lenders in accounts maintained at major financial institutions.

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

Conditional Asset Retirement Obligations

We record a liability for a conditional asset retirement obligation, defined as a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement is conditional on a future event that may or may not be within a company’s control, when the fair value of the obligation can be reasonably estimated. Depending on the age of the construction, certain properties in our portfolio may contain non-friable asbestos. If these properties undergo major renovations or are demolished, certain environmental regulations are in place, which specify the manner in which the asbestos, if present, must be handled and disposed. Based on our evaluation of the physical condition and attributes of certain of our properties, we recorded conditional asset retirement obligations related to asbestos removal. As of September 30, 2013 and December 31, 2012, the liability in our consolidated balance sheets for conditional asset retirement obligations was $0.6 million for both periods. The accretion expense for the three and nine month periods ended September 30, 2013 and 2012 was not significant.

Waterfront Plaza Ground Lease

We are subject to a surrender clause under the Waterfront Plaza ground lease that provides the lessor with the right to require us, at our own expense, to raze and remove all improvements from the leased land, contingent on the lessor’s decision at the time the ground lease expires on December 31, 2060. Accordingly, as of September 30, 2013 and December 31, 2012, the liability in our consolidated balance sheets for this asset retirement obligation was $0.4 million for both periods. The accretion expense was not significant for the three and nine month periods ended September 30, 2013 and 2012.

Environmental Matters

We follow the policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to the properties that would have a material effect on our financial condition, results of operations, and cash flows. Further, we are not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability other than our conditional asset retirement obligations that we believe would require additional disclosure or the recording of a loss contingency.

Capital Commitments

We are required by certain leases and loan agreements to complete tenant and building improvements. As of September 30, 2013, we are obligated to spend $3.3 million in capital expenditures and leasing costs through 2014. We anticipate that our reserves, as well as other sources of liquidity, including existing cash on hand, our cash flows from operations, financing and investing activities will be sufficient to fund our capital expenditure obligations.

Tax Protection Arrangements

A sale of any of the Contributed Properties that would not provide continued tax deferral to POP Venture, LLC (“Venture”) is contractually restricted until March 2018, which is 10 years after the closing of the transaction related to such properties. In addition, we have agreed that, during such 10-year period, we will not prepay or defease any mortgage indebtedness of such properties, other than in connection with a concurrent refinancing with non-recourse mortgage debt of an equal or greater amount and subject to certain other restrictions. Furthermore, if any such sale or defeasance is foreseeable, we are required to notify Venture and to cooperate with it in considering strategies to defer or mitigate the recognition of gain under the Code by any of the equity interest holders of the recipient of the Operating Partnership units.

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

to a make-whole cash payment under the tax protection agreements relating to the property. We do not believe that liability under these agreements would exceed $9.1 million, which is the estimated approximate built-in gain associated with the property multiplied by the highest applicable tax rate, plus a gross-up amount. During the third quarter of 2013, we held settlement discussions with certain claimants regarding these tax protection agreements. Although we have not yet reached agreement with these claimants, we believe that these discussions form a basis for reasonably estimating liability under these agreements. Accordingly, we have accrued $8.7 million for such liability which is included in “Accounts payable and other liabilities” in the accompanying consolidated balance sheet as of September 30, 2013. We expect to reach agreement on this matter in the fourth quarter of 2013.

Indemnities

The mortgage debt that we maintain for our consolidated properties and unconsolidated joint venture properties is typically property-specific debt that is non-recourse to our Operating Partnership, except for customary recourse carve-outs for borrower misconduct and environmental liabilities. The recourse liability for borrower misconduct and environmental liabilities was guaranteed by James C. Reynolds. Our Operating Partnership has agreed to indemnify Mr. Reynolds to the extent of his guaranty liability. This debt strategy isolates mortgage liabilities in separate, stand-alone entities, allowing us to have only our property-specific equity investment at risk, except to the extent of the recourse carve-outs. In management’s judgment, it would be unlikely for us to incur any material liability under these indemnities that would have a material adverse effect on our financial condition, results of operations or cash flows.

11. Equity (Deficit) and Earnings (Loss) per Share

Total Equity (Deficit)

The changes in total equity (deficit) for the period from December 31, 2012 to September 30, 2013 are shown below (in thousands):



	Pacific Office Properties Trust, Inc.			Non-controlling interest - Preferred			Non-controlling interest - Common			Total
Balance at December 31, 2012	$	(138,320	)	$	127,268		$	(45,324	)	$	(56,376	)
Net income (loss)	(3,579		)	1,704			(17,493		)	(19,368		)
Dividends and distributions	(1,311		)	(1,704		)	—			(3,015		)
Balance at September 30, 2013	$	(143,210	)	$	127,268		$	(62,817	)	$	(78,759	)

Stockholders’ Equity (Deficit)

Our Class A Common Stock (which was listed on the NYSE Amex until April 5, 2012 and is now quoted in the OTCQB tier of the OTC Marketplace) and our Class B Common Stock are identical in all respects, except that in the event of liquidation the Class B Common Stock will not be entitled to any portion of our net assets, which will be allocated and distributed to the holders of the Class A Common Stock. Shares of our Class A Common Stock and Class B Common Stock vote together as a single class and each share is entitled to one vote on each matter to be voted upon by our stockholders. Dividends on the Class A Common Stock and Class B Common Stock are payable at the discretion of our Board of Directors.

Our Senior Common Stock ranks senior to our Class A Common Stock and Class B Common Stock with respect to dividends and distribution of amounts upon liquidation. It has a $10.00 per share (plus accrued and unpaid dividends) liquidation preference. Subject to the preferential rights of any future series of preferred shares, holders of Senior Common Stock are entitled to receive, when and as declared by the Company’s Board of Directors, cumulative cash dividends in an amount per share equal to a minimum of $0.725 per share per annum, payable monthly. Dividends on the Senior Common Stock are cumulative and accrue to the extent not declared or paid by us. Should the dividend payable on the Class A Common Stock exceed the rate of $0.20 per share per annum, the Senior Common Stock dividend would increase by 25% of the amount by which the Class A Common Stock dividend exceeds $0.20 per share per annum. Holders of Senior Common Stock have the right to vote on all matters presented to stockholders as a single class with holders of the Class A Common Stock, the Class B Common Stock and the Company’s outstanding share of Proportionate Voting Preferred Stock (as discussed below). Each share of the Company’s Class A Common Stock, the Class B Common Stock and the Senior Common Stock is entitled to one vote on each matter to be voted upon by the Company’s stockholders. Shares of Senior Common Stock may be exchanged, at the option of the holder, for

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

shares of Class A Common Stock after the fifth anniversary of the issuance of such shares of Senior Common Stock. The exchange ratio is to be calculated using a value for our Class A Common Stock based on the average of the trailing 30-day closing price of the Class A Common Stock on the date the shares are submitted for exchange, but in no event less than $1.00 per share, and a value for the Senior Common Stock of $10.00 per share. As of September 30, 2013 and December 31, 2012, we had a total of 2,410,839 shares of Senior Common Stock issued and outstanding. We terminated our continuous public offering of Senior Common Stock in February 2011 and do not expect to issue any additional shares of Senior Common Stock.

General Partnership Interest

The Company’s general partnership interest in the Operating Partnership is denominated in a number of Common Units equal to the number of shares of our Class A Common Stock and Class B Common Stock outstanding. Our general partnership interest includes the right to participate in distributions of the Operating Partnership to holders of Common Units in a percentage equal to the quotient obtained by dividing (a) the number of shares of our Class A Common Stock and Class B Common Stock outstanding by (b) the sum of shares of our Class A Common Stock and Class B Common Stock outstanding plus the number of shares of our Class A Common Stock for which the outstanding Common Units of the Operating Partnership may be redeemed. We also hold a number of Senior Common Units corresponding to the number of shares of Senior Common Stock outstanding, which entitle us to receive distributions from the Operating Partnership in an amount per Senior Common Unit equal to the per share dividend payable to holders of our Senior Common Stock.

Non-controlling Interests

Non-controlling interests include the interests in the Operating Partnership that are not owned by the Company, which amounted to all of the Preferred Units and 78.16% of the Common Units outstanding as of September 30, 2013. During the three and nine month periods ended September 30, 2013 and 2012, no Common Units or Preferred Units were redeemed or issued. As of September 30, 2013, 46,698,532 shares of our Class A Common Stock were reserved for issuance upon redemption of outstanding Common Units and Preferred Units.

Upon initial issuance in March 2008, each Preferred Unit was convertible into 7.1717 Common Units, but no earlier than the later of (i) March 19, 2010, and (ii) the date we consummate an underwritten public offering (of at least $75 million) of our common stock. Upon conversion of the Preferred Units to Common Units, the Common Units were redeemable by the holders on a one-for-one basis for shares of our Class A Common Stock or cash, as elected by the Company, but no earlier than one year after the date of their conversion from Preferred Units to Common Units. The Preferred Units have fixed rights to annual distributions at an annual rate of 2% of their liquidation preference of $25 per Preferred Unit and priority over Common Units in the event of a liquidation of the Operating Partnership. At September 30, 2013, the cumulative unpaid distributions attributable to Preferred Units were $6.2 million. We anticipate continuing to accrue these distributions through the remainder of 2013.

On December 30, 2009, we amended certain provisions of the partnership agreement of the Operating Partnership (the “Partnership Agreement”) relating to the redemption rights of the Common Units and Preferred Units. The Common Units issued upon the completion of our formation transactions on March 19, 2008 were reclassified as Class B Common Units, which are redeemable by the holder on a one-for-one basis for shares of Class A Common Stock or a new class of Common Units, designated Class C Common Units, which have no redemption rights, as elected by a majority of our independent directors. All other outstanding Common Units were reclassified as Class A Common Units, which are redeemable by the holders on a one-for-one basis for shares of Class A Common Stock or cash, as elected by a majority of our independent directors. If converted, the Preferred Units will convert into Class B Common Units. Furthermore, the Preferred Unit put option was modified by eliminating the various alternative currencies possible upon exercise of the put and permitting only the issuance of new preferred units in settlement of an exercised put. The modification of the terms of the Preferred Units was more than inconsequential and therefore triggered a revaluation of the Preferred Units to their fair value on the modification date. As a result of the amendments to the Partnership Agreement, the Non-Controlling Interests attributable to the Common Units and Preferred Units were reclassified from mezzanine equity to permanent equity on the consolidated balance sheet. Simultaneously, the excess of market value over carrying value for the Preferred Units was booked as a fair value adjustment of Preferred Units on the consolidated statement of operations.

Common Units of all classes and Preferred Units of the Operating Partnership do not have any right to vote on any matters presented to our stockholders. As part of our formation transactions, we issued to Pacific Office Management one share of Proportionate Voting Preferred Stock. The Proportionate Voting Preferred Stock has no dividend rights and minimal rights to distributions in the event of liquidation, but it entitles its holder to vote on all matters for which the holders of Class A Common Stock are entitled to vote. The Proportionate Voting Preferred Stock entitles its holder to cast a number of votes equal to the total number of shares of Class A Common Stock issuable upon redemption for shares of the Common Units and Preferred Units issued

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

in connection with the completion of our formation transactions on March 19, 2008. This number will decrease to the extent that these Operating Partnership units are redeemed for shares of Class A Common Stock in the future. The number will not increase in the event of future unit issuances by the Operating Partnership. As of September 30, 2013, that share of Proportionate Voting Preferred Stock represented 88% of our voting power. In connection with the internalization of our management in February 2011, Pacific Office Management sold the share of Proportionate Voting Preferred Stock to Pacific Office Holding, Inc., a corporation owned by Mr. Shidler and certain of our current and former executive officers and other affiliates, for nominal consideration. Pacific Office Holding, Inc. has agreed to cast its Proportionate Voting Preferred Stock votes on any matter in direct proportion to votes that are cast by limited partners of our Operating Partnership holding the Common Units and Preferred Units issued in the formation transactions.

As of September 30, 2013, Venture owned 46,173,693 shares of our Class A Common Stock assuming that all Operating Partnership units were fully redeemed for shares on such date, notwithstanding the restrictions on redemption noted above. Assuming the immediate redemption of all the Operating Partnership units held by Venture, Venture and its related parties control 91.5% of the total voting power in the Company.

Income (Loss) per Share

We present both basic and diluted earnings per share (“EPS”). Basic EPS is computed by dividing net income or loss attributable to common stockholders by the weighted average number of shares of Class A Common Stock and Class B Common Stock outstanding during each period. Diluted EPS is computed by dividing net income or loss attributable to common stockholders for the period by the number of shares of Class A Common Stock and Class B Common Stock that would have been outstanding assuming the issuance of shares of Class A Common Stock for all potentially dilutive shares of Class A Common Stock outstanding during each period. Net income or loss in the Operating Partnership is allocated in accordance with the Partnership Agreement among our general partner and limited partner Common Unit holders in accordance with their weighted average ownership percentages in the Operating Partnership of 21.84% and 78.16%, respectively, as of September 30, 2013, after taking into consideration the priority distributions allocated to the limited partner preferred unit holders in the Operating Partnership. The following is the basic and diluted loss per share (in thousands, except share and per share amounts):



	For the three months ended September 30,						For the nine months ended September 30,
	2013			2012			2013			2012
Net loss attributable to common stockholders - basic and diluted⁽¹⁾	$	(3,008	)	$	(1,023	)	$	(4,890	)	$	(1,461	)

Weighted average number of common shares	3,941,242			3,941,242			3,941,242			3,941,242
Potentially dilutive common shares⁽²⁾	—			—			—			—
Weighted average number of common shares outstanding - basic and diluted	3,941,242			3,941,242			3,941,242			3,941,242
Net loss per common share - basic and diluted	$	(0.76	)	$	(0.26	)	$	(1.24	)	$	(0.37	)

(1)

For the three and nine months ended September 30, 2013 and 2012, net loss attributable to common stockholders includes $0.6 million and $1.7 million of priority allocation to Preferred Unit holders, respectively, which is included in non-controlling interests in the consolidated statements of operations. The Company continues to accrue the distributions but does not anticipate paying the distributions in the near term. See below for additional detail.

(2)

For each of the three and nine month periods ended September 30, 2013 and 2012, 14,101,004 shares of Class A Common Stock which may be issued upon redemption of Common Units, 32,597,528 shares of Class A Common Stock which may be issued upon redemption of Preferred Units, and 2,410,839 shares of Senior Common Stock were excluded from the calculation of diluted earnings per share because they were anti-dilutive due to our net loss from continuing operations position;

Refer to “Non-controlling Interests” and “Stockholders’ Equity (Deficit)” in this footnote for the redemption and conversion terms and conditions of the Preferred Units and Senior Common Stock.

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

Dividends and Distributions

Our board of directors authorized daily dividends on the Senior Common Stock, payable to holders of record of the Senior Common Stock as of the close of business on each day of the period commencing April 22, 2010 through April 30, 2013, in an amount equal to the stated annualized rate of 7.25% of the original issue price of $10.00 per share. Dividends declared for each month during such periods were paid on or about the 15^th day of the following month. As part of ongoing cost-cutting measures and in light of our focus on the preservation of cash, our board of directors authorized dividends on the Senior Common Stock for the period commencing May 1, 2013 through November 30, 2013 at half the stated annualized rate. The difference between the stated dividend and the paid dividend, which will accrue until paid in full, amounted to $0.4 million as of September 30, 2013.

Amounts accumulated for distribution to stockholders and Operating Partnership unit holders are invested primarily in interest-bearing accounts which are consistent with our intention to maintain our qualification as a REIT. At September 30, 2013, the cumulative unpaid distributions attributable to Preferred Units were $6.2 million, which we do not anticipate paying in 2013.

Dividends declared and accrued on the Senior Common Stock are included in “Cumulative deficit” in the accompanying consolidated balance sheets. Accrued distributions on Preferred Units are included in “Non-controlling interests” in the accompanying consolidated balance sheets.

12. Acquisition and Disposition Activity

Acquisition of Clifford Center Land

On February 23, 2012, we completed the acquisition of the fee interest in the land underlying our Clifford Center property, located in Honolulu, Hawaii for aggregate consideration of $6.5 million. As part of the acquisition we entered into a new loan agreement with Central Pacific Bank in the amount of $4.9 million. The loan bears interest at 4.00% per annum, requires monthly principal and interest payments of $25.7 thousand and includes a balloon payment of $4.3 million at maturity on February 17, 2017.

Disposition of Unconsolidated Joint Venture Investments

On January 18, 2013, the lender on the SoCal Portfolio properties (Via Frontera Business Park, Savi Tech Center, Yorba Linda Business Park, South Coast Executive Center and Gateway Corporate Center), located in Los Angeles, Orange and San Diego counties of southern California, foreclosed on the loan and took back the properties. Our investment in the unconsolidated joint venture that owned these properties was written off as of December 31, 2011.

On January 31, 2013, one of the buildings in the Palomar Heights Plaza property, located in San Diego, California, was sold in a foreclosure sale. The sale of the building, which was previously owned by one of our unconsolidated joint ventures, resulted in a loss to the joint venture from the foreclosure transaction. Our share of the loss is included in “Equity in net earnings of unconsolidated joint ventures” on the consolidated statement of operations for the nine months ended September 30, 2013.

On February 15, 2013, the Bank of Hawaii Waikiki Center property, located in Honolulu, Hawaii, was sold to an unaffiliated third party. Net proceeds from the sale of the property, which was previously owned by one of our unconsolidated joint ventures, were used to repay the mortgage note payable and other transaction related expenses. The remaining net available proceeds were distributed to the members of the joint venture, including us.

Discontinued Operations

Foreclosure of Sorrento Technology Center. On January 5, 2012, the lender on the Sorrento Technology Center property, located in San Diego, California, foreclosed on the loan and took back the property. During the second quarter of 2011, an impairment charge was taken for this property to write the asset down to its fair market value, which was less than the debt. We recognized a gain of $2.3 million on the foreclosure during the nine months ended September 30, 2012, as a result of the write off of this property in its entirety, and is included in “Gain on extinguishment of debt” in the accompanying consolidated statements of operations.

Sale of First Insurance Center. On June 18, 2012, we completed the sale of the fee and leasehold interests in the First Insurance Center property, located in Honolulu, Hawaii, for aggregate consideration of $70.5 million (including the assumption of $52 million of debt encumbering the property). As a result of the sale, we recorded net sales proceeds of approximately $17.3 million

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

and recognized a gain of $5.4 million during the nine months ended September 30, 2012, and is included in “Gain on sale of property” in the accompanying consolidated statements of operations. Accordingly, the operating results of the First Insurance Center property for the three and nine months ended September 30, 2012 are included in “Discontinued operations” in the accompanying consolidated statements of operations.

The following table summarizes the components that comprise income from discontinued operations (in thousands):



	For the three months ended September 30, 2012		For the nine months ended September 30, 2012
Revenue	$	2	$	4,715
Expenses	47		(3,966		)
Income from discontinued operations before gains on extinguishment of debt and sale of property	49		749
Gain on extinguishment of debt	—		2,251
Gain on sale of property	—		5,365
Total income from discontinued operations	$	49	$	8,365

Externalization of Management

Following our formation transactions and through January 2011, we were externally advised by Pacific Office Management. Effective February 1, 2011, we internalized our management by terminating the Advisory Agreement and acquiring all of the outstanding stock of Pacific Office Management. We remained self-managed through March 31, 2012.

Effective April 1, 2012, we became externally advised by Shidler Pacific Advisors, an entity that is owned and controlled by Mr. Shidler. Shidler Pacific Advisors acquired substantially all of the assets of Pacific Office Management for an aggregate purchase price of $25,000 and is responsible for the day to day operations and management of the Company. For its services, Shidler Pacific Advisors is entitled to a corporate management fee of $0.2 million per quarter, which is reflected in “General and administrative” expenses in the accompanying consolidated statements of operations for the three and nine month periods ended September 30, 2013 and 2012. In addition, all of our wholly-owned properties are managed by Shidler Pacific Advisors and all of our joint venture properties are managed by Parallel Capital Partners. Shidler Pacific Advisors and Parallel Capital Partners are entitled to receive property management fees of 2.5% to 4.5% of the rental cash receipts collected by the properties, and related fees; however, such property management and related fees are required to be consistent with prevailing market rates for similar services provided on an arms-length basis in the area in which the subject property is located.

Subsequent to the externalization of our management in April 2012, we paid Shidler Pacific Advisors for services relating to property management, corporate management, construction management and other services. The fees are summarized in the table below for the indicated period (in thousands):



	For the three months ended September 30,				For the nine months ended September 30,
	2013		2012		2013		2012
Property management	$	521	$	437	$	1,459	$	997
Corporate management	213		213		640		426
Construction management and other	54		23		147		55
Total	$	788	$	673	$	2,246	$	1,478

Shidler Pacific Advisors leases space from us at certain of our wholly-owned properties for building management and corporate offices. The rents from these leases totaled $0.1 million for each of the three month periods ended September 30, 2013 and 2012, and $0.4 million and $0.3 million for the nine month periods ended September 30, 2013 and 2012, respectively.

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

Below is the unaudited pro forma information that reflects the specified line items of our consolidated financial statements assuming that the externalization of management had been completed as of January 1, 2012 (in thousands, except per share amounts):



	For the three months ended September 30, 2012			For the nine months ended September 30, 2012
Pro forma operating revenues	$	11,722		$	34,562
Pro forma operating expenses	$	(15,578	)	$	(47,081	)
Pro forma net loss attributable to common stockholders	$	(1,014	)	$	(1,279	)
Pro forma loss per share	$	(0.26	)	$	(0.33	)

13. Other Related Party Transactions

During each of the three month periods ended September 30, 2013 and 2012, we incurred $0.1 million in interest to Shidler LP for the annual fee related to its security pledge for the FHB Credit Facility. During each of the nine month periods ended September 30, 2013 and 2012, we incurred $0.4 million in interest to Shidler LP for this annual fee. See Note 8 for more discussion on the FHB Credit Facility, including the security pledge made by Shidler LP.

At September 30, 2013, $8.7 million of estimated make-whole cash payments, attributable to tax protection agreements related to the sale of the First Insurance Center property and payable to certain affiliates of the Company and third parties, are included in “Accounts payable and other liabilities” in the accompanying consolidated balance sheets. See Note 10 for a detailed discussion on these payments to related parties under the tax protection agreements.

The Operating Partnership has agreed to indemnify James C. Reynolds with respect to all of his obligations under certain guaranties provided by Mr. Reynolds to lenders of indebtedness encumbering the Contributed Properties and certain additional properties acquired after the completion of our formation transactions. Mr. Reynolds is the beneficial owner of 12% of our Class A Common Stock, and was a director and stockholder of Pacific Office Management prior to our acquisition of Pacific Office Management. See Note 10 for additional discussion on these indemnities.

At September 30, 2013 and December 31, 2012, $9.6 million and $8.1 million of accrued interest attributable to unsecured notes payable to related parties, respectively, is included in “Accounts payable and other liabilities” in the accompanying consolidated balance sheets. See Note 9 for a detailed discussion on these unsecured notes payable to related parties.

Effective April 1, 2012, we are externally advised by Shidler Pacific Advisors, an entity that is owned and controlled by Mr. Shidler. At September 30, 2013, we have $0.3 million owed to Shidler Pacific Advisors included in “Accounts payable and other liabilities” in the accompanying consolidated balance sheets. See Note 12 for additional discussion on our advisors and fees earned by Shidler Pacific Advisors subsequent to externalization.

14. Segment Reporting

We own and operate primarily institutional-quality office properties in Hawaii. Prior to the foreclosure of the loan on our Sorrento Technology Center property (located in San Diego, California) in January 2012, we aggregated our operations by geographic region into two reportable segments (Honolulu and the Western United States mainland) based on the similar economic characteristics of the properties located in each of these regions. The products at all our properties include primarily rental of office space and other tenant services, including parking and storage space rental. We also have certain corporate level income and expenses related to our credit facility and legal, accounting, finance and management activities, which are not considered separate operating segments.

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

The following table summarizes the statements of operations by region of our wholly-owned consolidated properties for the three and nine months ended September 30, 2012 (in thousands):



	For the three months ended September 30, 2012
	Honolulu			Western U.S.		Corporate			Total
Revenue:
Rental	$	5,844		$	—	$	3		$	5,847
Tenant reimbursements	4,352			—		—			4,352
Parking	1,463			—		—			1,463
Other	53			—		—			53
Total revenue	11,712			—		3			11,715
Expenses:
Rental property operating	7,271			—		—			7,271
General and administrative	—			—		333			333
Depreciation and amortization	2,917			—		—			2,917
Interest	4,351			—		708			5,059
Total expenses	14,539			—		1,041			15,580
Loss from continuing operations before equity in net earnings of unconsolidated joint ventures	(2,827		)	—		(1,038		)	(3,865		)
Equity in net earnings of unconsolidated joint ventures	—			—		141			141
Loss from continuing operations	(2,827		)	—		(897		)	(3,724		)
Income from discontinued operations	49			—		—			49
Net loss	$	(2,778	)	$	—	$	(897	)	(3,675		)

Net loss attributable to non-controlling interests									3,088
Dividends paid on Senior Common Stock									(436		)
Net loss attributable to common stockholders									$	(1,023	)

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements



	For the nine months ended September 30, 2012
	Honolulu			Western U.S.		Corporate			Total
Revenue:
Rental	$	17,490		$	—	$	27		$	17,517
Tenant reimbursements	12,343			—		—			12,343
Property management and other services	—			—		1,408			1,408
Parking	4,280			—		—			4,280
Other	219			—		157			376
Total revenue	34,332			—		1,592			35,924
Expenses:
Rental property operating	21,218			—		—			21,218
General and administrative	—			—		3,609			3,609
Depreciation and amortization	8,778			—		—			8,778
Interest	12,938			—		2,082			15,020
Total expenses	42,934			—		5,691			48,625
Loss from continuing operations before equity in net earnings of unconsolidated joint ventures	(8,602		)	—		(4,099		)	(12,701		)
Equity in net earnings of unconsolidated joint ventures	—			—		668			668
Loss from continuing operations	(8,602		)	—		(3,431		)	(12,033		)
Discontinued operations:
Income from discontinued operations before gains on extinguishment of debt and sale of property	749			—		—			749
Gain on extinguishment of debt	—			2,251		—			2,251
Gain on sale of property	5,365			—		—			5,365
Income from discontinued operations	6,114			2,251		—			8,365

Net income (loss)	$	(2,488	)	$	2,251	$	(3,431	)	(3,668		)

Net loss attributable to non-controlling interests									3,518
Dividends paid on Senior Common Stock									(1,311		)
Net loss attributable to common stockholders									$	(1,461	)

15. Fair Value of Financial Instruments

We are required to disclose fair value information about all financial instruments, whether or not recognized in the consolidated balance sheet, for which it is practicable to estimate fair value. We measure and disclose the estimated fair value of financial assets and liabilities utilizing a fair value hierarchy that distinguishes between data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions. This hierarchy consists of three broad levels as follows:

Level 1 - using quoted prices in active markets for identical assets or liabilities.

Level 2 - using quoted prices for similar assets or liabilities in active markets, as well as inputs that are observable for the asset or liability, such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals.

Level 3 - using unobservable inputs that reflect an entity’s own assumptions that market participants would use when pricing of the asset or liability, to the extent observable inputs are not available.

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The fair market value of debt is determined using the trading price of public debt or a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality and risk profile, including the Company’s non-performance risk (Level 3). Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.

The carrying amounts for cash and cash equivalents, restricted cash, rents and other receivables, accounts payable and other liabilities approximate fair value because of the short-term nature of these instruments. We calculate the fair value of our mortgage and other loans by using available market information and discounted cash flows analyses based on borrowing rates we believe we could obtain with similar terms and maturities. Because the valuations of our financial instruments are based on these types of estimates, the actual fair value of our financial instruments may differ materially if our estimates do not prove to be accurate. Additionally, the use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. The fair value of the unsecured related party notes could not be estimated due to their related party nature. The carrying value of the revolving line of credit borrowings approximates its fair value since the borrowings bear interest at a variable market rate.

At September 30, 2013, the carrying value (excluding accrued interest) and estimated fair value of the mortgage and other loans were $297.5 million and $292.4 million, respectively. At December 31, 2012, the carrying value (excluding accrued interest) and estimated fair value of the mortgage and other loans were $297.8 million and $292.7 million, respectively.

Pacific Office Properties Trust, Inc.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the other sections of this Quarterly Report on Form 10-Q, including the consolidated financial statements and the related notes thereto that appear in Item 1 of this Quarterly Report on Form 10-Q. Historical results set forth in the consolidated financial statements included in Item 1 and this Section should not be taken as indicative of our future operations.

Note Regarding Forward-Looking Statements

Our disclosure and analysis in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which include information relating to future events, future financial performance, strategies, expectations, risks and uncertainties. From time to time, we also provide forward-looking statements in other materials we release to the public as well as oral forward-looking statements. These forward-looking statements include, without limitation, statements regarding: projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; statements regarding strategic transactions such as mergers or acquisitions or a possible dissolution of the Company; and statements of management’s goals and objectives and other similar expressions. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. Words such as “believe,” “assume,” “may,” “will,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “plan,” “anticipate,” “estimate,” “expect,” “intend,” “objective,” “seek,” “strive” and similar expressions, as well as statements in future tense, identify forward-looking statements.

Certain matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements. The risks and uncertainties inherent in such statements may cause actual future events or results to differ materially and adversely from those described in the forward-looking statements.

We cannot guarantee that any forward-looking statement will be realized. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. These factors include the risks and uncertainties described in “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012. You should bear this in mind as you consider forward-looking statements.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC.

Overview

We are an externally advised REIT that owns and operates primarily institutional-quality office properties in Hawaii. As of September 30, 2013, we owned four office properties comprising 1.2 million rentable square feet and interests (ranging from 5.0% to 32.2%) in seven joint venture properties (including a sports club associated with our City Square property in Phoenix, Arizona), comprising 1.1 million rentable square feet (the “Property Portfolio”). As of September 30, 2013, our Property Portfolio included office buildings in Honolulu, San Diego, Los Angeles and Phoenix.

Our formation was accomplished in 2008 through a reverse merger into a publicly traded REIT, Arizona Land Income Corporation, whose common stock was listed and traded on the American Stock Exchange. Concurrent with the merger, we changed our name to Pacific Office Properties Trust, Inc. and reincorporated in the State of Maryland.

Following our formation transactions and through January 2011, we were externally advised by Pacific Office Management, Inc., referred to as Pacific Office Management, an entity that was owned and controlled by Jay H. Shidler, our Chairman of the Board, certain of our current and former executive officers and James C. Reynolds, who beneficially owns 12% of our Class A Common Stock. Pacific Office Management was responsible for the day-to-day operation and management of the Company. Effective as of February 1, 2011, we acquired all of the outstanding stock of Pacific Office Management for an aggregate purchase price of $25,000 and internalized management.

Effective April 1, 2012, we became externally advised once again. Our advisor is Shidler Pacific Advisors, LLC (“Shidler Pacific Advisors”), an entity that is owned and controlled by Mr. Shidler. Lawrence J. Taff, our President, Chief Executive Officer, Chief Financial Officer and Treasurer, also serves as President of Shidler Pacific Advisors. Shidler Pacific Advisors is responsible for the day-to-day operation and management of the Company. In addition, effective April 1, 2012, all of our wholly-owned properties are managed by Shidler Pacific Advisors and all of our joint venture properties are managed by Parallel Capital Partners,

Pacific Office Properties Trust, Inc.

Inc. (“Parallel Capital Partners”), an entity owned by James R. Ingebritsen, our former Chief Executive Officer; Matthew J. Root, our former Chief Investment Officer; and James C. Reynolds, all of whom combined beneficially own 22% of our Class A Common Stock.

We maintain a website at www.pacificofficeproperties.com. The information on or accessible through our website is not part of this Quarterly Report on Form 10-Q. Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to such reports are available without charge on our website or upon request to us. In addition, our Code of Business Conduct and Ethics is available without charge on our website or upon request to us. Amendments to, or waivers from, our Code of Business Conduct and Ethics that apply to our executive officers will be posted to our website. We also post or otherwise make available on our website from time to time other information that may be of interest to our investors.

Critical Accounting Policies

This discussion and analysis of the historical financial condition and results of operations is based upon the accompanying consolidated financial statements which have been prepared in accordance with United States generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses in the reporting period. Actual amounts may differ from these estimates and assumptions. These estimates have been evaluated on an ongoing basis, based upon information currently available and on various assumptions that management believes are reasonable as of the date hereof. In addition, other companies in similar businesses may use different estimation policies and methodologies, which may impact the comparability of the results of operations and financial conditions to those of other companies.

In addition, we identified certain critical accounting policies that affect our more significant estimates and assumptions used in preparing our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2012. We have not made any material changes to those policies during the period covered by this Quarterly Report on Form 10-Q.

Results of Operations

Overview

As of September 30, 2013, the Property Portfolio (including our joint venture properties) was 75.9% leased to a total of 496 tenants. As of that date, 4.7% of our Property Portfolio leased square footage was scheduled to expire during 2013 and another 9.1% of our Property Portfolio leased square footage was scheduled to expire during 2014. We receive income primarily from rental revenue (including tenant reimbursements) from our office properties and, to a lesser extent, from our parking revenues. Our office properties are typically leased to tenants with good credit for terms ranging from two to 20 years.

As of September 30, 2013, our consolidated Honolulu portfolio was 87.5% leased, with approximately 146,400 square feet available. Our Honolulu portfolio attributable to our unconsolidated joint ventures was 58.7% leased, with approximately 39,000 square feet available.

As of September 30, 2013, our California portfolio attributable to our unconsolidated joint ventures was 78.5% leased, with approximately 63,100 square feet available.

As of September 30, 2013, our Phoenix portfolio attributable to our unconsolidated joint ventures was 58.5% leased, with approximately 304,600 square feet available.

Pacific Office Properties Trust, Inc.

Comparison of the three months ended September 30, 2013 to

the three months ended September 30, 2012 (in thousands)



	Total
	2013			2012			$ Change			% Change
Revenue:
Rental	$	5,399		$	5,847		$	(448	)	(7.7	)%
Tenant reimbursements	4,544			4,352			192			4.4	%
Parking	1,416			1,463			(47		)	(3.2	)%
Other	72			53			19			35.8	%
Total revenue	11,431			11,715			(284		)	(2.4	)%
Expenses:
Rental property operating	7,009			7,271			(262		)	(3.6	)%
General and administrative	508			333			175			52.6	%
Tax indemnity	8,725			—			8,725			100.0	%
Depreciation and amortization	2,771			2,917			(146		)	(5.0	)%
Interest	5,084			5,059			25			0.5	%
Total expenses	24,097			15,580			8,517			54.7	%
Loss from continuing operations before equity in net (loss) earnings of unconsolidated joint ventures	(12,666		)	(3,865		)	(8,801		)	(227.7	)%
Equity in net (loss) earnings of unconsolidated joint ventures	(98		)	141			(239		)	(169.5	)%
Loss from continuing operations	(12,764		)	(3,724		)	(9,040		)	(242.7	)%
Income from discontinued operations	—			49			(49		)	(100.0	)%

Net loss	$	(12,764	)	$	(3,675	)	$	(9,089	)	(247.3	)%

Revenues

Rental revenue. Total rental revenue decreased by $0.4 million, or 7.7%, primarily due to a decrease in rental revenues as a result of less leased space from a significant tenant at Waterfront Plaza ($0.5 million), partially offset by an increase in rental revenues due to increased occupancy at Davies Pacific Center ($0.1 million).

Tenant reimbursements. Total tenant reimbursements increased by $0.2 million, or 4.4%, primarily due to increased tenant recoveries for common area maintenance expenses at Davies Pacific Center ($0.1 million) and Waterfront Plaza ($0.1 million).

Parking revenue. Total parking revenue decreased by an insignificant amount compared to the prior year period.

Other revenue. Total other revenue increased by an insignificant amount compared to the prior year period.

Expenses

Rental property operating expenses. Total rental property operating expenses decreased by $0.3 million, or 3.6%, primarily due to decreases in electricity usage at Waterfront Plaza ($0.1 million) and bad debt expenses at Clifford Center ($0.1 million) and Waterfront Plaza ($0.1 million).

General and administrative expense. Total general and administrative expenses increased by $0.2 million, or 52.6%, primarily due to an increase in audit fees ($0.2 million) related to a downward adjustment to the audit fee accrual in the prior year period.

Tax indemnity. We recognized an estimated tax indemnity expense related to the sale of the First Insurance Center property for the three months ended September 30, 2013.

Pacific Office Properties Trust, Inc.

Depreciation and amortization expense. Total depreciation and amortization expense decreased by $0.1 million, or 5.0%, primarily due to a decrease in depreciation expenses of Clifford Center ($0.1 million) due to a lower asset depreciation basis as a result of the write-down of the property in December 2012.

Interest expense. Total interest expense increased by an insignificant amount compared to the prior year period.

Equity in net (loss) earnings of unconsolidated joint ventures

Equity in net earnings of unconsolidated joint ventures decreased by $0.2 million for the three months ended September 30, 2013 compared to the three months ended September 30, 2012. The quarter ended September 30, 2012 includes a gain on the extinguishment of debt of our Black Canyon joint venture ($0.3 million) after its foreclosed property was given back to the lender in the prior period, which was partially offset by a decrease in losses ($0.1 million) from our City Square joint venture. We no longer own an interest in the Black Canyon joint venture.

Income from discontinued operations

For the three months ended September 30, 2012, discontinued operations reflect the net results of winding down operations of the First Insurance Center property, which was sold in June 2012.

Comparison of the nine months ended September 30, 2013 to

the nine months ended September 30, 2012 (in thousands)



	Total
	2013			2012			$ Change			% Change
Revenue:
Rental	$	16,241		$	17,517		$	(1,276	)	(7.3	)%
Tenant reimbursements	13,145			12,343			802			6.5	%
Property management and other services	—			1,408			(1,408		)	(100.0	)%
Parking	4,248			4,280			(32		)	(0.7	)%
Other	296			376			(80		)	(21.3	)%
Total revenue	33,930			35,924			(1,994		)	(5.6	)%
Expenses:
Rental property operating	20,702			21,218			(516		)	(2.4	)%
General and administrative	1,482			3,609			(2,127		)	(58.9	)%
Tax indemnity	8,725			—			8,725			100.0	%
Depreciation and amortization	8,182			8,778			(596		)	(6.8	)%
Interest	15,065			15,020			45			0.3	%
Total expenses	54,156			48,625			5,531			11.4	%
Loss from continuing operations before equity in net earnings of unconsolidated joint ventures	(20,226		)	(12,701		)	(7,525		)	(59.2	)%
Equity in net earnings of unconsolidated joint ventures	858			668			190			28.4	%
Loss from continuing operations	(19,368		)	(12,033		)	(7,335		)	(61.0	)%
Discontinued operations:
Income from discontinued operations before gains on extinguishment of debt and sale of property	—			749			(749		)	(100.0	)%
Gain on extinguishment of debt	—			2,251			(2,251		)	(100.0	)%
Gain on sale of property	—			5,365			(5,365		)	(100.0	)%
Income from discontinued operations	—			8,365			(8,365		)	(100.0	)%

Net loss	$	(19,368	)	$	(3,668	)	$	(15,700	)	(428.0	)%

Pacific Office Properties Trust, Inc.

Revenues

Rental revenue. Total rental revenue decreased by $1.3 million, or 7.3%, primarily due to decreases in rental revenues at Waterfront Plaza ($1.1 million) and Pan Am Building ($0.1 million) attributable to less leased space from a significant tenant at each location, and at Clifford Center ($0.2 million) primarily due to a move out by a significant tenant, offset by an increase in rental revenues at Davies Pacific Center ($0.1 million) primarily due to new leases.

Tenant reimbursements. Total tenant reimbursements increased by $0.8 million, or 6.5%, primarily due to increased tenant recoveries for common area maintenance expenses at Davies Pacific Center ($0.3 million) and Waterfront Plaza ($0.9 million), offset by a decrease in tenant reimbursements of real property taxes and electricity costs at Waterfront Plaza ($0.3 million) and a decrease in tenant recoveries for common area maintenance expenses at Clifford Center ($0.1 million).

Property management and other services. We earned $1.4 million in property management and other services for the nine months ended September 30, 2012 while our management was internalized. Effective April 1, 2012, we externalized management and no longer provide property management and other related services.

Parking revenue. Total parking revenue decreased by an insignificant amount compared to the prior year period.

Other revenue. Total other revenue decreased by $0.1 million, or 21.3%, primarily due to a refund of interest in the prior year period, related to the City Square property refinancing ($0.1 million), that did not recur in the current year period.

Expenses

Rental property operating expenses. Total rental property operating expenses decreased by $0.5 million, or 2.4%, primarily due to decreases in Hawaii general excise taxes at Waterfront Plaza ($0.1 million) due to a 2011 tax refund received in March 2013, electricity usage at Waterfront Plaza ($0.3 million) and bad debt expenses at Clifford Center ($0.3 million) and Waterfront Plaza ($0.1 million), partially offset by an overall increase in property management fees ($0.3 million) as a result of externalization of management in April 2012.

General and administrative expense. Total general and administrative expense decreased by $2.1 million, or 58.9%, primarily due to the externalization of management effective as of April 1, 2012 ($2.1 million) and decreases in professional fees ($0.1 million) and directors’ fees ($0.1 million), partially offset by an increase in external management’s advisory fees ($0.2 million) in the current year period.

Tax indemnity. We recognized an estimated tax indemnity expense related to the sale of the First Insurance Center property for the nine months ended September 30, 2013.

Depreciation and amortization expense. Total depreciation and amortization expense decreased by $0.6 million, or 6.8%, primarily due to lower expenses attributable to Pan Am Building ($0.2 million) due to certain assets acquired pursuant to our formation transactions in 2008 being fully depreciated, expenses related to disposed tenant improvements of a former tenant at Waterfront Plaza ($0.1 million) in the prior year period and a decrease in depreciation expenses of Clifford Center ($0.3 million) due to a lower asset depreciation basis as a result of the write-down of the property in December 2012.

Interest expense. Total interest expense increased by an insignificant amount compared to the prior year period.

Equity in net earnings of unconsolidated joint ventures

Equity in net earnings of unconsolidated joint ventures increased by $0.2 million for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. The increase is primarily attributable to an increase in earnings from our joint venture ($1.2 million) which sold the Bank of Hawaii Waikiki Center property in February 2013, partially offset by an increase in losses from our POP San Diego joint venture ($0.1 million), from our Black Canyon joint venture ($0.3 million) which recognized a gain on the extinguishment of debt after its foreclosed property was given back to the lender in the prior period and distributions received ($0.7 million) from the SoCal and U.S. Bank joint ventures in the prior period. We no longer own an interest in the Black Canyon, SoCal and U.S. Bank joint ventures.

Pacific Office Properties Trust, Inc.

Income from discontinued operations before gains on extinguishment of debt and sale of property

For the nine months ended September 30, 2012, discontinued operations reflect the net results of operations of the First Insurance Center property, which was sold in June 2012, as well as the operating results of the Sorrento Technology Center property until it was foreclosed on by the lender on January 5, 2012.

Gain on extinguishment of debt

On January 5, 2012, the lender on the Sorrento Technology Center property foreclosed on the loan and took back the property. During the second quarter of 2011, an impairment charge was taken for this property to write the asset down to its fair market value, which was less than the debt. The gain recognized on foreclosure during the nine months ended September 30, 2012 is a result of the write off of this property in its entirety.

Gain on sale of property

We recognized a gain related to the sale of our First Insurance Center property in June 2012.

Cash Flows

Net cash used in operating activities for the Company for the nine months ended September 30, 2013 was $0.6 million compared to net cash provided by operating activities of $0.2 million for the nine months ended September 30, 2012. The decrease in operating cash flows was primarily due to the decrease in cash provided by operating activities ($1.6 million) related to our discontinued operations (First Insurance and Sorrento Technology Center properties) for the nine months ended September 30, 2012, partially offset by a decrease in general and administrative related payments ($0.6 million) as a result of the externalization of management beginning April 1, 2012.

Net cash used in investing activities for the Company for the nine months ended September 30, 2013 was $2.8 million compared to net cash provided by investing activities of $8.6 million for the nine months ended September 30, 2012. The decrease was primarily the result of net proceeds from the sale of our First Insurance Center property ($17.3 million) in June 2012, an increase in leasing commission payments ($0.4 million) and interim financing provided to one of our unconsolidated joint ventures ($0.2 million) during the nine months ended September 30, 2012, partially offset by a decrease in additions to and improvements of real estate ($5.4 million) primarily related to the purchase of the land underlying the Clifford Center property in February 2012, and an increase in distributions from our unconsolidated joint ventures ($1.1 million) during the nine months ended September 30, 2013 primarily related to distributions received from the sale of the Bank of Hawaii Waikiki Center joint venture property in February 2013.

Net cash used in financing activities was $1.4 million for the nine months ended September 30, 2013 compared to net cash provided by financing activities of $2.7 million during the nine months ended September 30, 2012. The decrease was primarily due to proceeds received from a mortgage note payable for a portion of the Clifford Center land purchase consideration ($4.9 million) during the nine months ended September 30, 2012, partially offset by a decrease in Senior Common Stock dividends paid during the nine months ended September 30, 2013 ($0.3 million) and the payment on settlement of debt associated with the Sorrento Technology Center loan foreclosure ($0.4 million) during the nine months ended September 30, 2012.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our stockholders and other general business needs. In order to qualify as a REIT, we must distribute to our stockholders, each calendar year, at least 90% of our REIT taxable income. As discussed further below, however, we did not declare dividends on our Class A Common Stock during fiscal 2012 and 2011, and we do not currently expect to declare dividends on our Class A Common Stock during fiscal 2013.

Our business is capital intensive and our ability to maintain our operations depends on our cash flow from operations and our ability to raise additional capital on acceptable terms. Our primary focus is to preserve and generate cash. Our return to external management, which was effective April 1, 2012, and related actions reflect our determination to improve operating cash flow by reducing costs as much as reasonably practicable. Externalizing management and taking related actions have enabled us to reduce our number of officers and directors and eliminate all employee positions. However, this streamlining also eliminated the full-time workforce previously dedicated to our investment, divestment and capital markets activities and we expect to require additional personnel if we resume substantial activities of this nature.

Pacific Office Properties Trust, Inc.

Actual and Potential Sources of Liquidity

Listed below are our actual and potential sources of liquidity in 2013, which we currently believe will be sufficient to fund our short-term liquidity needs:


•	Unrestricted and restricted cash on hand;


•	Net cash flow generated from operations;


•	Contribution of additional existing wholly-owned assets to joint ventures; and/or


•	Asset dispositions.

These sources are essential to our short-term liquidity and financial position, and we cannot assure you that we will be able to successfully access them (particularly in the current economic environment). If we are unable to generate adequate cash from these sources, we will have liquidity-related problems and may be exposed to significant risks. For a further discussion of such risks, see Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2012.

Unrestricted and restricted cash on hand

As of September 30, 2013, we had $16.5 million in unrestricted cash and cash equivalents. In addition, we had restricted cash balances of $3.9 million. A summary of our restricted cash reserves is as follows (in thousands):



	September 30, 2013
Tax, insurance and other working capital reserves	$	976
Leasing and capital expenditure reserves	639
Ground lease reserves	1,528
Collateral accounts	771
Total restricted cash	$	3,914

The ground lease, leasing and capital expenditure, tax, insurance and other working capital reserves are held in restricted accounts by our lenders in accordance with the terms of our mortgage loans. These restricted cash accounts are expected to fund (1) anticipated leasing expenditures (primarily commissions and tenant improvement costs) for existing and prospective tenants, (2) non-recurring discretionary capital expenditures, (3) payments for properties subject to ground leases, and (4) property taxes and insurance. The collateral accounts are held by our lenders under our other obligations.

Net cash flow generated from operations

Our cash flows from operations depend significantly on market rents and the ability of our tenants to make rental payments. While we believe the diversity and high credit quality of our tenants help mitigate the risk of a significant interruption of our cash flows from operations, the challenging economic conditions that we are continuing to experience, the potential for an increase in interest rates, or the possibility for a downturn or return to recessionary conditions could adversely impact our operating cash flows. Competition to attract and retain high credit-quality tenants remains intense. At the same time, a significant number of our leases at our properties are scheduled to expire over the next several years, and the capital requirements necessary to maintain our

Pacific Office Properties Trust, Inc.

current occupancy levels, including payment of leasing commissions, tenant concessions, and anticipated leasing expenditures, could increase. As such, we will continue to closely monitor our tenant renewals, rental rates, competitive market conditions and our cash flows.

Contribution of additional existing wholly-owned assets to joint ventures

We are currently partners with third parties in five joint ventures, including two joint ventures into which we contributed our Pacific Business News Building and City Square properties in the second quarter of 2011. In the near term or longer term, we may seek to raise capital by contributing one or more of our existing wholly-owned assets to a joint venture with a third party. Investments in joint ventures may, under certain circumstances, involve risks not present were a third party not involved. Our ability to successfully identify, negotiate and close joint venture transactions on acceptable terms or at all is highly uncertain in the current economic environment.

Asset dispositions

In the near term or longer term, we may seek to raise additional capital by selling some or all of our existing wholly-owned assets, but our ability to do so on acceptable terms or at all is highly uncertain. Moreover, a sale of any of the properties contributed by POP Venture, LLC, or Venture, in connection with our formation transactions in March 2008 (specifically, the Waterfront Plaza, Davies Pacific Center, Pan Am Building, First Insurance Center, Pacific Business News Building, Clifford Center, Sorrento Technology Center, City Square and Seville Plaza properties) that would not provide continued tax deferral to Venture is contractually restricted for ten years after the closing of the transactions related to such properties. These restrictions on the sale of such properties may prevent us from selling the properties or may adversely impact the terms available to us upon a disposition. In addition, we have agreed that, during such ten-year period, we will not prepay or defease any mortgage indebtedness of such properties, other than in connection with a concurrent refinancing with non-recourse mortgage debt of an equal or greater amount and subject to certain other restrictions. Furthermore, if any such sale or defeasance is foreseeable, we are required to notify Venture and to cooperate with it in considering strategies to defer or mitigate the recognition of gain under the Code. These contractual obligations may limit our future operating flexibility and compel us to take actions or enter into transactions that we otherwise would not undertake. If we fail to comply with any of these requirements, we may be liable for a make-whole cash payment to Venture, the cost of which could be material and could adversely affect our liquidity.

In May 2011, we defaulted on our loan secured by the Sorrento Technology Center property. We ceased making the required debt service payments on the loan and on June 6, 2011, we received a notice of default. On January 5, 2012, the lender foreclosed on the loan and took back the property. The loan required us to deposit letters of credit totaling $0.6 million in the event that certain tenants ceased occupancy, went dark or gave us notice of their intent to vacate the property. Although the loan was foreclosed, the lender sought collection on this obligation. We reached an agreement with the lender under which the lender accepted a reduced amount and we paid $0.4 million, as final settlement, during the first quarter of 2012. Also, as a result of the foreclosure action, certain contract parties may claim they are entitled to a make-whole cash payment under the tax protection agreements relating to the property. We do not believe that this foreclosure requires indemnity under the tax protection agreements. However, if the contract parties contest this interpretation and are successful, we believe that liability would not exceed $3.0 million, which is the estimated approximate built-in gain associated with the property multiplied by the highest applicable tax rate, plus a gross-up amount. Because we had previously written down the property, we recognized a gain on the foreclosure of $2.3 million in the first quarter of 2012.

In June 2012, we completed the sale of our fee and leasehold interests in our First Insurance Center property, located in Honolulu, Hawaii, to an unaffiliated third party for aggregate consideration of $70.5 million (including the assumption of $52 million in existing debt encumbering the property). As a result of the sale, certain contract parties have claimed they are entitled to a make-whole cash payment under tax protection agreements relating to the property. We do not believe that liability under these agreements would exceed $9.1 million, which is the estimated approximate built-in gain associated with the property multiplied by the highest applicable tax rate, plus a gross-up amount. During the third quarter of 2013, we held settlement discussions with certain claimants regarding these tax protection agreements. Although we have not yet reached agreement with these claimants, we believe that these discussions form a basis for reasonably estimating liability under these agreements. Accordingly, we have accrued $8.7 million for such liability which is included in “Accounts payable and other liabilities” in the accompanying consolidated balance sheet as of September 30, 2013. We expect to reach agreement on this matter in the fourth quarter of 2013.

Pacific Office Properties Trust, Inc.

Actual and Potential Uses of Liquidity

The following are the actual and potential uses of our cash in 2013. Because of the current uncertainty in the real estate market and the economy as a whole, there may be other uses of our cash that are unexpected (and that are not identified below):


•	Property operating and corporate expenses;


•	Capital expenditures (including building and tenant improvements and leasing commissions);


•	Debt service and financing costs; and/or


•	Dividends to stockholders and distributions to limited partners of our Operating Partnership.

Property operating and corporate expenses

We are focused on ensuring our properties are operating as efficiently as possible.

We internalized our management by acquiring Pacific Office Management effective as of February 1, 2011. Through March 31, 2012, we employed our executive officers and other employees through Pacific Office Management, which is a subsidiary. By employing personnel, we became subject to potential liabilities commonly faced by employers, such as workers’ disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances. We also became responsible for all costs previously incurred by Pacific Office Management in the management of our Company, but we were relieved of the $0.8 million annual advisory fee.

Effective April 1, 2012, we became externally advised by Shidler Pacific Advisors. Our return to external management, and related actions, reflect our determination to reduce costs as much as reasonably practicable in the near future. Our related actions include delisting our Class A Common Stock from the NYSE Amex, which was effective as of April 5, 2012, and facilitating the departure of Messrs. Ingebritsen and Root from our employment. Externalizing management and these related actions have enabled us to reduce our number of officers and directors and eliminate all full-time employee positions and reduce our operating costs. This streamlining eliminated the full-time workforce previously dedicated to our investment, divestment and capital markets activities. We do not expect to pursue these activities in the near future. We therefore believe that Shidler Pacific Advisors can provide adequate personnel resources, at a lower cost to us, for our current and prospective business. We expect to require additional personnel if we resume substantial activities of this nature.

Capital expenditures (including building and tenant improvements and leasing commissions)

Debt service and financing costs

As of September 30, 2013, our total consolidated debt (which includes our mortgage and other loans with a carrying value of $297.5 million and our unsecured promissory notes with a carrying value of $21.1 million) was $318.6 million, with a weighted average interest rate of 5.76% and a weighted average remaining term of 2.64 years. Our unsecured promissory notes of $21.1 million were scheduled to mature on various dates commencing on March 19, 2013 through August 31, 2013; however, we have extended the maturity of each of these promissory notes for one additional year. In addition, our fully drawn unsecured credit facility of $25 million is scheduled to mature on December 31, 2013. We intend to work with the lender on amending the terms of the credit facility in order to extend the maturity date, but there can be no assurance that we will be successful in doing so. See “Indebtedness” below for additional information with respect to our consolidated debt.

In May 2013, we agreed to provide short-term financing in the total amount of $0.5 million to one of our unconsolidated joint ventures. We funded $0.2 million of this amount during the third quarter of 2013. This loan bears interest at the annual compounded rate of 12% and matures at the earlier of April 30, 2014 or the sale or disposition of one of the properties included in the portfolio of the joint venture.

Pacific Office Properties Trust, Inc.

Dividends to stockholders and distributions to limited partners of our Operating Partnership

Because we conduct substantially all of our operations through our Operating Partnership, our ability to pay dividends depends almost entirely on distributions received on our interests in our Operating Partnership, the payment of which depends in turn on our ability to operate profitably and generate cash flow from our operations. Our ability to pay dividends to holders of our Class A Common Stock depends on our Operating Partnership’s ability first to satisfy its obligations to its creditors and preferred unitholders (including us with respect to the outstanding Senior Common Units of our Operating Partnership, and then to the holder of the outstanding Preferred Units of our Operating Partnership) and then to make distributions to us with respect to our general partnership interest. Our Operating Partnership may not make distributions to the holders of its outstanding Common Units (including us with respect to our general partnership interest) unless full cumulative distributions have been paid on its outstanding Senior Common Units and Preferred Units, and we may not pay dividends on our Class A Common Stock unless full cumulative dividends have been paid on our outstanding Senior Common Stock.

We did not declare a dividend on our Class A Common Stock during 2012, and do not currently expect to declare a dividend on our Class A Common Stock in 2013. Furthermore, our Operating Partnership did not pay a distribution with respect to its outstanding Preferred Units or Common Units during 2012, and does not expect to do so for 2013. As noted above, unless full cumulative distributions have been paid on the outstanding Senior Common Units and Preferred Units, our Operating Partnership may not pay a distribution on its outstanding Common Units (including us with respect to our general partnership interest), which effectively means that we will be unable to declare dividends on our Class A Common Stock unless and until all cumulative dividends and distributions have been paid with respect to the Senior Common Stock and the Preferred Units.

As part of ongoing cost-cutting measures and in light of our focus on the preservation of cash, our board of directors has authorized dividends on the Senior Common Stock for the period commencing May 1, 2013 through November 30, 2013 at half the stated annualized rate. The difference between the stated dividend and the paid dividend will accrue until paid in full. We believe that these cost-cutting measures are in the best interests of the Company and its stockholders as they preserve a greater amount of our cash in order to fund required leasing and capital improvements for our properties with the goal of maximizing the value of our properties.

Amounts accumulated for distribution to stockholders and Operating Partnership unitholders are invested primarily in interest-bearing accounts which are consistent with our intention to maintain our qualification as a REIT. At September 30, 2013, the cumulative unpaid distributions attributable to Preferred Units were $6.2 million, which we do not anticipate to pay in 2013.

We cannot provide any assurance as to when, or if, we will pay the accrued dividends on the Senior Common Stock or resume the payment of dividends at the full stated annualized rate, or if we will continue to pay dividends on the Senior Common Stock at half the stated annualized rate or at all. Any dividends or other distributions we pay in the future will depend upon our legal and contractual restrictions, including the provisions of the Senior Common Stock, as well as actual results of operations, economic conditions, debt service requirements and other factors. Our actual results of operations will be affected by a number of factors, including the revenue we receive from our properties, our operating expenses, interest expense, the ability of our tenants to meet their obligations and unanticipated expenditures. For a further discussion of such risks, see Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012.

Pacific Office Properties Trust, Inc.

Indebtedness

Mortgage and Other Loans

The following table sets forth information relating to the material borrowings with respect to our properties and our revolving line of credit as of September 30, 2013. Unless otherwise indicated in the footnotes to the table, each loan requires monthly payments of interest only and balloon payments at maturity, and all dollars are reported in thousands:



Property	Amount			Interest Rate	Maturity Date	Principal Balance Due at Maturity Date		Prepayment/ Defeasance
Clifford Center	$	2,243		4.375%	8/15/2014	$	1,896	⁽¹⁾
Clifford Center Land	4,684			4.00%	2/17/2017	4,255		⁽²⁾
Pan Am Building	60,000			6.17%	8/11/2016	60,000		⁽³⁾
Waterfront Plaza	100,000			6.37%	9/11/2016	100,000		⁽⁴⁾
Waterfront Plaza	11,000			6.37%	9/11/2016	11,000		⁽⁵⁾
Davies Pacific Center	95,000			5.86%	11/11/2016	95,000		⁽⁶⁾
Subtotal	272,927
Revolving line of credit⁽⁷⁾	25,000			1.10%	12/31/2013	25,000
Outstanding principal balance	297,927
Less: Unamortized discount, net	(437		)
Net	$	297,490


(1)	Loan is prepayable, subject to prepayment premium equal to greater of 2% of amount prepaid or yield maintenance.


(2)	Loan may be prepaid at any time with 10 days prior written notice. Monthly payments include principal and interest.


(3)	Loan is prepayable subject to prepayment premium equal to greater of 1% of principal balance of loan or yield maintenance. No premium is due after May 11, 2016.


(4)	Loan may be prepaid subject to payment of a yield maintenance-based prepayment premium; no premium is due after June 11, 2016. Loan may also be defeased.


(5)	Loan may be prepaid subject to payment of a yield maintenance-based prepayment premium; no premium is due after June 11, 2016.


(6)	Loan is prepayable, subject to prepayment premium equal to greater of 1% of amount prepaid or yield maintenance. No premium is due after August 11, 2016.


(7)	The revolving line of credit matures on December 31, 2013. See “Revolving Line of Credit” below.

Revolving Line of Credit

On September 2, 2009, we entered into a Credit Agreement, referred to as the FHB Credit Facility, with First Hawaiian Bank, or the Lender. The FHB Credit Facility initially provided us with a revolving line of credit in the principal sum of $10.0 million. On December 31, 2009, we amended the FHB Credit Facility to increase the maximum principal amount available for borrowing under the revolving line of credit to $15.0 million. On May 25, 2010, we entered into an amendment with the Lender to increase the maximum principal amount available for borrowing thereunder from $15.0 million to $25.0 million and to extend the maturity date from September 2, 2011 to December 31, 2013. Amounts borrowed under the FHB Credit Facility bear interest at a fluctuating annual rate equal to the effective rate of interest paid by the Lender on time certificates of deposit, plus 1.00%. We are permitted to use the proceeds of the line of credit for working capital and general corporate purposes, consistent with our real estate operations and for such other purposes as the Lender may approve. As of September 30, 2013 and December 31, 2012, we had outstanding borrowings of $25.0 million under the FHB Credit Facility.

As security for the FHB Credit Facility, as amended, Shidler LP, a Hawaii limited partnership controlled by Mr. Shidler, has pledged to the Lender a certificate of deposit in the principal amount of $25.0 million. As a condition to this pledge, the Operating Partnership and Shidler LP entered into an indemnification agreement pursuant to which the Operating Partnership agreed to indemnify Shidler LP from any losses, damages, costs and expenses incurred by Shidler LP in connection with the pledge. In

Pacific Office Properties Trust, Inc.

addition, to the extent that all or any portion of the certificate of deposit is withdrawn by the Lender and applied to the payment of principal, interest and/or charges under the FHB Credit Facility, the Operating Partnership agreed to pay to Shidler LP interest on the withdrawn amount at a rate of 7.00% per annum from the date of the withdrawal until the date of repayment in full by the Operating Partnership to Shidler LP. Pursuant to this indemnification agreement, as amended, the Operating Partnership also agreed to pay to Shidler LP an annual fee of 2.00% of the entire $25.0 million principal amount of the certificate of deposit.

Subordinated Promissory Notes

As of September 30, 2013 and December 31, 2012, we had promissory notes payable to certain affiliates in the aggregate principal amount of $21.1 million, which were originally issued as consideration to the affiliates, for having funded certain capital improvements prior to the completion of our formation transactions and upon the exercise of an option granted to us by Venture and its affiliates as part of our formation transactions. The promissory notes accrue interest at a rate of 7% per annum, with interest payable quarterly, subject to the Operating Partnership’s right to defer the payment of interest for any or all periods up until the date of maturity. The promissory notes were scheduled to mature on various dates commencing on March 19, 2013 through August 31, 2013, but the Operating Partnership could elect to extend maturity for one additional year. We have extended the maturity of these promissory notes for the additional year. Maturity accelerates upon the occurrence of a) an underwritten public offering of at least $75 million of our common stock; b) the sale of substantially all the assets of the Company; or c) the merger of the Company with another entity. The promissory notes are unsecured obligations of the Operating Partnership.

For the period from March 20, 2008 through September 30, 2013, interest payments on the outstanding unsecured notes payable to related parties have been deferred with the exception of $0.3 million which was related to the notes exchanged for shares of common stock in 2009. At September 30, 2013 and December 31, 2012, $9.6 million and $8.1 million, respectively, of accrued interest attributable to unsecured notes payable to related parties is included in “Accounts payable and other liabilities” in the accompanying consolidated balance sheets.

Off-Balance Sheet Arrangements

The mortgage debt that we maintain for our consolidated properties and unconsolidated joint venture properties is typically property-specific debt that is non-recourse to our Operating Partnership, except for customary recourse carve-outs for borrower misconduct and environmental liabilities. The recourse liability for borrower misconduct and environmental liabilities was guaranteed by Mr. Reynolds. Our Operating Partnership has agreed to indemnify Mr. Reynolds to the extent of his guaranty liability. This debt strategy isolates mortgage liabilities in separate, stand-alone entities, allowing us to have only our property-specific equity investment at risk, except to the extent of the recourse carve-outs. In management’s judgment, it would be remote for us to incur any material liability under these indemnities that would have a material adverse effect on our financial condition, results of operations or cash flows.

Inflation

We are exposed to inflation risk, as income from long-term leases is the primary source of our cash flows from operations. Because the majority of our leases require tenants to pay most operating expenses, including real estate taxes, utilities, insurance, and increases in common area maintenance expenses, we do not believe our exposure to increases in costs and operating expenses resulting from inflation is material. Furthermore, the majority of our existing leases contain contractual annual rental rate increases, which will at least partially offset the effect of inflation on our operating results.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures -

As required by Rule 13a-15(b) of the Exchange Act, in connection with the filing of this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive

Pacific Office Properties Trust, Inc.

Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2013, the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting -

There have been no changes in our internal control over financial reporting that occurred during the quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Pacific Office Properties Trust, Inc.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

We are not currently a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, are expected by us to have a material effect on our business, financial condition or results of operation if determined adversely to us.

Item 1A. Risk Factors.

Important factors that could cause our actual results to be materially different from the forward-looking statements include the risks factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012. There have been no material changes to the risk factors set forth in that report. In addition to the other information set forth in this report, you should carefully consider those risk factors, which could materially affect our business, financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.



Exhibit No.		Description

3.1		Articles of Amendment and Restatement of the Company (previously filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (File No. 001-09900) and incorporated herein by reference).

3.2		Articles Supplementary of the Company dated November 20, 2009 (previously filed as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (File No. 001-09900) and incorporated herein by reference).

3.3		Articles of Amendment of the Company dated November 20, 2009 (previously filed as Exhibit 3.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (File No. 001-09900) and incorporated herein by reference).

3.4		Articles of Amendment of the Company dated January 5, 2010 (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed January 5, 2010 (File No. 001-09900) and incorporated herein by reference).

3.5		Articles Supplementary of Board of Directors Reclassifying and Designating a series of common stock as Senior Common Stock, dated March 4, 2010 (previously filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed March 9, 2010 (File No. 001-09900) and incorporated herein by reference).

3.6		Certificate of Correction to Articles Supplementary, dated April 30, 2010 (previously filed as Exhibit 3.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (File No. 001-09900) and incorporated herein by reference).

3.7		Articles of Amendment of the Company dated November 1, 2010 (previously filed as Exhibit 3.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File No. 001-09900) and incorporated herein by reference).

Pacific Office Properties Trust, Inc.



Exhibit No.		Description
3.8		Articles of Amendment of the Company dated May 21, 2012 (previously filed as Exhibit 3.8 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 (File No. 001-09900) and incorporated herein by reference).

3.9		Amended and Restated Bylaws dated December 20, 2010 (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed December 27, 2010 (File No. 001-09900) and incorporated herein by reference).

31.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Furnished herewith.)

101		Interactive Data File. (Furnished herewith.)

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		PACIFIC OFFICE PROPERTIES TRUST, INC.

Date:	November 6, 2013	By:	/s/ Lawrence J. Taff
			Lawrence J. Taff
			Chief Executive Officer and Chief Financial Officer
			(Principal Executive Officer and Principal Financial Officer)