The following discussion should be read in conjunction with the consolidated financial statements and the related notes thereto that appear in Item 1 of this Quarterly Report on Form 10-Q. The following discussion of the Company's financial information was significantly affected by the consummation of the Transactions. In accordance with SFAS No. 141, Waterfront, which had the largest interest in Venture, was designated as the acquiring entity in the business combination for financial accounting purposes. Accordingly, historical financial information for Waterfront has also been presented in this Quarterly Report on Form 10-Q through the Effective Date. Additional explanatory notations are contained in this Quarterly Report on Form 10-Q to distinguish the historical information of Waterfront from that of the Company.

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 21E of 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," "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 regarding the acquisition of certain option properties 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. Specifically, there can be no assurance that we will complete the acquisitions of the option properties on favorable terms or at all.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. 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" below. 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 Form 10-K, Forms 10-Q and Forms 8-K to the Securities and Exchange Commission.

Overview

The Company is a Maryland corporation which has elected to be treated as a real estate investment trust (a "REIT") under the Internal Revenue Code of 1986. We are primarily focused on owning and operating high-quality office properties in the western United States, concentrating initially on the four high-growth markets of Honolulu, San Diego, Los Angeles, and Phoenix.

Through the Operating Partnership we own whole interests in eight fee simple and leasehold office properties and managing ownership interests in six joint ventures holding fifteen office properties. The Property Portfolio is approximately 4.4 million rentable square feet, see the table in note "1. Organization and Ownership" for a breakdown between wholly-owned and joint venture properties. We are advised by Pacific Office Management, Inc., a Delaware corporation (the "Advisor"), an entity owned and controlled by Jay H. Shidler, our Chairman of the Board, and certain related parties of The Shidler Group, pursuant to an advisory agreement dated as of March 19, 2008 (the "Advisory Agreement"). The Advisor is responsible for the day-to-day operation and management of the Company.

Our property statistics as of September 30, 2008 for our wholly-owned properties are as follows:

                                                            LEASABLE
               PROPERTY                          MARKET      SQ. FT.
               Waterfront Plaza                 Honolulu      534,475
               500 Ala Moana Boulevard
               Davies Pacific Center            Honolulu      353,224
               841 Bishop Street
               Pan Am Building                  Honolulu      209,889
               1600 Kapiolani Boulevard
               First Insurance Center           Honolulu      202,992
               1100 Ward Avenue
               Pacific Business News Building   Honolulu       90,559
               1833 Kalakaua Avenue
               Clifford Center                  Honolulu       72,415
               810 Richards Street
               City Square                       Phoenix      754,127
               3800 North Central Avenue
               3838 North Central Avenue
               4000 North Central Avenue
               Sorrento Technology Center       San Diego      63,363
               10140 Barnes Canyon Road
               10180 Barnes Canyon Road

                                                            2,281,044

We also own managing ownership interests in six joint ventures which own commercial office properties (the "Unconsolidated Joint Ventures"). The Unconsolidated Joint Ventures are accounted for under the equity method of accounting. Property statistics as of September 30, 2008 for our Unconsolidated Joint Ventures are as follows:

                                                           LEASABLE    PERCENTAGE
    PROPERTY                                  MARKET        SQ. FT.    OWNERSHIP
    Seville Plaza                            San Diego       138,576         7.50 %
    5469 Kearny Villa Road
    5471 Kearny Villa Road
    5473 Kearny Villa Road
    Torrey Hills Corporate Center            San Diego        24,066        32.17 %
    11250 El Camino Real
    Palomar Heights                          San Diego        51,679        32.17 %
    5860 Owens Avenue (Building A)
    5876 Owens Avenue (Building B)
    5868 Owens Avenue (Building C)
    Palomar Heights Corporate Center         San Diego        64,812        32.17 %
    5857 Owens Avenue (Corporate Center)
    Scripps Ranch Business Park 1            San Diego        47,248        32.17 %
    9775 Business Park Avenue
    10021 Willow Creek Road
    Black Canyon Corporate Center             Phoenix        221,784        17.50 %
    16404 N. Black Canyon Highway
    U.S. Bank Center                          Phoenix        388,783         7.50 %
    101 N. First Avenue
    21 West Van Buren Street
    Bank of Hawaii Waikiki Center            Honolulu        152,288        17.50 %
    2155 Kalakaua Avenue
    South Coast Executive Center           Orange County      61,025        10.00 %
    1503 South Coast Drive
    Via Frontera Business Park               San Diego        78,819        10.00 %
    10965 Via Frontera Drive
    10993 Via Frontera Drive
    13550 Stowe Drive (Poway)                San Diego       112,000        10.00 %
    Carlsbad Corporate Center                San Diego       125,000        10.00 %
    1950 Camino Vida Roble
    Savi Tech Center                       Orange County     372,327        10.00 %
    Savi Tech -22705 Savi Ranch Parkway
    Savi Tech -22715 Savi Ranch Parkway
    Savi Tech -22725 Savi Ranch Parkway
    Savi Tech -22745 Savi Ranch Parkway
    Yorba Linda Business Park              Orange County     166,042        10.00 %
    22343 La Palma Avenue
    22345 La Palma Avenue
    22347 La Palma Avenue
    22349 La Palma Avenue
    22833 La Palma Avenue
    Gateway Corporate Center                San Gabriel       85,216        10.00 %
    1370 Valley Vista Drive

                                                           2,089,665

Our corporate strategy is to continue to own high-quality office buildings concentrated in our target markets. Our leasing strategy focuses on executing long-term leases with creditworthy tenants. The success of our leasing strategy is dependent upon the general economic conditions of our target markets. Historically, the Property Portfolio has been leased to tenants on both a full service gross and net lease basis. A full service gross lease has a base year expense stop, whereby the tenant pays a stated amount of expenses as part of the rent payment, while future increases (above the base year stop) in property operating expenses are billed to the tenant based on the tenant's proportionate square footage in the property. The increased property operating expenses billed are reflected in operating expense and amounts recovered from tenants are reflected as tenant recoveries in the statements of operations. In a net lease, the tenant is responsible for all property taxes, insurance, and operating expenses. As such, the base rent payment does not include operating expenses, but rather all such expenses are billed to the tenant. The full amount of the expenses for this lease type is reflected in operating expenses, and the reimbursement is reflected in tenant recoveries. We expect to emphasize net leases in the future, although we expect some leases will remain gross leased in the future due to tenant expectations and market customs.

The Transactions Included in the Master Agreement

On the Effective Date we consummated the Transactions included in the Master Agreement. As part of the Transactions, AZL merged with and into its wholly-owned subsidiary, with the subsidiary as the surviving corporation (the "Reincorporation"). Substantially all of the assets and certain liabilities of AZL and substantially all of the commercial real estate assets and related liabilities of Venture were contributed to a newly formed partnership, the Operating Partnership, in which we became the sole general partner and Venture became a limited partner.

In consideration for the acquired property interests, the Operating Partnership issued to Venture 13,576,165 common units (the "Common Units") and 4,545,300 preferred units (the "Preferred Units"). The Common Units are convertible into shares of our Common Stock no earlier than two years after the Effective Date. Each Preferred Unit is convertible into 7.1717 Common Units, but no earlier than the later of two years after the Effective Date and an underwritten public offering (of at least $75 million) by us of our common stock is consummated. Upon conversion of the Preferred Units to Common Units, the Common Units are exchangeable on a one-for-one basis for shares of our common stock, but no earlier than one year after the date of their conversion from Preferred Units to Common Units.

As a result of the Reincorporation, AZL's common stock, which traded under the symbol "AZL," ceased trading on the American Stock Exchange ("AMEX") following the close of trading on March 19, 2008. On March 20, 2008, the Common Stock began trading on AMEX under the symbol "PCE." For purposes of Rule 12g-3(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company is the successor issuer to AZL.

Market Information

Market and industry data and other statistical information used throughout this section are based on independent industry publications, including CB Richard Ellis as it relates to our Honolulu office market and Grubb & Ellis as it relates to all our other office markets. Some data are also based on our good faith estimates, which are derived from our review of management's knowledge of the industry and independent sources. Although we are not aware of any misstatements regarding the industry data that we present in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under "Risk Factors" and "Note Regarding Forward-Looking Statements."

Honolulu Office Market

We have seven properties that represent approximately 1,490,200 effective square feet (or 58.5% of our Effective Portfolio) located in the Honolulu office submarkets of Honolulu Downtown (Central Business District), Waikiki and Kapiolani at September 30, 2008. These office submarkets, based on a combined weighted average, experienced net positive absorption of approximately 11,500 square feet during the third quarter of 2008. Based on a combined weighted average, the total percent occupied within these submarkets increased by 134 basis points from 89.21% occupied as of June 30, 2008 to 90.55% occupied as of September 30, 2008. During the third quarter of 2008, average asking rents remained flat at $36.60 per square foot annually as of June 30, 2008 and September 30, 2008.

Phoenix Office Market

We have three properties that represent approximately 822,100 effective square feet (or 32.3% of our Effective Portfolio) located in the Phoenix office submarkets of Phoenix Downtown North, Downtown South and Deer Valley at September 30, 2008. These office submarkets, based upon a combined weighted average, experienced net positive absorption of approximately 51,000 square feet during the third quarter of 2008. Based on a combined weighted average, the total percent occupied within these submarkets increased by 32 basis points from 83.89% occupied as of June 30, 2008 to 84.21% occupied as of September 30, 2008. During the third quarter of 2008, average asking rents decreased by 1.92% from $28.60 per square foot annually as of June 30, 2008 to $28.05 per square foot annually as of September 30, 2008.

San Diego Office Market

We have nine properties that represent approximately 165,700 effective square feet (or 6.5% of our Effective Portfolio) located in the San Diego office submarkets of San Diego North County and Central County at September 30, 2008. These office submarkets, based upon a combined weighted average, experienced net negative absorption of approximately 394,600 square feet during the third quarter of 2008. Based on a combined weighted average, the total percent occupied within these submarkets increased by 38 basis points from 85.52% occupied as of June 30, 2008 to 85.90% occupied as of September 30, 2008. During the third quarter of 2008, average asking rents decreased by 2.34% from $29.92 per square foot annually as of June 30, 2008 to $29.22 per square foot annually as of September 30, 2008.

Orange County Office Market

We have three properties that represent approximately 59,900 effective square feet (or 2.4% of our Effective Portfolio) located in the North and South submarkets of Orange County at September 30, 2008. These office submarkets, based upon a combined weighted average, experienced net negative absorption of approximately 137,700 square feet during the third quarter of 2008. Based on a combined weighted average, the total percent occupied within these submarkets decreased by less than 1 basis point from 85.70% occupied as of June 30, 2008 to 85.69% occupied as of September 30, 2008. During the third quarter of 2008, average asking rents decreased by 1.07% from $25.33 per square foot annually as of June 30, 2008 to $25.06 per square foot annually as of September 30, 2008.

Los Angeles Office Market

We have one property that represents approximately 8,500 effective square feet (less than 1% of our Effective Portfolio) located in the San Gabriel office submarket of Los Angeles County at September 30, 2008. This office submarket experienced net positive absorption of approximately 28,400 square feet during the third quarter of 2008. The total percent occupied within this submarket decreased by 50 basis points from 92.80% occupied as of June 30, 2008 to 92.30% occupied as of September 30, 2008. During the third quarter of 2008, average asking rents decreased by 1.79% from $26.88 per square foot annually as of June 30, 2008 to $26.40 per square foot annually as of September 30, 2008.

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 GAAP. The preparation of these 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 financial statements and the reported amount of revenues and expenses in the reporting period. Actual amounts may differ from these estimates and assumptions. Summarized below are those accounting policies that require material subjective or complex judgments and that have the most significant impact on financial conditions and results of operations. 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.

Investment in Real Estate. In accordance with SFAS No. 141, Business Combinations, the entity with the largest equity balance, Waterfront, was designated as the acquiring entity in the business combination for financial accounting purposes, and its assets and liabilities have been recorded at their historical cost basis. In that regard, substantially all of the commercial real estate assets and related liabilities of Venture and substantially all of the assets and certain liabilities of AZL were deemed to be acquired by Waterfront. The commercial real estate assets of Venture that were deemed to be acquired by Waterfront consisted of the Contributed Properties. Further, the assets of AZL deemed to be acquired by Waterfront primarily consisted of cash and cash equivalents, investments in marketable securities, other assets and related liabilities. Immediately prior to the Effective Date, Mr. Shidler owned a 56.25% controlling interest in Waterfront but did not own a controlling interest in the other Contributed Properties. However, Mr. Shidler did have a controlling interest in Venture whereby he had the power to direct the transfer of the Contributed Properties to the Operating Partnership. Accordingly, Mr. Shidler's transfer of his ownership interests in the remaining Contributed Properties to Waterfront, the accounting acquirer he controls, was deemed to be a transfer under common control. In accordance with EITF No. 90-5; Exchanges of Ownership Interests between Entities under Common Control, Mr. Shidler's ownership interests in the Contributed Properties are recorded at historical cost. Ownership interests in the Contributed Properties not owned by Mr. Shidler are recorded at the estimated fair value of the acquired assets and assumed liabilities.

In accordance with EITF No. 99-12; "Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination", the price of the common stock of AZL was determined to be $5.10 per share at the Effective Date. The fair value of a Preferred Unit at the Effective Date was estimated to be $37.31 after taking into account the AZL common stock price of $5.10, determined under EITF No. 99-12, and various other factors that determine the value of a convertible security.

Acquisitions of properties and other business combinations are accounted for using the purchase method and, accordingly, the results of operations of acquired properties are included in our result of operations from the respective dates of acquisition. Estimates of future cash flows and other valuation techniques are used to allocate the purchase price of acquired property between land, buildings and improvements, equipment and identifiable intangible assets and liabilities such as amounts related to in-place market leases, acquired below and above market leases and tenant relationships. Initial valuations are subject to change until such information is finalized no later than 12 months from the acquisition date. Each of these estimates requires a great deal of judgment, and some of the estimates involve complex calculations. These allocation assessments have a direct impact on our results of operations because if we were to allocate more value to land there would be no depreciation with respect to such amount. If we were to allocate more value to the buildings as opposed to tenant leases, this amount would be recognized as an expense over a much longer period of time, since the amounts allocated to buildings are depreciated over the estimated lives of the buildings whereas amounts allocated to tenant leases are amortized over the remaining terms of the leases.

Land, buildings and improvements, and furniture, fixtures and equipment are recorded at cost. 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 18 to 46 years. Tenant improvement costs recorded as capital assets are depreciated over the shorter of (i) the tenant's remaining lease term or
(ii) the life of the improvement. Furniture, fixtures and equipment are depreciated over three to seven years. Acquired ground leases are depreciated over the remaining life of the related leases as of the date of assumption of the lease.

Impairment of Long-Lived Assets. As required by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, management assesses the potential for impairment of its long-lived assets, including real estate properties, whenever events occur or a change in circumstances indicate that the recorded value might not be fully recoverable. Management determines whether impairment in value has occurred by comparing the estimated future undiscounted cash flows expected from the use and eventual disposition of the asset to its carrying value. If the undiscounted cash flows do not exceed the carrying value, the real estate carrying value is reduced to fair value and impairment loss is recognized. We did not recognize an impairment loss during the three month period ended September 30, 2008.

Goodwill. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the excess cost of an acquired entity over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed is recorded 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, 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. We did not recognize an impairment loss during the three month period ended September 30, 2008.

Revenue Recognition. Revenue and gain is recognized in accordance with Staff Accounting Bulletin No. 104 of the Securities and Exchange Commission, Revenue Recognition in Financial Statements ("SAB 104"), as amended. SAB 104 requires that four basic criteria must be met before revenue can be recognized:

• 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 leases are classified as operating leases. For all lease terms exceeding one year, rental income is recognized on a straight-line basis over the terms of the leases. Deferred rent receivables represent rental revenue recognized on a straight-line basis in excess of billed rents. Reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as revenues in the period the applicable costs are incurred.

Rental revenue from 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 rental income in the accompanying consolidated statements of operations, are recognized when the related leases are canceled and where no corresponding continuing obligation to provide services to such former tenants exists.

Other income on the accompanying consolidated statements of operations generally include income incidental to operations and are recognized when earned.

Monitoring of Rents and Other Receivables. An allowance is maintained for estimated losses that may result from the inability of tenants to make required payments. 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 generally do not require collateral or other security from its tenants, other than security deposits or letters of credit. If estimates of collectability differ from the cash received, the timing and amount of reported revenue could be impacted.

Investments in Joint Ventures. We analyze our investments in joint ventures to determine whether the joint venture should be accounted for under the equity method of accounting or consolidated into our financial statements based on standards set forth under SFAS Interpretation No. 46(R), Consolidation of Variable Interest Entities, EITF 96-16, Investor's Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights, Statement of Position 78-9, Accounting for Investments in Real Estate Ventures and EITF 04-5, "Determining Whether a General Partner, or the General Partners as a Group, . . .