In determining the fair value of the tangible assets of the acquired properties, management considers the value of the properties as if vacant as of the acquisition date. Management must make significant assumptions in determining the value of assets acquired and liabilities assumed. Using different assumptions in the allocation of the purchase cost of the acquired properties would affect the timing of recognition of the related revenue and expenses. Amounts allocated to land are derived from comparable sales of land within the same region. Amounts allocated to buildings and improvements, tenant improvements and unamortized lease commissions are based on current market replacement costs and other market rate information.
The value allocable to the above-market or below-market in-place lease values of acquired properties is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual rents to be paid pursuant to the in-place leases, and (ii) management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The amounts allocated to above-market or below-market leases are included in other assets or other liabilities in the accompanying consolidated balance sheets and are amortized on a straight-line basis as an increase or reduction of rental income over the remaining non-cancelable term of the respective leases.
Allowance for Doubtful Accounts: Rental revenue from our tenants is our principal source of revenue. We monitor the collectability of our receivable balances including the deferred rent receivable on an ongoing basis. Based on these reviews, we maintain an allowance for doubtful accounts for estimated losses resulting from the possible inability of our tenants to make required rent payments to us. Tenant receivables and deferred rent receivables are carried net of the allowances for uncollectible tenant receivables and deferred rent. As discussed below, determination of the adequacy of these allowances requires significant judgments and estimates. Our estimate of the required allowance is subject to revision as the factors discussed below change and is sensitive to the effect of economic and market conditions on our tenants. Tenant receivables consist primarily of amounts due for contractual lease payments, reimbursements of common area maintenance expenses, property taxes and other expenses recoverable from tenants. Determination of the adequacy of the allowance for uncollectible current tenant receivables is performed using a methodology that incorporates specific identification, aging analysis, an overall evaluation of the historical loss trends and the current economic and business environment. The specific identification methodology relies on factors such as the age and nature of the receivables, the payment history and financial condition of the tenant, the assessment of the tenant's ability to meet its lease obligations, and the status of negotiations of any disputes with the tenant. The allowance also includes a reserve based on historical loss trends not associated with any specific tenant. This reserve as well as the specific identification reserve is reevaluated quarterly based on economic conditions and the current business environment.
Deferred rent receivable represents the amount that the cumulative straight-line rental income recorded to date exceeds cash rents billed to date under the lease agreement. Given the long-term nature of these types of receivables, determination of the adequacy of the allowance for unbilled deferred rent receivable is based primarily on historical loss experience. Management evaluates the allowance for unbilled deferred rent receivable using a specific identification methodology for significant tenants designed to assess their financial condition and ability to meet their lease obligations.

Impairment of Long-Lived Assets: The Company evaluates a property for potential impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. On a quarterly basis, we evaluate our entire portfolio for impairment based on current operating information. In the event that these periodic assessments reflect that the carrying amount of a property exceeds the sum of the undiscounted cash flows (excluding interest) that are expected to result from the use and eventual disposition of the property, the Company would recognize an impairment loss to the extent the carrying amount exceeded the estimated fair value of the property. The estimation of expected future net cash flows is inherently uncertain and relies on subjective assumptions dependent upon future and current market conditions and events that affect the ultimate value of the property. Management must make assumptions related to the property such as future rental rates, tenant allowances, operating expenditures, property taxes, capital improvements, occupancy levels and the estimated proceeds generated from the future sale of the property. These assumptions could differ materially from actual results in future periods. Since SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," provides that the future cash flows used in this analysis be considered on an undiscounted basis, our intent to hold properties over the long-term directly decreases the likelihood of recording an impairment loss. If our strategy changes or if market conditions otherwise dictate an earlier sale date, an impairment loss could be recognized, and such loss could be material. Depreciation: We compute depreciation on our buildings and equipment using the straight-line method based on estimated useful lives of generally 30 and five years, respectively. A significant portion of the acquisition cost of each property is allocated to building and building components. The allocation of the acquisition cost to building and building components, as well as the determination of their useful lives, are based on estimates. If we do not appropriately allocate to these components or we incorrectly estimate the useful lives of these components, our computation of depreciation expense may not appropriately reflect the actual impact of these costs over future periods, which will affect net income. In addition, the net book value of real estate assets could be overstated or understated. The statement of cash flows, however, would not be affected.
Accruals of Operating Expenses: The Company accrues for property tax expenses, performance bonuses and other operating expenses each quarter based on historical trends and anticipated disbursements. If these estimates are incorrect, the timing and amount of expense recognized will be affected. Accruals for Contingencies: The Company is exposed to business and legal liability risks with respect to events that may have occurred, but in accordance with U.S. generally accepted accounting principles ("GAAP") has not accrued for such potential liabilities because the loss is either not probable or not estimable. Future events and the result of pending litigation could result in such potential losses becoming probable and estimable, which could have a material adverse impact on our financial condition or results of operations. Effect of Economic Conditions on the Company's Operations:
During 2008 and continuing in 2009, weakening economic conditions continued to impact commercial real estate as the Company experienced a decrease in new rental rates over expiring rental rates on executed leases as well as declining occupancy during the first quarter of 2009. It is uncertain what impact the current recession will have on the Company's ability to maintain current occupancy levels and rental rates. A continued deepening economic recession may have a significant impact on the Company, potentially resulting in further reductions in occupancy and rental rates.
While the Company historically has experienced a low level of write-offs due to business failures and bankruptcy filing, there is inherent uncertainty in a tenant's ability to continue paying rent when in bankruptcy. As of April 30, 2009, the Company had approximately 69,000 square feet of leased space that is occupied by tenants that are protected by Chapter 11 of the U.S. Bankruptcy Code. In addition, the Company had tenants occupying approximately 245,000 square feet who vacated their space during the three months ended March 31, 2009 as a result of business failures. A number of other tenants have contacted us, requesting a reduction in space under lease, or rent deferment or abatement. At this time, the Company cannot anticipate what impact, if any, the ultimate outcome of these discussions will have on our operating results.

Company Performance and Effect of Economic Conditions on Primary Markets:
The Company's operations are substantially concentrated in 10 regions. Current market conditions for each region are summarized below. During the three months ended March 31, 2009, rental rates on new and renewed leases within the Company's overall portfolio decreased 9.9% over expiring rents. Below is a summary of the general market conditions as well as the Company's operating statistics for each of the 10 regions in which the Company operates. The Company has compiled the market information set forth below using third party reports for each respective market. The Company considers these sources to be reliable, but there can be no assurance that the information in these reports is accurate. The Company owns approximately 4.0 million square feet in Southern California in Los Angeles, Orange and San Diego Counties. Market vacancies have increased due to the continued weakening in the economy combined with the lack of credit availability and its effect on small businesses. These factors have also created significantly more competition for tenants, which in turn has placed pressure on rental rates. Vacancy rates in Southern California range from 3.3% to 17.5%. The Company's vacancy rate in this region at March 31, 2009 was 9.8%. For the three months ended March 31, 2009, the overall market experienced negative net absorption of 0.2% for the reasons noted above as well as the completion of newly constructed space in 2008. The Company's weighted average occupancy for the region decreased from 95.3% for the first three months of 2008 to 90.5% for the first three months of 2009. Annualized realized rent per square foot increased 1.1% from $17.09 per square foot for the first three months of 2008 to $17.28 per square foot for the first three months of 2009.
The Company owns approximately 1.8 million square feet in Northern California with concentrations in Sacramento, the East Bay (Hayward and San Ramon) and Silicon Valley (San Jose and Santa Clara). Vacancy rates in these submarkets are 21.6%, 20.3% and 17.0%, respectively. The Company's vacancy rate in its Northern California portfolio at March 31, 2009 was 11.4%. Demand in these submarkets slowed measurably in the second half of 2008 and continued to slow in the first three months of 2009. The time necessary to execute a transaction has lengthened as tenants weigh various options. During the second half of 2008 and beginning of 2009, lease renewals and short-term leases were the most common leasing activity in the market as firms are seeking ways of reducing costs. For the three months ended March 31, 2009, the combined submarkets noted above experienced negative net absorption of 1.3%. The Company's weighted average occupancy in this region decreased from 91.6% for the first three months of 2008 to 90.2% for the first three months of 2009. Annualized realized rent per square foot decreased 1.3% from $14.21 per square foot for the first three months of 2008 to $14.03 per square foot for the first three months of 2009. The Company owns approximately 1.2 million square feet in Southern Texas, specifically in the Austin and Houston markets. Market vacancy rates are 13.1% in the Austin market and 12.6% in the Houston market. The Company's vacancy rate for these combined markets at March 31, 2009 was 12.7%. During the second half of 2008 and continuing into 2009, demand eased in these markets due to the slowdown in the oil and gas industry as a result of declining oil prices. For the three months ended March 31, 2009, the combined markets experienced negative net absorption of 0.4%. The Company's weighted average occupancy in this region decreased from 95.5% for the first three months of 2008 to 87.7% for the first three months of 2009. Annualized realized rent per square foot increased 12.7% from $11.09 per square foot for the first three months of 2008 to $12.50 per square foot for the first three months of 2009.
The Company owns approximately 1.7 million square feet in Northern Texas, primarily located in the Dallas Metroplex market. The market vacancy rate in Las Colinas, where significant concentrations of the Company's properties are located, is 11.4%. The Company's vacancy rate at March 31, 2009 in this market was 8.2%. During the end of 2008 and continuing into 2009, this market began to show signs of softening in fundamentals as a result of the impact of the national recession. Vacancy is on the rise due to a high volume of construction completed in 2008 and slowing job growth. Despite these weakening fundamentals, the market experienced positive net absorption of 0.2% for the three months ended March 31, 2009. The Company's weighted average occupancy for the region decreased from 93.1% for the first three months of 2008 to 92.5% for the first three months of 2009. Annualized realized rent per square foot increased 1.8% from $10.59 per square foot for the first three months of 2008 to $10.78 per square foot for the first three months of 2009.

The Company owns approximately 3.6 million square feet in South Florida, which consists of Miami International Commerce Center ("MICC") business park located in the Airport West submarket of Miami-Dade County and two multi-tenant flex parks located in Palm Beach County. MICC is located less than one mile from the cargo entrance of the Miami International Airport, which is one of the most active ports in the United States. The impact of the current economic recession on the import/export business is beginning to cause a slow down in Miami. Market vacancy rates for Miami-Dade County and Palm Beach County are 10.6% and 10.5%, respectively, compared with the Company's South Florida vacancy rate of 3.7% at March 31, 2009. For the three months ended March 31, 2009, the combined markets experienced negative net absorption of 1.2%. The Company's weighted average occupancy in this region outperformed the market, decreasing from 96.7% for the first three months of 2008 to 96.1% for the first three months of 2009. Annualized realized rent per square foot increased 3.3% from $9.23 per square foot for the first three months of 2008 to $9.53 per square foot for the first three months of 2009.
The Company owns approximately 3.0 million square feet in the Northern Virginia submarket of Washington D.C., where the average market vacancy rate is 13.4%. The Company's vacancy rate at March 31, 2009 was 6.8%. Vacancy rates in this market increased as tenants downsize their existing space due to the economic recession. The increase in sublease space and decrease in demand has lengthened the time of lease negotiations. For the three months ended March 31, 2009, the market experienced negative net absorption of 0.3%. The Company's annualized realized rent per square foot increased 3.3% from $19.95 per square foot for the first three months of 2008 to $20.60 per square foot for the first three months of 2009. The Company's weighted average occupancy decreased from 96.8% for the first three months of 2008 to 93.5% for the first three months of 2009. The Company owns approximately 1.8 million square feet in the Maryland submarket of Washington D.C. The Company's vacancy rate in the region at March 31, 2009 was 7.1% compared to 13.1% for the market as a whole. For the three months ended March 31, 2009, the market experienced negative net absorption of 0.4%, which is attributed to a decrease in demand for large blocks of space due to the slowing economy. The Company's weighted average occupancy increased from 90.7% for the first three months of 2008 to 91.9% for the first three months of 2009. Annualized realized rent per square foot increased 2.3% from $23.45 per square foot for the first three months of 2008 to $23.99 per square foot for the first three months of 2009.
The Company owns approximately 1.3 million square feet in the Beaverton submarket of Portland, Oregon. The market vacancy rate in this region is 23.6%. The Company's vacancy rate in the market was 18.3% at March 31, 2009. Recent economic trends and the economic recession have resulted in increases in both vacancy rates and rent concessions in the market. For the three months ended March 31, 2009, the market experienced negative net absorption of 0.5%. The Company's weighted average occupancy decreased from 86.9% for the first three months of 2008 to 81.5% for the first three months of 2009. The decrease was primarily related to a 120,000 square foot tenant vacating its space during the second quarter of 2008. Despite the recent trends and slowdown, annualized realized rent per square foot increased 0.8% from $16.30 per square foot for the first three months of 2008 to $16.43 per square foot for the first three months of 2009.
The Company owns approximately 679,000 square feet in the Phoenix and Tempe submarkets of Arizona. Market vacancies increased significantly due in part to the number of housing-related tenants who have vacated space combined with companies contracting and reorganizing business operations. These factors have also created significantly more competition for tenants, which may result in higher lease concessions while limiting the Company's ability to generate rental rate growth. The market vacancy rate is 14.5% compared to the Company's vacancy rate of 13.1% at March 31, 2009. For the three months ended March 31, 2009, the market experienced negative net absorption of 0.9%. Annualized realized rent per square foot decreased 4.1% from $11.76 per square foot for the first three months of 2008 to $11.28 per square foot for the first three months of 2009. The Company's weighted average occupancy in the region increased from 87.4% for the first three months of 2008 to 87.5% for the first three months of 2009.

The Company owns approximately 521,000 square feet in the state of Washington which mostly consists of Overlake Business Center, a 493,000 square foot multi-tenant office and flex business park located in Redmond. The weakened aerospace manufacturing industry and global economic slowdown has resulted in fewer imports and exports resulting in a softened demand in this market. For the three months ended March 31, 2009, this market experienced negative net absorption of 1.1%. The Company's vacancy rate in this region at March 31, 2009 was 7.8% compared to 9.7% for the market as a whole. The Company's weighted average occupancy decreased from 93.3% for the first three months of 2008 to 92.1% for the first three months of 2009. Annualized realized rent per square foot increased 6.3% from $18.94 per square foot for the first three months of 2008 to $20.13 per square foot for the first three months of 2009. Growth of the Company's Operations and Acquisitions and Dispositions of Properties:
The Company is focused on maximizing cash flow from its existing portfolio of properties by expanding its presence in existing and new markets through strategic acquisitions and the disposition of non-strategic assets. The Company has historically maintained a low-leverage-level approach intended to provide the Company with the flexibility for future growth.
The Company made no acquisitions or dispositions during the three months ended March 31, 2009 and 2008.
Scheduled Lease Expirations:
In addition to the 1.7 million square feet, or 8.9%, of space available in our total portfolio as of March 31, 2009, leases representing approximately 17.3% of the leased square footage of our total portfolio are scheduled to expire during the remainder of 2009. Our ability to re-lease available space depends upon the market conditions in the specific submarkets in which our properties are located.
Impact of Inflation:
Although inflation has not been significant in recent years, it remains a factor in our economy, and the Company continues to seek ways to mitigate its potential impact. A substantial portion of the Company's leases require tenants to pay operating expenses, including real estate taxes, utilities, and insurance, as well as increases in common area expenses, partially reducing the Company's exposure to inflation. During 2008 and 2009, the Company experienced modest increases in certain operating costs, including repairs and maintenance, real estate taxes, property insurance and utility costs affecting the Company's overall profit margin.
Concentration of Portfolio by Region:
Rental income, cost of operations and rental income less cost of operations, excluding depreciation and amortization, or net operating income prior to depreciation and amortization (defined as "NOI" for purposes of the following table), are summarized for the three months ended March 31, 2009 by major geographic region below. The Company uses NOI and its components as a measurement of the performance of its commercial real estate. Management believes that these financial measures provide them as well as the investor the most consistent measurement on a comparative basis of the performance of the commercial real estate and its contribution to the value of the Company. Depreciation and amortization has been excluded from these financial measures as they are generally not used in determining the value of commercial real estate by management or the investment community. Depreciation and amortization is generally not used in determining value as they consider the historical costs of an asset compared to its current value; therefore, to understand the effect of the assets' historical cost on the Company's results, investors should look at GAAP financial measures, such as total operating costs including depreciation and amortization. The Company's calculation of NOI may not be comparable to those of other companies and should not be used as an alternative to measures of performance calculated in accordance with GAAP. The table below reflects rental income, operating expenses and NOI for the three months ended March 31, 2009 based on geographical concentration. The total of all regions is equal to the amount of rental income and cost of operations recorded by the Company in accordance with GAAP. As part of the table below, we have shown the effect of depreciation and amortization on NOI. We have reconciled NOI to net income in the table under "Results of Operations" below. The percent of total by region reflects the actual contribution to rental income, cost of operations and NOI during the period (in thousands):

Three Months Ended March 31, 2009:

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