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, 2011 and in Item 1A, "Risk Factors," in our Quarterly Report on Form 10-Q for the quarter ended March 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 June 30, 2012, we owned 4 office properties comprising approximately 1.2 million rentable square feet and interests (ranging from 5.0% to approximately 32.2%) in 16 joint venture properties (including a sports club associated with our City Square property in Phoenix, Arizona), comprising approximately 2.5 million rentable square feet (the "Property Portfolio"). As of June 30, 2012, our Property Portfolio included office buildings in Honolulu, San Diego, Orange County, certain submarkets of 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 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 approximately 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 by 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 and has acquired substantially all of the assets of Pacific Office Management for an aggregate purchase price of $25,000. 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 that we have the right to manage 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 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, 2011. 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

Our results of operations for the three and six months ended June 30, 2012 compared to the same periods in 2011 were significantly affected by the contribution of two of our wholly-owned properties, City Square and the Pacific Business News Building, into joint ventures with a third party ("Contribution Properties") during the second quarter of 2011. As a result, our results are not comparable from period to period.

In addition, because we sold our First Insurance Center property in June 2012, and because the lender foreclosed on the loan and took back our Sorrento Technology Center property in January 2012, the operating results for these two properties have been reclassified to discontinued operations for both periods presented.

Therefore, in the table below, we have also separately presented certain results of our "Same Properties Portfolio." Our Same Properties Portfolio includes the results of our remaining wholly-owned properties as of June 30, 2012 (namely the Waterfront Plaza, Davies Pacific Center, Clifford Center and the Pan Am Building properties).

Overview -

As of June 30, 2012, the Property Portfolio (including our joint venture properties) was 77.7% leased to a total of 652 tenants. Approximately 10.2% of our Property Portfolio leased square footage is scheduled to expire during the remainder of 2012 and another 9.0% of our Property Portfolio leased square footage is scheduled to expire during 2013. 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 2 to 20 years.

As of June 30, 2012, our consolidated Honolulu portfolio was 83.9% leased, with approximately 190,400 square feet available. Our Honolulu portfolio attributable to our unconsolidated joint ventures was 73.8% leased, with approximately 62,800 square feet available.

As of June 30, 2012, our San Diego portfolio attributable to our unconsolidated joint ventures was 67.9% leased, with approximately 145,300 square feet available.

As of June 30, 2012, our Phoenix portfolio attributable to our unconsolidated joint ventures was 67.5% leased, with approximately 306,900 square feet available.

Comparison of the three months ended June 30, 2012 to the three months ended June 30, 2011 (in thousands)

                                Same Properties Portfolio                                   Total
                       2012        2011       $ Change     % Change      2012         2011        $ Change    % Change
Revenue:
Rental               $ 5,812     $ 6,154     $    (342 )     (5.6 )%   $ 5,812     $   7,087     $ (1,275 )    (18.0 )%
Tenant
reimbursements         4,001       3,825           176        4.6  %     4,001         3,905           96        2.5  %
Property management
and other services                                                         114         1,591       (1,477 )    (92.8 )%
Parking                1,440       1,403            37        2.6  %     1,440         1,506          (66 )     (4.4 )%
Other                    135         267          (132 )    (49.4 )%       135           299         (164 )    (54.8 )%
Total revenue                                                           11,502        14,388       (2,886 )    (20.1 )%
Expenses:
Rental property
operating              7,272       6,762           510        7.5  %     7,272         7,485         (213 )     (2.8 )%
General and
administrative                                                             572         3,067       (2,495 )    (81.3 )%
Depreciation and
amortization           2,937       3,095          (158 )     (5.1 )%     2,937         3,460         (523 )    (15.1 )%
Interest               5,007       4,956            51        1.0  %     5,007         5,337         (330 )     (6.2 )%
Acquisition costs                                                            -            68          (68 )   (100.0 )%
Impairment of
long-lived assets                                                            -        11,456      (11,456 )   (100.0 )%
Total expenses                                                          15,788        30,873      (15,085 )    (48.9 )%
Loss from continuing
operations before
gain on forgiveness
of debt, equity in
net earnings (loss)
of unconsolidated
joint ventures and
non-operating income                                                    (4,286 )     (16,485 )     12,199       74.0  %
Gain on forgiveness
of debt                                                                      -        10,045      (10,045 )   (100.0 )%
Equity in net
earnings (loss) of
unconsolidated joint
ventures                                                                    22        (1,490 )      1,512      101.5  %
Non-operating income                                                         -           (17 )         17     (100.0 )%
Net loss from
continuing
operations                                                              (4,264 )      (7,947 )      3,683       46.3  %
Discontinued
operations:
Income (loss) from
discontinued
operations before
gain on sale of
property                                                                   542        (3,577 )      4,119      115.2  %
Gain on sale of
property                                                                 5,365             -        5,365      100.0  %
Income (loss) from
discontinued
operations                                                               5,907        (3,577 )      9,484      265.1  %

Net income (loss)                                                      $ 1,643     $ (11,524 )   $ 13,167      114.3  %

Revenues

Rental revenue. Total rental revenue decreased by $1.3 million, or 18.0%, primarily due to the elimination of the Contribution Properties ($0.9 million) and also due to the Same Properties Portfolio. Rental revenue for the Same Properties Portfolio decreased $0.3 million, or 5.6%, primarily due to decreased occupancy at Davies Pacific Center ($0.2 million) and a decrease in rental revenue at Waterfront Plaza ($0.1 million).

Tenant reimbursements. Total tenant reimbursements increased by $0.1 million, or 2.5%, primarily due to the Same Properties Portfolio and offset in part by the elimination of the Contribution Properties ($0.1 million). Tenant reimbursements for the Same Properties Portfolio increased by $0.2 million, or 4.6%, primarily due to increased tenant recoveries for electricity at Waterfront Plaza ($0.2 million) and at Pan Am Building ($0.1 million), offset by a reduction in recoveries due to decreased occupancy at

Davies Pacific Center ($0.1 million).

Property management and other services. Total property management and other services revenue decreased $1.5 million, or 92.8%, because we externalized management effective as of April 1, 2012.

Parking revenue. Total parking revenue decreased by $0.1 million, or 4.4%, primarily due to the elimination of our Contribution Properties. Parking revenue for the Same Properties Portfolio increased by an insignificant amount compared to the prior year period.

Other revenue. Total other revenue decreased by $0.2 million, or 54.8% primarily due to the elimination of the Contribution Properties and also due to the Same Properties Portfolio. Total other revenue for the Same Properties Portfolio decreased by $0.1 million or 49.4%, primarily due to the externalization of management effective as of April 1, 2012 ($0.2 million), offset by additional revenues from a Waterfront Plaza tenant from a judgment award ($0.1 million).

Expenses

Rental property operating expenses. Total rental property operating expenses decreased by $0.2 million, or 2.8%, primarily due to the elimination of the Contribution Properties ($0.7 million) and offset in part by the an increase in the Same Properties Portfolio. Rental property operating expenses for our Same Properties Portfolio increased by $0.5 million or 7.5%, primarily due to overall increases in bad debt ($0.2 million) and electricity costs ($0.2 million).

General and administrative expense. Total general and administrative expense decreased by $2.5 million, or 81.3%, primarily due to the externalization of management effective as of April 1, 2012.

Depreciation and amortization expense. Total depreciation and amortization expense decreased by $0.5 million, or 15.1%, primarily due to the elimination of the Contribution Properties and in part, due to the Same Properties Portfolio. Depreciation and amortization expense for our Same Properties Portfolio decreased by $0.2 million, or 5.1%, primarily due to lower expense attributable to Davies Pacific Center due to certain assets acquired pursuant to our formation transactions in 2008 being fully depreciated.

Interest expense. Total interest expense decreased by $0.3 million, or 6.2%, primarily due to the elimination of the Contribution Properties. Interest expense for our Same Properties Portfolio increased by an insignificant amount compared to the prior period.

Acquisition costs. We incurred $0.1 million in acquisition costs for the three months ended June 30, 2011 primarily in connection with a terminated acquisition.

Impairment of long-lived assets. We recognized $11.5 million in impairment costs for the three months ended June 30, 2011 primarily due to the Contribution Properties. We determined that the fair value of the Contribution Properties were higher than the respective book values and as a result, we recorded non-cash asset impairment charges of $5.1 million and $6.4 million related to our Pacific Business News Building and City Square properties, respectively.

Gain on forgiveness of debt

We recognized a gain on forgiveness of debt related to the defaulted debt secured by the Contribution Properties for the three months ended June 30, 2011. We negotiated discounted payoff amounts for the Pacific Business News Building mortgage loan and the City Square Mezzanine Loan. As part of the agreement, principal and interest amounts totaling $2.6 million and $7.4 million, respectively, were forgiven. The joint ventures that each property was contributed into repaid these loans at the negotiated discounted amounts.

Equity in net earnings of unconsolidated joint ventures

Equity in net earnings of unconsolidated joint ventures increased by $1.5 million for the three months ended June 30, 2012 compared to the three months ended June 30, 2011. During the quarter ended June 30, 2011, the debt secured by our US Bank property matured and as a result of the uncertainty surrounding the defaulted debt, we recorded a non-cash impairment charge of approximately $1.4 million to write-off our investment in the unconsolidated joint venture that owns our US Bank property.

Income (loss) from discontinued operations before gain on sale of property

For the three months ended June 30, 2012, discontinued operations reflects the net results of operations of the First Insurance Center property until it was sold in June 2012. For the three months ended March 31, 2011, discontinued operations reflects the net results of operations of the First Insurance Center and Sorrento Technology Center properties.

Gain on the sale of property

We recognized a gain related to the sale of our First Insurance Center property in June 2012. We previously classified the assets and liabilities related to this property as held for sale on our consolidated balance sheet, and the net results of its operations as discontinued operations on our consolidated statements of operations.

Comparison of the six months ended June 30, 2012 to the six months ended June, 2011 (in thousands)

                                  Same Properties Portfolio                                     Total
                         2012         2011       $ Change     % Change       2012         2011        $ Change    % Change
Revenue:
Rental                $ 11,670     $ 12,179     $    (509 )     (4.2 )%   $ 11,670     $  16,090     $ (4,420 )    (27.5 )%
Tenant reimbursements    7,991        7,730           261        3.4  %      7,991         8,253         (262 )     (3.2 )%
Property management
and other services                                                           1,408         2,353         (945 )    (40.2 )%
Parking                  2,817        2,752            65        2.4  %      2,817         3,264         (447 )    (13.7 )%
Other                      323          826          (503 )    (60.9 )%        323           866         (543 )    (62.7 )%
Total revenue                                                               24,209        30,826       (6,617 )    (21.5 )%
Expenses:
Rental property
operating               13,947       13,306           641        4.8  %     13,947        16,082       (2,135 )    (13.3 )%
General and
administrative                                                               3,276         5,634       (2,358 )    (41.9 )%
Depreciation and
amortization             5,861        6,151          (290 )     (4.7 )%      5,861         7,717       (1,856 )    (24.1 )%
Interest                 9,961        9,852           109        1.1  %      9,961        11,708       (1,747 )    (14.9 )%
Abandoned offering
costs                                                                            -           420         (420 )   (100.0 )%
Acquisition costs                                                                -           267         (267 )   (100.0 )%
Impairment of
long-lived assets                                                                -        11,456      (11,456 )   (100.0 )%
Total expenses                                                              33,045        53,284      (20,239 )    (38.0 )%
Loss from continuing
operations before
gain on forgiveness
of debt, equity in
net earnings (loss)
of unconsolidated
joint ventures and
non-operating income                                                        (8,836 )     (22,458 )     13,622       60.7  %
Gain on forgiveness
of debt                                                                          -        10,045      (10,045 )   (100.0 )%
Equity in net
earnings (loss) of
unconsolidated joint
ventures                                                                       527        (1,394 )      1,921      137.8  %
Non-operating income                                                             -           507         (507 )   (100.0 )%
Net loss from
continuing operations                                                       (8,309 )     (13,300 )      4,991       37.5  %
Discontinued
operations:
Income (loss) from
discontinued
operations before
gains on
extinguishment of
debt and sale of
property                                                                       700        (3,642 )      4,342     (119.2 )%
Gain on
extinguishment of
debt                                                                         2,251             -        2,251      100.0  %
Gain on sale of
property                                                                     5,365             -        5,365      100.0  %
Income (loss) from
discontinued
operations                                                                   8,316        (3,642 )     11,958       80.8  %

Net income (loss)                                                         $      7     $ (16,942 )   $ 16,949      100.0  %

Revenues

Rental revenue. Total rental revenue decreased by $4.4 million, or 27.5%, primarily due to the elimination of the Contribution Properties ($3.9 million) and due to the Same Properties Portfolio. Rental revenue for the Same Properties Portfolio decreased

$0.5 million, or 4.2%, primarily due to decreased occupancy at Davies Pacific Center ($0.4 million) and a decrease in rental revenue at Waterfront Plaza ($0.1 million).

Tenant reimbursements. Total tenant reimbursements decreased by $0.3 million, or 3.2%, primarily due to the elimination of the Contribution Properties ($0.5 million), and partly offset by the Same Properties Portfolio. Tenant reimbursements for the Same Properties Portfolio increased by $0.3 million, or 3.4%, primarily due to increased tenant recoveries for electricity at Waterfront Plaza ($0.3 million) and Pan Am Building ($0.2 million), offset by a reduction in recoveries due to decreased occupancy at Davies Pacific Center ($0.2 million).

Property management and other services. Total property management and other services revenue decreased $1.0 million, or 40.2%, primarily due to the externalization of management effective as of April 1, 2012. As a result, because we internalized management by acquiring Pacific Office Management effective as of February 1, 2011, the current period includes three months of revenue, compared to five months in the prior period, related to property management and other services from our joint venture properties and other properties owned by related parties.

Parking revenue. Total parking revenue decreased by $0.4 million, or 13.7%, primarily due to the elimination of our Contribution Properties ($0.5 million), partly offset by the Same Properties Portfolio. Parking revenue for the Same Properties Portfolio increased by $0.1 million, or 2.4%, primarily due to net increases in parking revenues at Pan Am Building and Waterfront Plaza.

Other revenue. Total other revenue decreased by $0.5 million, or 62.7%. Current period other revenue is primarily due to an adjustment related to the City Square property refinancing ($0.1 million) and additional revenues from a Waterfront Plaza tenant from a judgment award ($0.1 million). The prior year period included a lease cancellation fee received at Davies Pacific Center ($0.5 million) that did not recur in the current year period and other revenues related to the internalization of management ($0.2 million) effective as of February 1, 2011.

Expenses

Rental property operating expenses. Total rental property operating expenses decreased by $2.1 million, or 13.3%, primarily due to the elimination of the Contribution Properties ($2.8 million) and offset in part by the increase in the Same Properties Portfolio. Rental property operating expenses for our Same Properties Portfolio increased $0.6 million, or 4.8%, primarily due to overall increases in bad debt ($0.2 million) and electricity costs ($0.5 million).

General and administrative expense. Total general and administrative expense decreased by $2.4 million, or 41.9%, primarily due to the externalization of management effective as of April 1, 2012. As a result, because we internalized management effective as of February 1, 2011, the current period includes three months of management expenses as compared to five months in the prior period.

Depreciation and amortization expense. Total depreciation and amortization expense decreased by $1.9 million, or 24.1%, primarily due to the elimination of the Contribution Properties ($1.6 million) and in part, due to the Same Properties Portfolio. Depreciation and amortization expense for our Same . . .