It seemed that he had been caught, but he didn't mind. After all, he knew better than most just how perceptive hobbits could be, especially his hobbit. So, he didn't bother trying to pretend any longer. "I am. But I was enjoying watching you for a moment" he admitted, seeing no reason to lie to the wonderful soul laying in his arms.
The kiss was welcome and returned with equal passion. Something about this just felt so much more natural to him than he would have ever imagined. He had decided to just welcome the warm feelings that he was feeling for Bilbo and see where it all led.
"No need to apologize" he replied, clearly not minding in the least that he had been woken up. The feeling of Bilbo's fingers teasing his bare skin was distracting for him, and as he felt the hobbit's hands move lower his breath hitched slightly. "Though, if you keep that up neither of us will be going back to sleep anytime soon".