SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1999 Commission file number 1-12222 BEDFORD PROPERTY INVESTORS, INC. (Exact name of Registrant as specified in its charter) MARYLAND 68-0306514 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 270 Lafayette Circle, Lafayette, CA 94549 (Address of principal executive offices) Registrant's telephone number, including area code(925) 283-8910 Securities Registered Pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, par value $0.02 per share New York Stock Exchange Pacific Exchange Securities Registered Pursuant to Section 12(g) of the Act: None 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 x No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of Registrant as of March 10, 2000 was approximately $230,579,000. The number of shares of Registrant's Common Stock, par value $0.02 per share, outstanding as of March 10, 2000 was 19,649,910. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement to be mailed to stockholders in connection with the Registrant's annual meeting of stockholders, scheduled to be held on May 18, 2000, are incorporated by reference in Part III of this report. Except as expressly incorporated by reference, the Registrant's Proxy Statement shall not be deemed to be part of this report. When used in this annual report, the words "believes," "anticipates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected, including, but not limited to, those set forth in the section entitled "Potential Factors Affecting Future Operating Results" and "Qualitative and Quantitative Disclosures About Market Risk" below. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. PART I ITEM 1. BUSINESS The Company Bedford Property Investors, Inc. is a self-administered and self-managed equity REIT engaged in the business of owning, managing, acquiring and developing industrial and suburban office properties proximate to metropolitan areas primarily in the Western United States. As of December 31, 1999, the Company owned and operated, either directly or through wholly-owned subsidiaries, 98 properties aggregating approximately 7.6 million rentable square feet. Of these 98 properties (the "Properties"), there are 72 industrial (the "Industrial Properties") and 26 suburban office (the "Suburban Office Properties"). As of December 31, 1999, the Properties include two projects which were under rehabilitation. The remaining 96 operating Properties were approximately 97% leased to almost 600 tenants. The Properties are located in Northern and Southern California, Oregon, Washington, Arizona, Nevada, Colorado, Texas, Kansas, and Missouri. In addition to the Properties, the Company owns three suburban office and two industrial development projects totaling 380,000 rentable square feet. During 1999, the Company completed shell construction and initial lease-up on these five projects and as of December 31, 1999, the projects were approximately 67% leased. The Company seeks to grow its asset base through the acquisition of industrial and suburban office properties and portfolios of such properties, as well as through the development of new industrial and suburban office properties. The Company's strategy is to operate in suburban markets that are experiencing, or are expected by the Company to experience, superior economic growth and that are subject to limitations on the development of similar properties. The Company believes that employment growth is a reliable indicator of future demand for both industrial and suburban office space. In addition, the Company believes that certain supply-side constraints, such as limited availability of undeveloped land in a market, increase a market's potential for higher than average rental growth over time. The Company continues to target selected markets in which the Properties are located as well as selected other markets in which the Company has expertise. Business Objective and Growth Plan Business Objective The Company's business objective is to increase stockholders' long-term total return through increases in the dividend and the appreciation in value of the Common Stock. To achieve this objective, the Company seeks to (i) increase cash flow by internal growth of rents from its existing Properties, (ii) acquire quality industrial and suburban office properties and/or portfolios of such properties, (iii) develop new industrial and suburban office properties, and (iv) repurchase its common stock. Internal Growth The Company seeks to increase cash flow from existing Properties through (i) the lease-up of vacant space, (ii) the reduction of costs associated with tenant turnover by retaining existing tenants, (iii) the negotiation of increases in rental rates and of contractual periodic rent increases when market conditions permit, and (iv) the strict containment of operating expenses and capital expenditures. During 1999, 1,123,000 square feet of leased space expired with a weighted average base rental rate of $8.48 per square foot. Approximately 89% of this space has been re-leased, and the weighted average base rental rate of the new leases is $10.24 per square foot, an increase of 21%. Past performance is not necessarily indicative of results that will be obtained in the future, and no assurance can be given in that regard. Acquisitions The Company seeks to acquire industrial and suburban office properties and/or portfolios of such properties. The Company believes that (i) the experience of its management team, (ii) its existing $175 million credit facility, (iii) its relationships with private and institutional real estate owners, (iv) its strong relationships with real estate brokers, and (v) its integrated asset management program enable it to effectively identify and capitalize on acquisition opportunities. Each acquisition opportunity is reviewed to evaluate whether it meets the following criteria: (i) potential for higher occupancy levels and/or rents as well as for lower turnover and/or operating expenses, (ii) ability to generate returns in excess of the Company's weighted average cost of capital, taking into account the estimated costs associated with tenant turnover (i.e., tenant improvements, leasing commissions and the loss of income due to vacancy), and (iii) availability for purchase at a price at or below estimated replacement cost. However, the Company has in the past acquired, and may in the future acquire, properties which do not meet one or more of these criteria. This may be particularly true with the acquisition of a portfolio of properties, which may include individual properties that do not meet one or more of the foregoing criteria. Following completion of an initial review of a property, the Company may make a purchase offer, subject to satisfactory completion of its due diligence process. The due diligence process enables the Company to refine its original estimate of a property's potential performance and typically includes a complete review and analysis of the property's physical structure, systems, environmental status and projected financial performance. The due diligence also includes an evaluation of the local market including competitive properties and relevant economic and demographic information. Mr. Bedford (the Chief Executive Officer), along with at least one other officer and one other Board member of the Company, will typically visit each proposed acquisition property before the purchase is closed. The Company's activities relating to the acquisition of new properties, including the due diligence process, are conducted on an exclusive basis by Bedford Acquisitions, Inc. (BAI), a California corporation wholly- owned by Mr. Bedford. BAI receives fees in amounts equal to the lesser of (i) 1 1/2 % of the gross amount of the aggregate purchase price of property acquisitions and dispositions, up to 1 1/2 % of any loans arranged by BAI, plus 5% of development project costs, or (ii) an amount equal to (a) the aggregate amount of approved expenses funded by BAI through the time of such acquisition, disposition, loan or development minus (b) the aggregate amount of fees previously paid to BAI pursuant to such arrangement. In no event will the aggregate amount of fees paid to BAI exceed the aggregate amount of costs funded by BAI. The current agreement with BAI has a one-year term expiring January 1, 2001. Development The Company seeks to develop properties in strong markets where (i) demand for space has caused or is expected to cause occupancy rates to remain high, (ii) barriers to entry such as scarcity of land or entitlement challenges exist, and (iii) the project complements the existing portfolio. The Company's management team has experience in all phases of the development process, including market analysis, site selection, zoning, design, pre-development leasing, construction and permanent financing, and construction management. The Company plans to be especially focused on the development of office tech and flex tech product in 2000. These are multi-tenant buildings designed to meet the needs of the widest range of uses. The flex tech product anticipates the changing needs of high-growth tenants and accommodates their need for flexible facility configurations. The Company evaluates the competitive environment, demand and rent trends, and development pipelines before embarking on or acquiring each new development project. The Company is currently in the process of developing properties in Northern California, Arizona, Washington, and Colorado, and is considering developing additional properties in Northern California, Southern California, Washington and Colorado. The Company's management team has significant development experience in each of these markets. In 1999, the shell construction of 380,000 square feet was completed in five projects of service-flex, tech-flex and office space. Sixty-seven percent of these projects were leased at year-end. Share Repurchase Since 1998, the Company's stock has traded at a discount to its net asset value (determined based on current cap rate and earning estimates) as a result of the softening of the REIT market. With a dividend yield close to 10%, the repurchase and retirement of the Company's common stock increases the stockholders' ownership in the Company and therefore brings value to the stockholders' investment. In July 1998, the Company's board of directors approved a share repurchase program of 3 million shares which was increased to 4.5 million shares in September 1999. Since November 1998, the Company has repurchased and retired 3,458,000 shares at an average price of $16.89 per share. Corporate Strategies In pursuing its business objectives and growth plans, the Company intends to: 1. Pursue a Market Driven Strategy. The Company's strategy is to operate in suburban markets which are experiencing, or are expected by the Company to experience, above average economic growth, and which are, ideally, subject to supply-side constraints. The metropolitan areas in which the Company operates have multiple suburban "cores" and it believes that the potential for growth in these metropolitan areas is generally greatest in and around these suburban cores. It is the Company's experience that such suburban cores emerge as jobs move to the suburbs and typically offer a well-trained and well-educated work force, high quality of life and, in many cases, a diversified economic base. The Company focuses on owning, managing, acquiring and developing properties in these suburban cores. Additionally, the Company seeks out real estate markets that are subject to supply-side constraints such as limited availability of undeveloped land and/or geographic, topographic, regulatory and/or infrastructure restrictions. Such restrictions limit the supply of new commercial space, which, when combined with a growing employment and population base, enhances the long-term return potential for an investment in real estate assets. 2. Focus its Efforts in the Western United States. The Company is currently targeting selected suburban markets in the western United States. Continued economic improvements in these markets, and related improvements in the commercial property markets, and the level of investment in industrial or suburban office properties in these markets should provide the potential for attractive returns through increased occupancy levels, rents and real estate values. This geographic focus, combined with management's market experience, contributes to a more thorough understanding of these industrial and suburban office property markets and allows the Company to anticipate trends and therefore to better identify investment opportunities. 3. Acquire and Develop "Service-Flex, Tech-Flex and Office-Tech" Properties. Among the Company's targeted properties are service and tech-flex industrial properties as well as office-tech buildings. These buildings provide for a wider range of function than that offered by traditional office or industrial properties and are an efficient facility choice for today's high growth technology sector firms that have frequently changing space needs. These properties are divisible into units ranging from approximately 1,500 square feet to approximately 20,000 square feet in order to accommodate multiple tenants of various sizes and needs. The buildings, which generally range in size from 8,000 to 80,000 square feet, have a clear height of 12 to 18 feet and are built using concrete tilt construction with store fronts incorporated in the front elevation and service doors in the back elevation. The Company believes that these properties require more management expertise than other types of industrial properties and that it has developed such expertise. The Company also believes that many potential buyers do not wish or are not well-positioned to undertake such active management. As a result, the Company believes that it often faces fewer competitors for this product and is generally able to acquire these properties at above average yields. 4. Asset Sales The Company funds a portion of its acquisition activities and share repurchase program through the sale of selected assets. Such assets include buildings that have maximized their value or have become obsolete due to their physical attributes. In addition, the Company continues to redefine its geographical focus in the western United States and intends to sell real estate assets that do not fit this western orientation. 5. Neighborhooding Neighborhooding describes the expansion in areas where the Company owns existing properties. This strategy capitalizes on management's expertise and knowledge of the local market, economy and tenant needs for expansion. It results in efficiency in property management and therefore enables the Company to acquire or develop properties at greater yields. The Company utilized this concept in developing projects and acquiring properties in Fremont, Napa and Petaluma, California; Phoenix, Arizona; Lenexa, Kansas; Denver, Colorado; and Federal Way, Washington. Transactions and Significant Events During 1999 Acquisitions and Development During the year, the Company invested approximately $65 million to acquire nine Properties, including five Industrial Properties and four Suburban Office Properties, aggregating approximately 614,000 rentable square feet. At acquisition, the Company estimated that these Properties would provide an initial weighted average unleveraged return on cost (computed as annualized property net operating income at the date of acquisition divided by the total acquisition cost) of 9.76%. The Company estimates the purchase price of acquisitions completed in 1999 to be approximately 90% of the replacement cost of those properties. The Company also acquired two parcels of vacant land in southeast Denver, Colorado, aggregating 23.7 acres for a total investment of approximately $6 million. One of these parcels of land is adjacent to an existing Property. The Company is in the preliminary planning stage to develop industrial or office properties on each of these parcels. Development activity during the year included (i) the completion of construction and initial lease-up of five projects located in Arizona, Washington, and Northern California, adding 380,000 rentable square feet to the available inventory (as of December 31, 1999, these projects were approximately 67% leased); (ii) completion of construction and leasing of one rehabilitation project of 39,000 rentable square feet; and (iii) commencement of construction of one new project in Colorado, which is expected to add approximately 103,000 rentable square feet to the inventory of available space in 2000. This new leasable space provides the Company with a significant opportunity to increase its operating revenue. Sell Selected Assets During the year, the Company sold four Properties, including three Industrial Properties and one Suburban Office Property, aggregating 562,000 rentable square feet for $24,726,000. In addition, the Company sold one 1.39 acre parcel of land for $455,000. The sales produced gain totaling $7,743,000. The dispositions of a Suburban Office Property and an Industrial Property were structured as like-kind exchanges to defer approximately $9,453,000 of taxable gain. The cash proceeds from other sales were used to partially fund the repurchases of the Company's common stock. The Company's Markets The Properties are located in select markets proximate to metropolitan areas in Northern and Southern California, Oregon, Washington, Arizona, Nevada, Colorado, Texas, Kansas and Missouri. From 1994 through the early part of 1998 most of these markets were recovering from the economic recession of the early 1990s. During this recovery, these markets were characterized by strong demand for commercial property without significant increases in supply. The Company believes that this "recovery phase" of the economic cycle for the real estate market came to an end during 1998 and that we are now entering an "equilibrium phase" where supply and demand for properties are more or less in balance. Accordingly, the Company expects commercial property values during this equilibrium phase to be driven less by supply and demand imbalances and more by continuing economic strength in these markets. This continuing economic strength should result in the maintenance of high occupancy levels, increasing rents and potentially increasing real estate values. In particular, the Company believes that continuing economic growth in the San Francisco Bay Area (where 32% of the square footage of the Company's Properties are located) and Seattle (where 12% of the square footage of the Company's Properties are located) will result in strong returns on its properties in these markets during the coming year. These markets are particularly attractive as a result of the excellent quality of life they offer and their limited supply of new commercial real estate resulting from both environmental concerns and geographic barriers. The 2000 edition of Emerging Trends in Real Estate, a publication of PricewaterhouseCoopers and Lend Lease Real Estate Investments, ranked San Francisco (for the fourth consecutive year) and Seattle, as the number one and number seven investment markets in the United States, respectively, for this equilibrium phase of the real estate cycle. Despite this positive outlook, the Company's markets (particularly the San Francisco Bay Area) remain susceptible to an economic downturn in Asia. During the first half of 1998, sources have indicated that California's exports to East Asia fell by 17.5% compared to the first half of 1997. Although there were indications that the Asian economy showed signs of recovery in 1999, there can be no assurance that an economic downturn in Asia will not have an adverse effect on California's manufacturing sector and accordingly on the California real estate market and the Company's portfolio. Operating Performance For the year ended December 31, 1999, the Company reported income before gain on sales and extraordinary item of $32,410,000, on rental revenues of $90,527,000, compared with income before gain on sale and extraordinary item of $31,496,000, on rental revenues of $73,451,000 for the year ended December 31, 1998. The Company's Funds From Operations ("FFO": see definition under "Selected Financial Data") for the year ended December 31, 1999 was $45,554,000 as compared to $42,312,000 for the year ended December 31, 1998. With the share repurchase program, this growth in FFO was spread over fewer shares, increasing the "per share" growth rate. Increase in Dividends on Common Stock In December 1999, the Company announced an 8% increase in its quarterly Common Stock dividend from $0.39 to $0.42 per share, or $1.68 on an annualized basis. The higher dividend rate commenced with the Company's dividend for the fourth quarter of 1999. The Company previously announced, in May 1999, an 8% increase in its quarterly dividend from $0.36 to $0.39 per share which, together with the December 1999 increase, represents a total increase of 18% in the Company's dividends declared for 1999 of $1.56 when compared with the dividends declared for 1998 of $1.32. Credit Facility In June 1998, the Company amended and restated its secured revolving line of credit facility led by Bank of America. Under the facility, which matures June 2001, the Company can borrow up to $175 million on a secured basis. The facility contains an unsecured sub-line of $50 million. The secured loans bear interest at a floating rate equal to either the lender's published "reference rate" or LIBOR plus a margin ranging from 1.10% to 1.35% depending on the Company's leverage level. The unsecured loans bear interest at either the lender's published "reference rate" or LIBOR plus a margin of 1.50%. At December 31, 1999, the facility, which was all secured, had an outstanding balance of $137,156,000, with an interest rate of LIBOR plus 1.35%. Approximately 55% ($75 million) of the loan was fixed at a six-month LIBOR rate which expires in June 2000. In February 1999, the credit facility was restructured to include a $30 million bridge facility which carried the same interest rate as the $175 million facility. In May 1999, the Company obtained a total of $108 million of new first mortgage financing from Teachers Insurance and Annuity Association of America (TIAA). The proceeds from the mortgage loans were used to repay and retire the $30 million bridge facility and pay down the outstanding balance on its $175 million line of credit. The Company was in compliance with the covenants and requirements of its revolving credit facility throughout 1999. Mortgage Loans Payable As noted above, in May 1999 the Company obtained a total of $108 million of new first mortgage financing from TIAA. The financing consists of a $43.45 million 10-year loan, a $37.2 million 8-year loan, and a $27.35 million 6-year loan, all with interest at a fixed rate of 7.17%. In November 1999, the Company secured an additional $22.15 million mortgage loan from TIAA. The loan has a 7-year term with interest at a fixed rate of 7.95%. In December 1999, the Company secured a $4.6 million mortgage loan from Union Bank. The loan has a 5-year term with interest at a variable rate of LIBOR plus 2.50%. Proceeds of the mortgage loans were used to pay down the outstanding balance of the Company's $175 million line of credit. Dividends The Company has made regular quarterly distributions to the holders of the Common Stock in each quarter since the second quarter of 1993, having increased the dividend twelve times since that time from $0.10 per share in the second quarter of 1993 to $0.42 per share in the fourth quarter of 1999. In March 2000, the Company declared a dividend distribution for the first quarter 2000 to its stockholders in the amount of $0.42 per share of Common Stock, payable 15 days after the quarter-end. Tenants Based on rentable square feet, as of December 31, 1999, the Suburban Office Properties and Industrial Properties were approximately 97% occupied by a total of 575 tenants, of which 114 were Suburban Office Property tenants and 461 were Industrial Property tenants. The Company's tenants include local, regional, national and international companies engaged in a wide variety of businesses. Financing The Company expects cash flow from operations to be sufficient to pay operating expenses, real estate taxes, general and administrative expenses, and interest on indebtedness and to make distributions to stockholders required to maintain the Company's REIT qualification. The Company expects to fund the cost of acquisitions, capital expenditures, costs associated with lease renewals and reletting of space, repayment of indebtedness, and development of properties from (i) cash flow from operations, (ii) borrowings under the credit facility and, if available, other indebtedness (which may include indebtedness assumed in acquisitions), and (iii) the sale of certain real estate investments. The Company does not anticipate that cash flow from operations will be sufficient to enable it to repay amounts then outstanding under the credit facility when it becomes due in 2001. The Company expects to make such payment by refinancing or extending the credit facility, obtaining additional third party mortgage financing, or by raising funds through the sale of certain properties. Insurance The Company carries commercial general liability coverage with primary limits of $1 million per occurrence and $2 million in the aggregate, as well as a $40 million umbrella liability policy. This coverage protects the Company against liability claims as well as the cost of defense. The Company carries property insurance on a replacement value basis covering both the cost of direct physical damage and the loss of rental income. Separate flood and earthquake insurance is provided with an annual aggregate limit of $20 million subject to a deductible of 5-10% of total insurable value per building with respect to the earthquake coverage. The Company also carries director and officer liability insurance with an aggregate limit of $10 million, and a fidelity bond in the amount of $1 million. This coverage protects the Company's directors and officers against liability claims as well as the cost of defense. Competition, Regulation, and Other Factors The success of the Company depends upon, among other factors, general economic conditions and trends, including real estate trends, interest rates, government regulations and legislation, income tax laws and zoning laws. The Company's real estate investments are located in markets in which they face significant competition for the rental revenues they generate. Many of the Company's investments, particularly the office buildings, are located in markets in which there is a significant supply of available space, resulting in intense competition for tenants and low rents. Government Regulations The Company's properties are subject to various federal, state and local regulatory requirements such as local building codes and other similar regulations. The Company believes its properties are currently in substantial compliance with all applicable regulatory requirements, although expenditures at its properties may be required to comply with changes in these laws. No material expenditures are contemplated at this time in order to comply with any such laws or regulations. Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances released on, above, under, or in such property. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of such removal or remediation could be substantial. Additionally, the presence of such substances or the failure to properly remediate such substances may adversely affect the owner's ability to borrow using such real estate as collateral. The Company believes that it is in compliance in all material respects with all federal, state and local laws regarding hazardous or toxic substances, and the Company has not been notified by any governmental authority of any non-compliance or other claim in connection with any of its present or former properties. Accordingly, the Company does not currently anticipate that compliance with federal, state and local environmental protection regulations will have any material adverse impact on the financial position, results of operations or liquidity of the Company. There can be no assurance, however, that future discoveries or events at the Company's properties, or changes to current environmental regulations, will not result in such a material adverse impact. Other Information The Company currently employs 29 full time employees. The Company is not dependent upon a single tenant or a limited number of tenants. ITEM 2. PROPERTIES Real Estate Summary As of December 31, 1999, the Company's real estate investments were diversified by property type as follows (dollars in thousands): Number of Percent Properties Cost of Total Industrial buildings 56 $ 279,367 41% Office buildings 25 294,420 43% Operating properties held for sale 21 80,563 12% Properties under development 8 19,246 3% Land held for development 4 6,137 1% Total 114 $ 679,733 100% As of December 31, 1999, the Company's real estate investments were diversified by geographic region as follows: Number of Investment % of Total Properties Amount Investment Industrial buildings Northern California 30 $151,059 22 Arizona 14 65,163 10 Southern California 10 57,951 8 Colorado 2 5,194 1 Total industrial buildings 56 279,367 41 Office buildings Northern California 6 30,057 4 Arizona 5 34,439 5 Southern California 4 30,771 4 Colorado 2 51,180 8 Greater Seattle Area 7 135,193 20 Nevada 1 12,780 2 Total office buildings 25 294,420 43 Operating properties held for sale Northern California 1 8,570 1 Arizona 1 4,011 1 Southern California 2 5,033 1 Greater Kansas City Area 9 27,313 4 Texas 6 24,152 3 Greater Portland Area 2 11,484 2 Total operating properties held for sale 21 80,563 12 Properties under development Northern California 1 660 * Arizona 3 8,726 1 Colorado 3 6,157 1 Greater Seattle Area 1 3,703 1 Total properties under development 8 19,246 3 Land held for development Northern California 2 2,133 * Southern California 1 703 * Colorado 1 3,301 1 Total land held for development 4 6,137 1 Total 114 $679,733 100% * Less than 1% Percentage Leased and 10% Tenants The following table sets forth the occupancy rates for each of the last five years, the number of tenants occupying 10% or more of the developed square feet at the Property as of the end of the year and the principal business of the tenants in the Company's properties at December 31, 1999. Percentage Occupied/Number of Tenants Occupying 10% or more 1995 1996 1997 1998 1999 Property % # % # % # % # % # Principal Business at December 31, 1999 INDUSTRIAL PROPERTIES Northern California Building #3 at Contra Costa Diablo Ind. Park, Concord 100% 1 100% 1 100% 1 100% 1 100% 1 Storage of cabling products. Building #8 at Contra Costa Diablo Ind. Park, Concord 100% 1 100% 1 100% 1 100% 1 100% 1 Warehouse and storage of medical supplies. Building #18 at Mason Ind. Park, Concord 83% 2 83% 2 100% 2 92% 2 100% 2 Warehouse of scoffolding materials and construction supplies; general contractor. Milpitas Town Center, Milpitas 100% 4 100% 4 100% 4 100% 3 100% 4 Manufacturing of blood glucose meters, assembly and repair of accelerator systems, light manufacturing of OEM's and assembly and manufacturing of vacuum components. 598 Gibraltar Drive, Milpitas N/A 100% 1 100% 1 100% 1 100% 1 Manufacturing of personal computers. 350 East Plumeria Drive, San Jose 100% 1 100% 1 100% 1 100% 1 100% 1 Manufacturer of computer chips. Auburn Court, Fremont 100% 4 100% 4 100% 4 100% 4 68% 3 Manufacturing of computer equipment, assembly of computer and other electronic components, lab engineering, and marketing design. 47650 Westinghouse Drive, Fremont 100% 1 100% 1 100% 1 100% 1 100% 1 Electronic personal computer board assembly. 410 Allerton, South San Francisco 100% 1 100% 1 100% 1 100% 1 100% 1 Candy manufacturer and distributor. 400 Grandview, South San Francisco 100% 5 100% 5 100% 4 100% 4 100% 4 Radiology research and developer, freight forwarding, manufacturing and distribution of point-of-sale marketing products. 342 Allerton, South San Francisco 100% 4 100% 4 100% 4 100% 4 100% 4 Freight forwarding. 301 East Grand, South San Francisco 71% 2 100% 3 100% 3 100% 3 75% 2 Freight forwarding, and distributor of MRI equipment. Fourier Avenue, Fremont N/A 100% 1 100% 1 100% 1 100% 1 Manufacturer of testers and equipment for semi-conductors. Lundy Avenue, San Jose N/A 100% 2 100% 2 82% 1 100% 2 Testing and distribution of semi- conductors and other related electronic components, software sales and development. 115 Mason Circle, Concord N/A 100% 5 100% 5 100% 5 100% 5 Pipeline servicing company, manufacturer and welder of pipes, distributor of water and water dispensers. 47600 Westinghouse Drive, Fremont N/A 100% 1 100% 1 100% 1 100% 1 Research and development assembly and testing related to the semi- conductor/electronics industry. 860-870 Napa Valley Corporate Way, Napa N/A 96% 3 86% 3 100% 3 88% 2 Winery, engineering company and software developer. 47633 Westinghouse Drive, Fremont N/A 100% 1 100% 1 100% 1 100% 1 Research and development assembly and testing related to the semi- conductor/electronics industry. 47513 Westinghouse Drive, Fremont N/A N/A N/A 100% 2 100% 2 Manufacturing of semi-conductor equipment, manufacture and design of arterial balloon catheters and other related devices. Bordeaux Centre, Napa N/A N/A N/A 38% 2 89% 4 Manufacturing and printing of corks, light manufacturing, warehousing and distribution of recreational marine accessories, storage and distribution of case good wines, design and manufacture of molded fiber packaging products. O'Toole Business Park, San Jose N/A 94% 0 90% 0 89% 0 100% 0 N/A 6500 Kaiser Drive, Fremont N/A N/A 100% 1 100% 1 100% 1 Office, research and development, manufacturing of computers. Bedford Fremont Business Park, Fremont N/A N/A 100% 1 100% 1 97% 1 Administration and testing of samples for managed care organizations. Spinnaker Court, Fremont N/A N/A 100% 2 100% 2 100% 2 Manufacturing and distribution of personal computers, peripherals and related electronic parts and software. 2277 Pine View Way, Petaluma N/A N/A 100% 1 100% 1 100% 1 Manufacturer and distributor of plastic and glass eyeglass lenses for world-wide distribution. The Mondavi Building, Napa N/A N/A 100% 1 100% 1 100% 1 Wine storage and administration. Monterey Commerce Center 2, Monterey N/A N/A 100% 1 100% 1 100% 1 Language interpretation - over seas calls. Monterey Commerce Center 3, Monterey N/A N/A 100% 3 100% 3 100% 3 Storage of office and long-distance telephone equipment and medical supplies, copier sales and distribution. Parkpoint Business Center, Santa Rosa N/A N/A N/A 100% 3 100% 3 Customized computer software company, rehabilitation center, mortgage broker. 2180 S. McDowell, Petaluma N/A N/A N/A 100% 2 81% 1 Manufacturer of high-end, commercial grade sound equipment. 2190 S. McDowell, Petaluma N/A N/A N/A 100% 2 100% 2 Bread distributor; distributor of paper and packaging products. Southern California Dupont Industrial Center, Ontario 100% 1 59% 0 100% 1 97% 1 100% 2 Distribution of swimming pool supplies, and transportation trucking company. 3002 Dow Business Center, Tustin 83% 0 99% 0 100% 0 99% 0 99% 0 N/A Carroll Tech I, San Diego N/A 100% 1 100% 1 100% 1 100% 1 Sales and service of point of sales equipment. Vista 1, Vista N/A 100% 1 100% 1 0% 0 0% 0 N/A Vista 2, Vista N/A 100% 1 100% 1 100% 1 100% 1 Manufacturer of graphite golf club shaft. Signal Systems Building, San Diego N/A 100% 1 100% 1 100% 1 100% 1 Developer and manufacturer of avionic diagnostic equipment. Carroll Tech II, San Diego N/A 100% 1 100% 1 100% 1 100% 1 Bio-technology company. 2230 Oak Ridge Way, Vista N/A N/A 100% 1 100% 1 100% 1 Manufacturer of eqipment for circuit board assembly. 5502 Oberlin Drive, San Diego N/A N/A N/A 100% 1 100% 1 Manufacturer of micro-circuits. 6960 Flanders Drive, San Diego N/A N/A N/A 100% 1 100% 1 Geotechnical and environmental consultant. Canyon Vista Center, San Diego N/A N/A N/A N/A 100% 3 Designer of interactive entertainment software, full service hearing aid company, provider of product testing certification. 6325 Lusk Blvd., San Diego N/A N/A N/A N/A 100% 2 Bio-tech company developing diabetes self- test products and apparel company. Kansas City, Kansas Ninety-Ninth Street #3, Lenexa 100% 2 89% 2 100% 2 98% 2 98% 2 Warehouse for computer cables/wiring and storage of corporate records/supplies. Lackman Business Center, Lenexa 98% 2 91% 2 100% 2 98% 3 92% 2 Network and communications specialists. Ninety-Ninth Street #1, Lenexa 100% 2 100% 2 100% 2 100% 2 100% 3 Tool distribution and surgical instrument manufacturing. Ninety-Ninth Street #2, Lenexa 100% 1 100% 1 100% 1 100% 1 100% 1 Drug testing clinic. Ninety-Ninth Street #4, Lenexa N/A N/A N/A 79% 3 79% 3 Distribution of shrink wrap products, distributor of computers and computer related parts, home nursing and health care administration. Panorama Business Park, Kansas City N/A 100% 2 100% 2 91% 2 89% 2 Distribution of pharmaceuticals, distribution of appliances. Panorama III, Kansas City N/A N/A N/A N/A 100% 4 Manufacturer of dental products, storage of pre-packaged baked goods, manufacturer of intercom and security systems, wholesale sales and distribution of security systems parts. Colorado Bryant Street Quad, Denver 97% 3 100% 3 100% 3 100% 3 100% 3 Health care provider, photo processing lab, and radiator coating plant/distributor. Bryant Street Annex, Denver 100% 2 100% 2 100% 2 100% 2 100% 2 Office supplies distributor and automotive paint distributor. Greater Portland Area, Oregon Twin Oaks Technology Center, Beaverton 81% 2 91% 3 96% 2 89% 3 95% 3 Software developer and telecommunications. Twin Oaks Business Center, Beaverton 94% 3 80% 4 81% 4 84% 4 75% 3 Electronic engineering, electronic equipment assembly, computer equipment distributor and postal service. Arizona Westech Business Center, Phoenix N/A 93% 0 96% 0 95% 0 96% 0 N/A Westech II, Phoenix N/A N/A N/A 100% 3 100% 2 Healthcare consultants and travel agency. 2601 W. Broadway, Tempe N/A N/A 100% 1 100% 1 100% 1 Wireless phone service provider. Phoenix Airport Center #2, Phoenix N/A N/A 100% 1 100% 1 100% 1 Electronic parts sales and customer service. Phoenix Airport Center #3, Phoenix N/A N/A 100% 1 100% 1 100% 1 Cosmetic manufacturing and distribution. Phoenix Airport Center #4, Phoenix N/A N/A 100% 1 100% 1 100% 1 Package delivery/service call center. Phoenix Airport Center #5, Phoenix N/A N/A N/A 100% 1 100% 1 Healthcare maintenance organization corporate office. Butterfield Business Center, Tucson N/A N/A 100% 3 100% 3 100% 2 Sears call center, polish/wax research and development. Butterfield Tech Center II, Tucson N/A N/A N/A N/A 56% 2 Package distribution facility and school book distribution facility. Greystone Business Park, Tempe N/A N/A N/A N/A 11% 1 Sales and service of electronic equipment. Cimarron Business Park, Scottsdale N/A N/A N/A 98% 2 97% 2 Printing and sales office, computer equipment. Expressway Corporate Center, Tempe N/A N/A N/A 68% 1 100% 2 Manufacture photographic equipment for wafer circuiting, and food supplement manufacturing. The Adams Brothers Building, Phoenix N/A N/A N/A N/A 100% 1 Interior design and home products sales. Bedford Realty Partners, L.P., Phoenix N/A N/A N/A N/A 100% 2 Offices and laboratories for environmental and soils testing and clinical studies. Texas Ferrell Drive, Farmers Branch N/A N/A 100% 5 100% 5 83% 4 Medical products distribution, hardware distribution, and engineering. Austin Braker 2, Austin N/A N/A N/A 100% 3 100% 3 Computer technology for television, lottery and gaming association, computer sales and customer service. Austin Rutland 10, Austin N/A N/A N/A 100% 5 100% 5 Service of copier equipment, printing for small businesses, tool distribution, environmental field work, trade show and conference coordination. Austin Southpark A, B and C, Austin N/A N/A N/A 100% 4 87% 3 Spare parts storage for computer chip manufacturer, environmental testing, proto-type testing for computer chip manufacturer and valuable storage for pawn broker. SUBURBAN OFFICE PROPERTIES Northern California Village Green, Lafayette 100% 2 100% 1 99% 1 100% 2 100% 2 Event planner and organizer, and real estate investment trust. 100 View Street, Mountain View N/A 100% 4 100% 3 100% 3 100% 4 Architectural servicing, designing and marketing of integrated circuits for semi-conductors, computer software design of on-line reporting and surveying devices. Canyon Park, San Ramon N/A N/A 100% 2 100% 2 100% 2 Medical administrative offices and geotechnical lab; soils testing, engineering services. Crow Canyon Centre, San Ramon N/A N/A N/A N/A 50% 1 Health care provider. Monterey Commerce Center 1, Monterey N/A N/A 87% 4 82% 4 79% 3 Financial services, software development, telecommunications sales, electronic equipment sales, and real estate services. 3380 Cypress, Petaluma N/A N/A N/A 100% 1 100% 1 Manufacture hearing devices. Southern California Laguna Hills Square, Laguna N/A 86% 2 96% 4 93% 4 95% 4 Medical facility and securities brokerage firm. Carroll Tech III, San Diego N/A N/A 100% 1 100% 1 100% 1 On-line game developer. Scripps Wateridge, San Diego N/A N/A 100% 2 100% 2 100% 2 Wireless communications, supplier of digital wireless communication products and technologies. Carroll Tech IV, San Diego N/A N/A N/A N/A 100% 1 Information management for healthcare. Greater Kansas City Area 6600 College Blvd., Overland Park 100% 1 98% 1 100% 1 100% 1 100% 1 Telecommunication. Didde Building, Overland Park N/A N/A N/A 100% 3 100% 3 Investment firm, printing and packaging technology corporate offices and reinsurance brokerage. Colorado Oracle Building, Denver N/A N/A 100% 2 100% 2 100% 2 Software company and banking. Texaco Building, Denver N/A N/A N/A 100% 1 100% 1 Oil company. Arizona Executive Center at Southbank, Phoenix N/A N/A 98% 3 98% 3 98% 3 Post graduate education facilities, travel agency, and customer credit call center. Troika Building, Tucson N/A N/A 100% 1 100% 1 100% 1 Architectural services Phoenix Airport Center #1, Phoenix N/A N/A 100% 5 100% 5 100% 3 Electronics, computer sales, banking services, and security services sales office. Cabrillo Executive Center, Phoenix N/A N/A N/A 97% 2 100% 2 Medical insurance company and software developer. Mountain Pointe Office Park, Phoenix N/A N/A N/A N/A 0% 0 N/A 1355 S. Clearview Avenue, Mesa N/A N/A N/A N/A 100% 1 Debt collection services. Greater Seattle Area Kenyon Center, Bellevue N/A 100% 1 100% 1 100% 1 100% 1 Manufacturer of aircraft. Orillia Office Park, Renton N/A N/A 100% 1 100% 1 100% 1 Manufacturer of aircraft. Adobe Systems Bldg. 1, Seattle N/A N/A N/A 100% 1 100% 1 Computer software design and engineering. Adobe Systems Bldg. II, Seattle N/A N/A N/A 77% 1 100% 2 Computer software design and engineering, non-profit acupuncture and alternative medicine school and clinic. Highlands Phase I, Bothell N/A N/A N/A N/A 38% 1 Cellular phone service and sales via the internet. The Federal Way Building, Federal Way N/A N/A N/A N/A 100% 3 Property/casualty insurance company, electronic equipment manufacturer, and oil company. Federal Way Building II, Federal Way N/A N/A N/A N/A 100% 4 Equipment leasing, commercial real estate developer, and full service insurance company. Texas 9737 Great Hills Trail, Austin N/A N/A 100% 1 100% 1 100% 1 Home mortgage business. Nevada U. S. Bank Centre, Reno N/A N/A 94% 1 99% 1 100% 2 Insurance services and mining. Lease Expirations - Real Estate Portfolio The following table presents lease expirations for each of the ten years beginning January 1, 2000. The table presents: (i) the number of leases that expire each year, (ii) the square feet covered by such expiring leases, (iii) the annualized base rent (the "Annualized Base Rent") represented by such expiring leases and (iv) the percentage of total Annualized Base Rent for expiring leases. Number of Percentage Leases Rentable Annualized of Annualized Base Year Expiring Square Feet Base Rent Rent 2000 161 1,233,792 12,700,872 16.3% 2001 122 1,046,520 10,862,342 13.9 2002 120 973,187 9,616,715 12.3 2003 71 941,686 10,912,326 14.0 2004 65 1,273,438 12,673,311 16.3 2005 15 638,473 9,852,127 12.6 2006 7 278,645 3,178,135 4.1 2007 6 421,219 2,464,003 3.2 2008 2 12,720 242,724 .3 2009 and thereafter 6 436,286 5,450,952 7.0 Total 575 7,255,966 77,953,507 100.0% Principal Provisions of Leases The following table sets forth the principal provisions of leases which represent more than 10% of the gross leasable area ("GLA") of each of the Company's Properties and the realty tax rate for each Property for 1999. Annual # of Square Contract Property Leases Project Feet of Rent Taxes/ with 10% or Square Each ($/Sq/Yr) At Lease Renewal Property Rate More of GLA Feet Tenant End of Year Expiration Options INDUSTRIAL PROPERTIES Northern California Building #3 at Contra Costa $16,465 1 21,840 21,840 $7.80 Feb. 02 1-3 yr. Diablo Ind. Park, Concord $1.01/100 Building #8 at Contra Costa $23,534 1 31,800 31,800 $6.72 Dec. 00 2-5 yr. Diablo Ind. Park, Concord $1.01/100 Building #18 at Mason $17,313 2 28,836 7,225 $7.20 May 00 None Industrial Park, Concord $1.01/100 4,825 $7.49 Feb. 01 None Milpitas Town Center, $69,454 4 102,620 23,924 $17.40 Apr. 02 1-5 yr. Milpitas $1.09/100 24,426 $11.28 Apr. 02 1-2 yr. 30,840 $13.80 Jul. 03 1-5 yr. 23,430 $8.12 Jan. 05 None 598 Gibraltar Drive, $46,270 1 45,090 45,090 $10.44 Apr. 01 1-5 yr. Milpitas $1.10/100 350 East Plumeria Drive, $139,546 1 142,700 142,700 $15.75 Apr. 05 1-5 yr. San Jose $1.05/100 Auburn Court, Fremont $48,563 3 68,030 16,095 $14.35 Jul. 01 1-5 yr. $1.04/100 12,060 $13.20 Apr. 03 None 12,060 $7.20 Jul. 00 None 47650 Westinghouse Drive, $15,848 1 24,030 24,030 $10.20 Sep. 04 None Fremont $1.04/100 410 Allerton, $25,821 1 46,050 46,050 $7.20 Apr. 01 None South San Francisco $1.03/100 400 Grandview, $86,654 4 107,004 21,841 $7.80 Dec. 03 None South San Francisco $1.03/100 43,642 $8.06 Jul. 02 1-5 yr. 18,789 $8.64 May 04 1-5 yr. 18,864 $6.60 Jan. 03 None 342 Allerton, $53,537 4 69,312 19,751 $7.20 Mar. 00 None South San Francisco $1.03/100 9,720 $9.09 Mar. 02 None 30,953 $10.20 Jun. 04 None 8,888 $9.73 Aug. 02 None 301 East Grand, $33,328 2 57,846 26,240 $8.11 Jun. 03 None South San Francisco $1.03/100 17,206 $5.04 Dec. 03 None Fourier Avenue, Fremont $106,368 1 104,400 104,400 $8.99 Apr. 04 None $1.04/100 Lundy Avenue, San Jose $57,815 2 60,428 49,342 $14.40 Apr. 06 1-5 yr. $1.08/100 11,086 $14.40 Jul. 04 1-5 yr. 115 Mason Circle, Concord $18,806 5 35,000 5,833 $5.47 Jan. 00 None $1.01/100 5,832 $6.84 Jul. 01 None 8,154 $7.44 Aug. 02 None 7,296 $6.60 Nov. 02 1-3 yr. 7,885 $7.20 Apr. 00 None 47600 Westinghouse Drive, $16,989 1 24,030 24,030 $10.92 Oct. 03 1-3 yr. Fremont $1.04/100 860-870 Napa Valley Corporate $84,339 2 67,775 13,111 $10.53 Dec. 00 1-5 yr. Way, Napa $1.03/100 7,558 $10.58 Sep. 01 None 47633 Westinghouse Drive, $53,558 1 50,088 50,088 $12.06 Oct. 03 1-3 yr. Fremont $1.04/100 47513 Westinghouse Drive, $122,919 2 65,385 35,132 $15.36 Feb. 05 1-5 yr. Fremont $1.04/100 30,253 $14.40 Feb. 04 1-5 yr. Bordeaux Centre, Napa $123,903 4 150,000 22,075 $7.62 Nov. 07 2-5 yr. $1.03/100 16,076 $7.43 Nov. 07 1-5 yr. 51,790 $5.76 Jan. 04 1-5 yr. 18,434 $6.04 Dec. 04 1-5 yr. O'Toole Business Park, $111,306 0 122,320 N/A N/A N/A N/A San Jose $1.09/100 6500 Kaiser Drive, Fremont $179,066 1 78,611 78,611 $9.60 Sep. 04 2-5 yr. $1.04/100 Bedford Fremont Business Center, Fremont $236,399 1 146,509 71,532 $15.24 Jul. 03 1-3 yr. $1.04/100 Spinnaker Court, Fremont $167,552 2 98,500 69,230 $8.10 Mar. 00 None $1.07/100 29,270 $8.59 Mar. 00 None 2277 Pine View Way, $102,816 1 120,480 120,480 $7.25 Mar. 07 2-5 yr. Petaluma $1.00/100 The Mondavi Building, Napa $99,417 1 120,157 120,157 $5.17 Sep. 12 1-5 yr. $1.03/100 Monterey Commerce $22,876 1 28,020 28,020 $15.12 Dec. 00 1-3 yr. Center 2, Monterey $1.00/100 Monterey Commerce $22,574 3 24,240 3,817 $14.28 Jul. 01 1-5 yr. Center 3, Monterey $1.00/100 3,050 $12.96 Nov. 00 2-3 yr. 17,373 $15.96 Oct. 00 None Parkpoint Business Center, $74,179 3 67,869 8,767 $15.00 Oct. 02 1-5 yr. Santa Rosa $1.00/100 7,894 $14.74 Oct. 01 1-5 yr. 17,505 $15.00 Mar. 03 1-5 yr. 2180 McDowell, Petaluma $42,721 1 43,083 35,014 $11.20 Feb. 00 None $1.00/100 2190 S. McDowell, Petaluma $32,439 2 32,719 17,131 $8.84 Mar. 04 1-5 yr. $1.00/100 15,588 $7.90 Apr. 06 2-5 yr. Southern California Dupont Industrial Center, $205,774 1 451,192 183,244 $2.88 Jan. 07 2-5 yr. Ontario $1.04/100 3002 Dow Business Center, $189,691 0 192,125 N/A N/A N/A N/A Tustin $1.01/100 Carroll Tech I, $17,185 1 21,936 21,936 $9.11 Nov. 05 2-3 yr. San Diego $1.11/100 Vista 1, Vista $20,575 0 42,508 N/A N/A N/A N/A $1.04/100 Vista 2, Vista $42,050 1 47,550 47,550 $7.15 Sep. 01 2-5 yr. $1.04/100 Signal Systems Building, $99,254 1 109,780 109,780 $10.42 Aug. 06 2-5 yr. San Diego $1.02/100 Carroll Tech II, $35,581 1 37,586 37,586 $13.79 Dec. 01 None San Diego $1.11/100 2230 Oak Ridge Way, $32,845 1 44,063 44,063 $6.63 Aug. 04 2-5 yr. Vista $1.01/100 5502 Oberlin Drive, $25,531 1 20,771 20,771 $9.96 Mar. 03 1-5 yr. San Diego $1.11/100 6960 Flanders Drive, $38,442 1 33,144 33,144 $9.98 May 03 1-5 yr. San Diego $1.11/100 Canyon Vista Center, $61,727 3 63,746 17,591 $7.44 Dec. 04 1-5 yr. San Diego $1.11/100 18,643 $8.14 Mar. 00 None 27,512 $10.25 May 02 1-5 yr. 6325 Lusk Blvd., $46,691 2 49,942 31,849 $15.48 Nov. 03 None San Diego $1.11/100 18,093 $7.20 Jun. 01 None Greater Kansas City Area Ninety Ninth Street #3, $59,583 2 50,000 13,000 $7.35 Dec. 03 1-5 yr. Lenexa $9.89/100 31,250 $5.38 May 03 None Lackman Business Center, $57,934 2 45,956 5,510 $13.52 Feb. 01 1-3 yr. Lenexa $9.89/100 5,320 $8.50 Jun. 01 None Ninety-Ninth Street #1, $51,301 3 35,516 19,019 $8.33 Sep. 00 None Lenexa $9.89/100 8,902 $8.42 Mar. 04 1-5 yr. 4,403 $8.25 Mar. 02 None Ninety-Ninth Street #2, $23,232 1 12,974 12,974 $8.66 Oct. 04 None Lenexa $9.89/100 Ninety Ninth Street #4, $92,573 3 68,831 19,540 $5.75 Feb. 01 None Lenexa $9.89/100 19,316 $5.85 Mar. 03 1-3 yr. 14,751 $7.37 Oct. 02 1-5 yr. Panorama Business Park, $114,341 2 103,457 12,491 $5.95 Jul. 01 None Kansas City $9.24/100 12,951 $5.15 Feb. 01 None Panorama III, Kansas City $57,321 4 46,860 12,122 $8.00 May 02 1-5 yr. $9.24/100 6,569 $7.99 May 00 1-5 yr. 5,864 $6.10 Mar. 02 None 6,312 $11.20 Dec. 02 2-5 yr. Colorado Bryant Street Quad, Denver $84,932 3 155,536 17,440 $4.50 Apr. 02 None $6.73/100 20,726 $3.30 Feb. 01 1-5 yr. 16,055 $4.11 Feb. 02 1-3 yr. Bryant Street Annex, Denver $34,547 2 55,000 42,148 $4.25 Nov. 00 3-1 yr. $6.73/100 12,852 $3.90 Mar. 00 None Greater Portland Area Twin Oaks Technology Center, $66,767 3 95,519 11,460 $5.93 Nov. 01 None Beaverton $1.44/100 10,069 $5.96 M-T-M None 9,732 $10.56 Feb. 03 None Twin Oaks Business Center, $42,141 3 66,339 7,633 $10.20 Nov. 02 None Beaverton $1.44/100 6,702 $9.00 Feb. 00 None 11,475 $9.00 Oct. 00 1-3 yr. Arizona Westech Business Center, Phoenix $127,276 0 143,940 N/A N/A N/A N/A $13.64/100 Westech II, Phoenix $110,764 3 80,878 14,615 $8.52 Oct. 04 None $13.64/100 11,819 $8.97 Nov. 02 1-2 yr. 11,739 $7.80 Nov. 02 1-2 yr. 2601 W. Broadway, Tempe $62,311 1 44,244 44,244 $7.14 Jan. 07 2-5 yr. $13.21/100 Phoenix Airport Center #2, $60,614 1 35,768 35,768 $7.80 Aug. 01 2-5 yr. Phoenix $13.64/100 Phoenix Airport Center #3, $56,060 1 55,122 55,122 $7.02 Jul. 01 2-5 yr. Phoenix $13.64/100 Phoenix Airport Center #4, $33,134 1 30,504 30,504 $7.80 Jun. 00 2-5 yr. Phoenix $13.64/100 Phoenix Airport Center #5, $92,049 1 60,000 60,000 $8.68 Sep. 02 1-5 yr. Phoenix $13.64/100 Butterfield Business Center, $94,937 3 95,746 50,000 $6.30 Aug. 04 2-5 yr. Tucson $16.38/100 14,982 $2.86 Aug. 04 1-5 yr. 22,002 $8.85 Jun. 01 None Butterfield Tech Center II, $13,711 2 33,082 7,383 $7.31 Mar. 06 2-5 yr. Tucson $12.61/100 11,064 $6.24 Sep. 02 1-2 yr. Greystone Business Park, $15,024 1 60,738 6,520 $10.56 Nov. 04 2-3 yr. Tempe $13.09/100 Cimarron Business Park, $113,317 2 94,800 13,800 $10.31 Mar. 04 None Scottsdale $12.10/100 9,510 $9.00 Sep. 00 1-4 yr. Expressway Corporate Center, $87,678 2 79,331 40,528 $8.40 Mar. 03 None Tempe $13.21/100 18,825 $9.27 Aug. 06 None The Adams Brothers Building, $32,784 1 71,345 71,345 $4.56 Jan. 04 2-5 yr. Phoenix $18.83/100 Bedford Realty Partners, L.P., $176,648 2 101,835 13,245 $7.30 Dec. 01 None Phoenix $18.83/100 30,409 $7.08 Jun. 05 None Texas Ferrell Drive, $56,795 4 68,580 11,430 $4.50 Jan. 00 None Farmers Branch $1.61/100 11,430 $4.20 Feb.00 None 11,430 $4.50 Jul. 01 1-5 yr. 11,430 $4.75 Apr. 02 None Austin Braker 2, $42,913 3 27,322 16,522 $9.00 Jan. 03 1-3 yr. Austin $2.60/100 5,400 $7.92 Jan. 04 None 5,400 $9.00 Feb. 03 None Austin Rutland 10, $69,857 5 54,000 7,200 $6.96 Nov. 01 None Austin $2.60/100 7,200 $6.84 May 00 None 7,200 $5.64 Sep. 02 None 7,200 $8.40 Aug. 00 None 14,400 $5.40 Dec. 02 1-3 yr. Austin Southpark A, B, and C, $118,834 3 78,276 13,550 $8.52 Apr. 01 2-3 yr. Austin $2.60/100 11,957 $7.56 Feb. 00 None 8,100 $8.64 May 03 1-5 yr. SUBURBAN OFFICE PROPERTIES Northern California Village Green, Lafayette $26,300 2 16,795 3,240 $23.40 Jun. 00 None $1.11/100 11,062 $24.12 Mar. 05 None 100 View Street, $52,856 4 42,141 5,490 $21.48 Jul. 01 1-5 yr. Mountain View $1.08/100 12,112 $33.00 Sep. 04 1-5 yr. 5,070 $40.20 Apr. 04 None 7,453 $33.00 May 04 None Canyon Park, $63,964 2 57,667 48,265 $15.68 Feb. 00 None San Ramon $1.07/100 9,402 $20.32 Jan. 03 None Crow Canyon Centre, $10,156 1 39,108 19,615 $25.20 Oct. 06 2-5 yr. San Ramon $1.06/100 Monterey Commerce Center 1, $61,873 3 50,031 5,809 $19.80 Aug. 02 1-3 yr. Monterey $1.00/100 7,000 $18.96 Mar. 03 1-5 yr. 19,478 $19.80 Jul. 03 1-5 yr. 3880 Cypress Dr., $65,639 1 35,100 35,100 $13.08 May 07 1-5 yr. Santa Rosa $1.00/100 Southern California Laguna Hills Square, Laguna $64,962 4 51,734 8,474 $33.60 Jun. 02 1-5 yr. $1.05/100 7,368 $25.24 Apr. 05 1-5 yr. 6,391 $24.24 Sep. 00 1-5 yr. 9,229 $19.80 Jun. 02 2-3 yr. Carroll Tech III, San Diego $23,473 1 29,307 29,307 $9.60 Sep. 04 1-5 yr. $1.11/100 Scripps Wateridge, San Diego $194,312 2 123,853 49,295 $12.85 Jul. 06 1-5 yr. $1.11/100 74,558 $13.37 Aug. 05 2-3 yr. Carroll Tech IV, San Diego $50,963 1 43,415 43,415 $15.00 Dec. 02 1-5 yr. $1.11/100 Greater Kansas City Area 6600 College Blvd., $187,186 1 79,316 62,441 $11.80 M-T-M None Overland Park $10.81/100 Didde Building, $54,270 3 20,168 10,962 $19.50 Jan. 08 1-5 yr. Overland Park $10.81/100 3,667 $16.60 Jan. 02 None 2,132 $17.50 Mar. 01 None Colorado Oracle Building, Denver $349,086 2 90,712 10,043 $18.00 Aug. 11 4-5 yr. $10.75/100 77,090 $24.00 Sep. 03 None Texaco Building, Denver $570,576 1 237,055 237,055 $18.05 Jan. 05 2-5 yr. $8.67/100 Arizona Executive Center at Southbank, $258,438 4 140,157 38,106 $9.74 Apr. 02 1-5 yr. Phoenix $18.83/100 17,910 $8.44 Sep. 03 2-5 yr. 30,518 $10.00 Jun. 01 2-5 yr. 21,626 $10.00 Jul. 02 2-5 yr. Troika Building, Tucson $120,424 1 52,000 52,000 $10.00 Oct. 01 None $17.40/100 Phoenix Airport Center #1, $47,414 5 32,460 11,990 $10.95 Aug. 00 1-5 yr. Phoenix $13.64/100 4,527 $15.00 Mar. 01 1-5 yr. 4,449 $19.05 Dec. 02 None 4,041 $18.33 Jul. 01 None 4,502 $12.50 Aug. 00 1-5 yr. Cabrillo Executive Center, $119,103 2 60,321 12,400 $17.75 Aug. 01 1-5 yr. Phoenix $13.72/100 18,267 $17.50 M-T-M 1-5 yr. Mountain Pointe Office Park, $5,761 0 54,584 N/A N/A N/A N/A Phoenix $13.51/100 1355 S. Clearview Avenue, $52,625 1 57,193 57,193 $12.72 Apr. 05 2-5 yr. Mesa $11.00/100 Greater Seattle Area Kenyon Center, Bellevue $137,074 1 94,840 94,840 $11.61 Dec. 99 None $1.11/100 Orillia Office Park, Renton $373,060 1 334,255 334,255 $9.35 Feb. 04 None $1.34/100 Adobe Systems Bldg. 1, $298,957 1 161,117 161,117 $15.53 Jul. 10 2-5 yr. Seattle $1.25/100 Adobe Systems Bldg. 2, $243,742 2 136,111 93,211 $15.53 Jul. 10 2-5 yr. Seattle $1.25/100 19,867 $19.75 May 03 None Highlands Phase I, $19,314 1 192,256 38,213 $11.38 Aug. 04 1-5 yr. Bothell $1.34/100 The Federal Way Building, $3,293 3 65,000 32,871 $11.11 Apr. 06 2-3 yr. Federal Way $1.38/100 7,107 $14.40 Sep. 04 1-5 yr. 19,313 $14.16 Oct. 04 1-5 yr. Federal Way II, $4,683 4 115,032 30,000 $13.44 Aug. 09 2-5 yr. Federal Way $1.38/100 20,000 $13.44 Aug. 09 None 22,856 $14.40 Sep. 02 None 42,176 $14.99 Dec. 99 None Texas 9737 Great Hills Trail, Austin $273,084 1 82,680 82,680 $18.00 Dec. 01 1-5 yr. $2.60/100 Nevada U.S. Bank Centre, Reno $137,716 2 104,324 35,361 $17.40 Apr. 00 1-5 yr. $3.45/100 13,064 $20.76 Jun. 04 None Average Base Rent The following table sets forth for each of the Properties the average rent at the end of each year for the last five years. Average Base Rent ($/Sq Ft/Yr) At End of Year 1995 1996 1997 1998 1999 INDUSTRIAL PROPERTIES: Northern California Building #3 at Contra Costa Diablo $4.95 $6.64 $6.84 $6.84 $7.80 Building #8 at Contra Costa Diablo $6.00 $6.00 $6.00 $6.00 $6.72 Building #18 at Mason Industrial Park $6.63 $6.78 $6.88 $6.93 $7.22 Milpitas Town Center $7.35 $8.03 $8.90 $10.69 $12.74 598 Gibraltar Drive N/A $9.48 $9.48 $10.44 $10.44 350 East Plumeria Drive $7.80 $7.80 $8.40 $15.00 $15.75 Auburn Court $6.54 $6.78 $7.80 $10.62 $11.25 47650 Westinghouse Drive $5.52 $5.52 $9.00 $9.60 $10.20 410 Allerton $5.16 $5.16 $5.16 $6.60 $7.20 400 Grandview $7.49 $7.53 $7.03 $7.50 $7.95 342 Allerton $6.88 $7.18 $7.57 $7.73 $9.13 301 East Grand $5.92 $5.57 $5.58 $6.30 $6.90 Fourier Avenue N/A $8.99 $8.99 $8.99 $8.99 Lundy Avenue N/A $7.09 $7.09 $7.36 $14.40 115 Mason Circle N/A $6.05 $6.22 $.6.59 $6.78 47600 Westinghouse Drive N/A $5.94 $10.20 $10.56 $10.92 860-870 Napa Valley Corporate N/A $9.44 $8.86 $9.48 $9.90 47633 Westinghouse Drive N/A $11.37 $11.60 $11.83 $12.06 47513 Westinghouse Drive N/A N/A N/A $14.32 $14.92 Bordeaux Centre N/A N/A N/A $7.33 $6.57 O'Toole Business Center N/A $8.75 $10.31 $13.81 $14.38 6500 Kaiser Drive N/A N/A $9.00 $9.60 $9.60 Bedford Fremont Business Center N/A N/A $11.93 $14.63 $16.39 Spinnaker Court N/A N/A $8.01 $8.25 $8.25 2277 Pine View Way N/A N/A $6.91 $6.91 $7.25 The Mondavi Building N/A N/A $4.92 $4.92 $5.17 Monterey Commerce Center 2 N/A N/A $14.16 $14.64 $15.12 Monterey Commerce Center 3 N/A N/A $14.70 $15.22 $15.32 Parkpoint Business Center N/A N/A N/A $15.19 $15.68 2180 McDowell N/A N/A N/A $8.37 $11.20 2190 McDowell N/A N/A N/A $8.19 $8.39 Southern California Dupont Industrial Center $3.17 $3.53 $3.40 $3.44 $3.67 3002 Dow Business Center $8.88 $8.55 $8.32 $8.86 $9.52 Carroll Tech I N/A $10.35 $11.93 $3.17 $9.11 Vista 1 N/A $5.16 $0.00** $0.00 $0.00 ** Bankruptcy Average Base Rent ($/Sq Ft/Yr) At End of Year 1995 1996 1997 1998 1999 INDUSTRIAL PROPERTIES (continued): Southern California (continued) Vista 2 N/A $6.36 $6.61 $6.88 $7.15 Signal Systems Building N/A $7.80 $8.11 $10.20 $10.42 Carroll Tech II N/A N/A $11.52 $12.00 $13.79 2230 Oak Ridge Way N/A N/A N/A $6.49 $6.63 5502 Oberlin Drive N/A N/A N/A $9.96 $9.96 6960 Flanders Drive N/A N/A N/A $9.60 $9.98 Canyon Vista Center N/A N/A N/A N/A $8.86 6325 Lusk Blvd. N/A N/A N/A N/A $12.48 Greater Kansas City Area Ninety-Ninth Street #3 $5.86 $5.30 $6.08 $6.14 $6.14 Lackman Business Center $8.36 $8.59 $8.77 $9.36 $9.85 Ninety-Ninth Street #1 $7.96 $8.32 $7.72 $7.89 $8.31 Ninety-Ninth Street #2 $7.56 $8.62 $8.62 $8.62 $8.66 Ninety-Ninth Street #4 N/A N/A N/A $6.16 $6.23 Panorama Business Park N/A $6.54 $6.70 $6.87 $7.01 Panorama III N/A N/A N/A N/A $8.83 Colorado Bryant Street Quad $3.09 $3.39 $3.82 $3.96 $4.13 Bryant Street Annex $4.02 $3.93 $4.09 $4.17 $4.17 Greater Portland Area, Oregon Twin Oaks Technology Center $7.27 $7.32 $7.67 $7.78 $8.44 Twin Oaks Business Center $7.75 $8.35 $8.86 $8.87 $7.83 Arizona Westech Business Center N/A $8.85 $9.44 $9.99 $9.97 Westech II N/A N/A N/A $8.86 $8.87 2601 W. Broadway N/A N/A $7.14 $7.14 $7.14 Phoenix Airport Center #2 N/A N/A $7.20 $7.20 $7.80 Phoenix Airport Center #3 N/A N/A $6.36 $6.36 $7.02 Phoenix Airport Center #4 N/A N/A $7.20 $7.80 $7.80 Phoenix Airport Center #5 N/A N/A $7.21 $8.68 $8.68 Butterfield Business Center N/A N/A $7.08 $7.11 $6.38 Butterfield Tech Center II N/A N/A N/A N/A $6.67 Greystone Business Park N/A N/A N/A N/A $10.56 Cimarron Business Park N/A N/A N/A $8.94 $10.09 Expressway Corporate Center N/A N/A N/A $8.21 $8.78 The Adams Brothers Building N/A N/A N/A N/A $4.56 Bedford Realty Partners, L.P. N/A N/A N/A N/A $7.21 Texas Ferrell Drive N/A N/A $4.55 $4.62 $4.70 Austin Braker 2 N/A N/A N/A $8.79 $8.79 Austin Rutland 10 N/A N/A N/A $6.54 $6.77 Austin Southpark A, B and C N/A N/A N/A $8.38 $8.48 Average Base Rent ($/Sq Ft/Yr) At End of Year 1995 1996 1997 1998 1999 SUBURBAN OFFICE PROPERTIES: Northern California Village Green $18.23 $19.99 $23.24 $23.70 $24.45 100 View Street N/A $18.82 $20.10 $21.72 $32.16 Canyon Park N/A N/A $15.92 $16.44 $16.44 Crow Canyon Centre N/A N/A N/A N/A $25.20 Monterey Commerce Center 1 N/A N/A $20.12 $19.78 $19.69 3880 Cypress Drive N/A N/A N/A $13.08 $13.08 Southern California Laguna Hills Square N/A $25.38 $23.90 $24.79 $25.17 Carroll Tech III N/A N/A $8.52 $8.52 $9.60 Scripps Wateridge N/A N/A $11.41 $12.53 $13.16 Carroll Tech IV N/A N/A N/A N/A $15.00 Greater Kansas City Area 6600 College Boulevard $12.01 $11.99 $12.28 $12.35 $12.32 Didde Building N/A N/A N/A $18.25 $18.61 Colorado Oracle Building N/A N/A $23.37 $23.34 $23.34 Texaco Building N/A N/A N/A $18.05 $18.05 Arizona Executive Center at Southbank N/A N/A $9.23 $9.46 $9.64 Troika Building N/A N/A $9.00 $10.00 $10.00 Phoenix Airport Center #1 N/A N/A $13.81 $13.69 $13.97 Cabrillo Executive Center N/A N/A N/A $16.64 $17.03 Mountain Pointe Office Park N/A N/A N/A N/A N/A 1355 S. Clearview Avenue N/A N/A N/A N/A $12.72 Greater Seattle Area Kenyon Center N/A $11.61 $11.61 $11.61 $11.61 Orillia Office Park N/A N/A $9.35 $9.35 $9.35 Adobe Systems Bldg. 1 N/A N/A N/A $15.53 $15.53 Adobe Systems Bldg. 2 N/A N/A N/A $22.04 $16.71 Highlands Phase I N/A N/A N/A N/A $12.51 The Federal Way Building N/A N/A N/A N/A $12.65 Federal Way II N/A N/A N/A N/A $14.20 Texas 9737 Great Hills Trail N/A N/A $18.00 $18.00 $18.00 Nevada U.S. Bank Centre N/A N/A $18.59 $18.76 $19.03 Tax Information The following table sets forth tax information of the Company's real estate investments at December 31, 1999, as follows: (i) Federal tax basis, (ii) annual rate of depreciation, (iii) method of depreciation, and (iv) life claimed, with respect to each property or component thereof for purposes of depreciation (in thousands): Federal Annual Rate of Depreciation Life Depreciable assets Tax Basis Depreciation Method In Years INDUSTRIAL PROPERTIES Northern California $ 3,783 3.18% Straight Line 31.5 107,229 2.56% Straight Line 39.0 111,012 Southern California 63,123 2.56% Straight Line 39.0 Greater Kansas City Area 2,132 3.18% Straight Line 31.5 13,020 2.56% Straight Line 39.0 15,152 Colorado 3,283 2.56% Straight Line 39.0 Greater Portland Area 8,831 2.56% Straight Line 39.0 Arizona 42,287 2.56% Straight Line 39.0 Texas 11,122 2.56% Straight Line 39.0 Total depreciable assets for industrial properties 254,810 SUBURBAN OFFICE PROPERTIES Northern California 19,156 2.56% Straight Line 39.0 Southern California 21,412 2.56% Straight Line 39.0 Greater Kansas City Area 5,452 2.56% Straight Line 39.0 Colorado 45,619 2.56% Straight Line 39.0 Arizona 34,791 2.56% Straight Line 39.0 Greater Seattle Area 110,317 2.56% Straight Line 39.0 Texas 7,094 2.56% Straight Line 39.0 Nevada 10,677 2.56% Straight Line 39.0 Total depreciable assets for suburban office properties 254,518 $509,328 For additional information on the Company's real estate portfolio, see Note 2 to the Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock of the Company trades on the New York Stock Exchange and the Pacific Exchange under the symbol "BED." As of December 31, 1999 the Company had 1,056 stockholders of record. A significant number of these stockholders are also nominees holding stock in street name for individuals. The following table shows the high and low sale prices per share reported on the New York Stock Exchange and the dividends declared per share by the Company on the Common Stock for each quarterly period during 1998 and 1999. Dividend High Low Per Share 1998 First Quarter $22 $19 3/16 $.30 Second Quarter $20 $17 7/16 $.33 Third Quarter $20 1/8 $15 $.33 Fourth Quarter $18 3/4 $15 3/4 $.36 1999 First Quarter $17 3/16 $14 5/8 $.36 Second Quarter $18 7/16 $14 1/2 $.39 Third Quarter $18 1/4 $16 11/16 $.39 Fourth Quarter $17 5/8 $15 11/16 $.42 ITEM 6. SELECTED FINANCIAL DATA Following is a table of selected financial data of the Company for the last five years (which should be read in conjunction with the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto contained herein): (in thousands of dollars, except per share data) 1999 1998 1997 1996 1995 Operating Data: Rental income $ 90,527 $ 73,451 $ 46,377 $ 27,541 $ 11,695 Gain (loss) on sales of real estate investments 7,743 - 11,533 406 (642) Net income 39,855 31,496 31,291 11,021 2,895 Net income applicable to common stockholders 39,855 31,496 27,791 6,516 1,607 Per common share - assuming dilution Income before extraordinary item $ 1.87 $ 1.38 $ 1.94 $ 1.14 $ 0.52 Net income $ 1.86 $ 1.38 $ 1.94 $ 1.14 $ 0.52 Balance Sheet Data: Real estate investments $651,038 $581,458 $423,086 $224,501 $128,964 Bank loan payable 137,156 147,443 8,216 46,097 43,250 Mortgage loans payable 206,880 80,116 60,323 51,850 - Redeemable preferred shares - - - 50,000 50,000 Common and other stockholders' equity 300,180 347,589 346,426 73,756 32,435 Other Data: Net cash provided by operating activities $ 45,540 $ 38,949 $ 25,041 $ 14,378 $ 4,898 Net cash used by investing activities 72,317 168,018 180,358 96,964 73,259 Net cash provided by financing activities 27,075 128,994 155,350 82,887 64,655 Funds From Operations(1) 45,554 42,312 25,582 13,645 5,021 Dividends declared per share $ 1.56 $ 1.32 $ 1.13 $ 1.00 $ 0.82 (1) Management considers Funds From Operations to be one measure of the performance of an equity REIT. Funds From Operations is used by financial analysts in evaluating REITs and can be one measure of a REIT's ability to make cash distributions. Presentation of this information provides the reader with an additional measure to compare the performance of REITs. Funds From Operations generally is defined by NAREIT as net income (loss) (computed in accordance with generally accepted accounting principles), excluding gains (losses) from debt restructurings, sales of property, and non-recurring items, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Funds From Operations was computed by the Company in accordance with this definition. Beginning in the first quarter of 2000, non-recurring items other than extraordinary items as defined by generally accepted accounting principles will no longer be excluded in the calculation of Funds From Operations. Funds From Operations does not represent cash generated by operating activities in accordance with generally accepted accounting principles; it is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to net income (loss) as an indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity. Further, Funds From Operations as disclosed by other REITs may not be comparable to the Company's presentation. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and Notes thereto, all of which are included herein. Results of Operations The Company's operations consist of owning and operating industrial and suburban office properties located primarily in the western United States. Increases in revenues, expenses, net income and cash flows in the years compared below were due primarily to the acquisition, development and sale of operating properties as follows: 1999 1998 1997 Number of Square Number of Square Number of Square Properties Feet Properties Feet Properties Feet Acquisitions Industrial 5 334,000 10 531,000 13 1,091,000 Office 4 280,000 6 650,000 13 1,199,000 9 614,000 16 1,181,000 26 2,290,000 Development Industrial 5 380,000 - - 4 365,000 Sales Industrial 3 448,000 - - - - Office 1 114,000 - - 2 213,000 Retail - - - - 1 84,000 4 562,000 - - 3 297,000 Comparison of 1999 to 1998 Income from Property Operations Income from property operations (defined as rental income less rental expenses) increased $8,947,000 or 19% in 1999 compared with 1998. This is due to an increase in rental income of $17,076,000 offset by an increase in rental expenses (which include operating expenses, real estate taxes and depreciation and amortization) of $8,129,000. The increase in rental income and expenses is primarily attributable to properties acquired and, to a lesser extent, properties developed during 1999 and 1998. These activities increased rental income and rental expenses in 1999 by $14,787,000 and $7,646,000, respectively, as compared to 1998. These increases were partially offset by the sale of one office property and three industrial properties in 1999, which resulted in a reduction in rental income and rental expenses of $1,505,000 and $729,000, respectively, as compared to 1998. The remaining increase in rental income of $3,794,000 and rental expenses of $1,212,000, is due primarily to increased occupancy in 1999 as compared to 1998, as well as an overall increase in rental rates. Expenses Interest expense, which includes amortization of loan fees, increased $7,806,000 or 70% in 1999 compared with 1998. The increase is attributable to the Company's higher level of borrowings and related costs to finance the property acquisitions and development activities during 1998 and 1999 and the repurchase of shares since November 1998. The amortization of loan fees was $1,495,000 and $1,013,000 for 1999 and 1998, respectively. General and administrative expense increased $175,000 or 5% from $3,386,000 in 1998 to $3,561,000 in 1999. The 1998 general and administrative expenses included costs of $434,000 related to the Company exploring strategic alternatives including selling its portfolio of properties. Such discussions were terminated in the fourth quarter of 1998. Excluding these costs, general and administrative expenses increased 21% in 1999 compared with 1998, primarily the result of increased personnel costs. Gain on Sale In March 1999, the Company sold 417 Eccles in South San Francisco, California, for a net sales price of $1,789,000, which resulted in a gain of approximately $540,000. In June 1999, the Company sold Woodlands Tower II in Salt Lake City, Utah, for a net sales price of $13,122,000, which resulted in a gain of approximately $6,998,000. In June 1999, the Company also sold Oak Ridge Land in Vista, California, for a net sales price of $423,000, which resulted in a gain of approximately $45,000. In August 1999, the Company sold 331 Doherty Avenue in Modesto, California for a net sales price of $4,012,000, which resulted in a gain of approximately $218,000. In December 1999, the Company sold Continental Can in Lenexa, Kansas, for a net sales price of $4,895,000, which resulted in a loss of approximately $58,000. The sales of Woodlands Tower II and 331 Doherty Avenue were completed as part of a tax-deferred exchange, under Section 1031 of the Internal Revenue Code, in which the Company acquired four properties. Dividends The 1999 quarterly dividend declared for each share of common stock was $0.36 for the first quarter, $0.39 for the second and third quarters, and $0.42 for the fourth quarter. Consistent with the Company's policy, dividends are paid in the quarter after the quarter in which they are declared. Comparison of 1998 to 1997 Income from Property Operations Income from property operations increased $16,108,000 or 54% in 1998 compared with 1997. This is due to an increase in rental income of $27,074,000 offset by an increase in rental expenses of $10,966,000. The increase in rental income and expenses is primarily attributable to the acquisition and development of real estate investments during 1998 and 1997. This acquisition and development activity increased rental income and rental expenses in 1998 by $24,964,000 and $10,133,000, respectively, as compared to 1997. The remaining increase in rental income of $5,226,000 is due primarily to overall increases in property rental rates, while the remaining increase in rental expenses of $2,113,000 is due primarily to increases in property tax assessments, landscaping costs and other property operating expenses. These increases were partially offset by the sales of two office properties and one retail property in 1997, which resulted in a reduction in rental income and rental expenses in 1998 of $3,116,000 and $1,280,000, respectively, as compared to 1997. Expenses Interest expense, which includes amortization of loan fees, increased $3,246,000 or 41% in 1998 compared with 1997. The increase is attributable to the Company's higher level of borrowings and related costs to finance the property acquisitions and development activities during 1997 and 1998, and higher financing costs incurred in connection with its credit facility and mortgage loans. The amortization of loan fees was $1,013,000 and $816,000 for 1998 and 1997, respectively. General and administrative expense increased $1,049,000 or 45% from $2,337,000 in 1997 to $3,386,000 in 1998. The 1998 general and administrative expenses included costs of $434,000 related to the Company exploring strategic alternatives including selling its portfolio of properties. Such discussions were terminated in the fourth quarter of 1998. Excluding these costs, general and administrative expenses increased 26% in 1998 compared with 1997, primarily the result of managing a larger real estate portfolio. The 1997 general and administrative expenses included $250,000 alternative minimum tax expense the Company incurred on the retention and reinvestment of gains on property sales. Gain on Sale In July 1997, the Company sold two of its Southern California office properties for a combined sales price of approximately $25,800,000, which resulted in a gain of $10,785,000. In October 1997, the Company sold Academy Place Shopping Center in Colorado Springs, Colorado for a sale price of approximately $7,500,000, which resulted in a gain of approximately $748,000. Net operating loss carryforwards were utilized to offset substantially all of the 1997 taxable income remaining after the deduction of dividends paid in 1997. Dividends The 1998 quarterly dividend declared for each share of common stock was $0.30 for the first quarter, $0.33 for the second and third quarters, and $0.36 for the fourth quarter. Consistent with the Company's policy, dividends are paid in the quarter after the quarter in which they are declared. Financial Condition Total assets of the Company at December 31, 1999 increased by $73,086,000 compared with December 31, 1998, primarily as a result of an increase in real estate investments of $79,752,000. Total liabilities at December 31, 1999 increased by $120,635,000 compared with December 31, 1998, primarily as a result of the increase in mortgage loan borrowings made in support of property acquisitions, development, and share repurchases. Liquidity and Capital Resources In June 1998, the Company amended and restated its secured revolving credit facility with Bank of America. Under this facility, which matures June 15, 2001, the Company can borrow up to $175 million on a secured basis. The facility contains an unsecured sub-line of $50 million. Secured loans bear interest at a floating rate equal to either the lender's published "reference rate" or LIBOR plus a margin ranging from 1.10% to 1.35%. The interest rate of the unsecured loans is either the lender's published "reference rate" or LIBOR plus a margin of 1.50%. As of December 31, 1999, the facility, which was all secured, had an outstanding balance of $137,156,000, and an effective interest rate of 7.52%. Approximately 52% ($75 million) of the loan was fixed at a six- month LIBOR rate which expires in June 2000. In February 1999, the credit facility was restructured to include a $30 million bridge facility with the same interest rate as the $175 million facility. In May 1999, the Company obtained a total of $108 million of new first mortgage financing from Teachers Insurance and Annuity Association of America (TIAA). The proceeds from the mortgage loans were used to pay off and retire the $30 million bridge facility and pay down the outstanding balance on its $175 million line of credit. The $108 million TIAA financings consist of a $43.45 million 10-year loan, a $37.2 million 8-year loan, and a $27.35 million 6-year loan, all with interest at a fixed rate of 7.17%. In November 1999, the Company obtained an additional $22.15 million mortgage loan from TIAA. The loan has a 7-year term with interest at a fixed rate of 7.95%. In December 1999, the Company obtained a $4.6 million mortgage loan from Union Bank. The loan has a 5-year term with interest at a variable rate of LIBOR plus 2.50%. Proceeds from the mortgage loans were used to pay down the outstanding balance of the Company's $175 million line of credit. The Company was in compliance with the covenants and requirements of its various debt financings throughout 1999. The Company anticipates that the cash flow generated by its real estate investments and funds available under the above credit facility will be sufficient to meet its short-term liquidity requirements. During the twelve months ended December 31, 1999, the Company's operating activities provided cash flow of $45,540,000. Investing activities utilized cash of $96,558,000 for real estate acquisitions, offset by proceeds from real estate sales of $24,241,000. Financing activities provided net cash flow of $27,075,000 consisting of the proceeds from bank borrowings and mortgage loans of $276,180,000 and net proceeds from the exercise of stock options of $2,004,000, offset by repayment of bank borrowings and mortgage loans of $161,652,000, payment of dividends and distributions of $32,712,000, redemption of partnership units of $160,000, and the repurchase of 3,346,625 shares of common stock for $56,585,000. The Company expects to fund the cost of acquisitions, capital expenditure costs associated with lease renewals and reletting of space, repayment of indebtedness, and development of properties from (i) cash flow from operations, (ii) borrowings under the credit facility and, if available, other indebtedness (which may include indebtedness assumed in acquisitions), and (iii) the sale of certain real estate investments. The ability to obtain mortgage loans on income producing property is dependent upon the ability to attract and retain tenants and the economics of the various markets in which the properties are located, as well as the willingness of mortgage-lending institutions to make loans secured by real property. The ability to sell real estate investments is partially dependent upon the ability of purchasers to obtain financing at commercially reasonable rates. Potential Factors Affecting Future Operating Results Many factors affect the Company's actual financial performance and may cause the Company's future results to be markedly outside of the Company's current expectations. These factors include the following: Interest Rate Fluctuations At the present time, borrowings under the Company's credit facility and the $4.6 million mortgage loan from Union Bank bear interest at floating rates. The Company recognizes that its results from operations may be negatively impacted by future increases in interest rates and substantial additional borrowings to finance property acquisitions, development projects and share repurchases. Lease Renewals While the Company historically has been successful in renewing and reletting space, the Company is subject to the risk that certain leases expiring in 2000 and beyond may not be renewed, or the terms of renewal may be less favorable to the Company than current lease terms. The Company expects to incur costs in making improvements or repairs to its portfolio of properties required by new or renewing tenants and expects to incur expenses associated with brokerage commissions payable in connection with the reletting of space. Inflation Most of the leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. Inflation, however, could result in an increase in the Company's borrowing and other operating expense. Government Regulations The Company's properties are subject to various federal, state and local regulatory requirements such as local building codes and other similar regulations. The Company believes its properties are currently in substantial compliance with all applicable regulatory requirements, although expenditures at its properties may be required to comply with changes in these laws. No material expenditures are contemplated at this time in order to comply with any such laws or regulations. Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances released on, above, under, or in such property. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of such removal or remediation could be substantial. Additionally, the presence of such substances or the failure to properly remediate such substances may adversely affect the owner's ability to borrow using such real estate as collateral. The Company believes that it is in compliance in all material respects with all federal, state and local laws regarding hazardous or toxic substances, and the Company has not been notified by any governmental authority of any non-compliance or other claim in connection with any of its present or former properties. Accordingly, the Company does not currently anticipate that compliance with federal, state and local environmental protection regulations will have any material adverse impact on the financial position, results of operations or liquidity of the Company. There can be no assurance, however, that future discoveries or events at the Company's properties, or changes to current environmental regulations, will not result in such a material adverse impact. Financial Performance Management considers Funds From Operations (FFO) to be one measure of the performance of an equity REIT. FFO during the three and twelve months ended December 31, 1999 was $11,014,000 and $45,554,000, respectively. During the same periods in 1998, FFO was $11,666,000 and $42,312,000, respectively. FFO is used by financial analysts in evaluating REITs and can be one measure of a REIT's ability to make cash distributions. Presentation of this information provides the reader with an additional measure to compare the performance of REITs. FFO generally is defined by the National Association of Real Estate Investment Trusts as net income (loss) (computed in accordance with generally accepted accounting principles), excluding gains (losses) from debt restructurings, sales of property and non-recurring items, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO was computed by the Company in accordance with this definition. Beginning in the first quarter of 2000, non-recurring items other than extraordinary items as defined by generally accepted accounting principles will no longer be excluded in the calculation of FFO. FFO does not represent cash generated by operating activities in accordance with generally accepted accounting principles; it is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to net income (loss) as an indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity. Further, FFO as disclosed by other REITs may not be comparable to the Company's presentation. Three Months Ended Twelve Months Ended December 31, December 31, 1999 1998 1999 1998 Funds From Operations (in thousands): Net income $ 6,962 $ 8,243 $39,855 $31,496 Add: Depreciation and amortization 3,962 2,958 13,016 10,265 Minority interest 32 31 128 117 Non-recurring portfolio disposition costs (1) - 434 - 434 Extraordinary item - - 298 - Loss (gain) on sales 58 - (7,743) - Funds From Operations $11,014 $11,666 $45,554 $42,312 (1) In the second quarter of 1998, the Company engaged Lehman Brothers, Inc. as financial advisor to assist the Company in the exploration of strategic alternatives, which included the potential sale of the Company's operating portfolio. Due to changes in the real estate market, the Company abandoned its plan to sell its operating portfolio and expensed all related costs. Year 2000 Compliance The year 2000 issue related to the ability of computer systems and programs to recognize and process dates after the year 1999. The failure to distinguish between such dates could have had detrimental effects on business critical systems and could have caused disruptions in building services, such as security systems, HVAC/building automation, and energy management systems. In the first quarter of 1998, the Company formed a Year 2000 project team which includes the Chief Operating Officer (COO), legal counsel, information systems (IS) consultants, and property managers. The COO and IS consultants conducted monthly meetings to review and monitor progress relating to the Year 2000 project. The Year 2000 project was divided into two distinct parts: (1) information systems and (2) embedded systems. The information systems portion of the Year 2000 project pertained to the Company's internal computer systems, hardware and software and entailed the following actions: (1) compiling an inventory of all hardware and software used in the Company's information processing systems, including personal computers, servers, routers, hubs, switches, phone and voice equipment, operating systems, e-mail systems, accounting software, fixed asset software, office automation software, internet and other service providers, wide area and local area network carriers, and web host, (2) obtaining product certifications from vendors and manufacturers, stating that their products are Y2K compliant, (3) obtaining Y2K upgrades for software from web sites and identifying non-Y2K compliant personal computers, (4) legal review and recommendations by legal counsel, (5) determining alternative solutions, financial and personnel resources necessary, and costs to remediate any information systems or components thereof, which are not Y2K compliant, and (6) completing all system upgrades to achieve Y2K compliance. The embedded systems portion of the Year 2000 project was related to building services, such as HVAC/building automation, electrical, lighting, emergency power, fire and safety, elevator, parking access, security, and energy management. This portion of the Year 2000 project entailed the following: (1) compiling an inventory of all physical systems on each property where the Company provides any of the aforementioned services, (2) obtaining product certifications from vendors and manufacturers, stating that their products are Y2K compliant, (3) identifying testing procedures and cost of implementation of solutions, (4) performing selective system tests on a sample of the Company's portfolio based on the type of the property, tenant makeup, location, and size, (5) reviewing the results of these tests and identifying alternative solutions, resources, and costs to remediate any embedded system or component thereof, which were not Y2K compliant, (6) developing a review and certification process for newly acquired properties, (7) legal review and recommendations by the legal counsel, and (8) completing all embedded system upgrades to achieve Y2K compliance. The Company had a "Y2K Weekend Watch" during which personnel were on duty to insure a staff presence for each building in the Company's real estate portfolio during the weekend of December 31, 1999. In addition, IS consultants were on duty to monitor the Company's information systems. Management is not aware of any significant Year 2000 issues affecting the Company, and believes that Year 2000 compliance will not have a material impact on the Company's financial statements. As of December 31, 1999, the Company had expensed approximately $81,000 on surveys and systems reviews. ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate changes primarily as a result of its line of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of the Company's real estate investment portfolio and operations. The Company's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives the Company balances its borrowings between fixed and variable rate debt. The Company does not enter into derivative or interest rate transactions for speculative purposes. The Company's interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts, weighted average interest rates, fair values and other terms required by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes (dollars in thousands): Fair 2000 2001 2002 2003 2004 Thereafter Total Value Variable rate LIBOR debt $ 49 $137,214 $ 63 $ 69 $ 75 $ 4,286 $141,756 $141,756 Average interest rate 8.69% 7.52% 8.69% 8.69% 8.69% 8.69% 7.56% 7.56% Fixed rate debt $3,360 $ 3,615 $26,353 $21,371 $3,459 $144,122 $202,280 $189,882 Average interest rate 7.34% 7.34% 7.48% 7.07% 7.37% 7.34% 7.33% 8.75% As the table incorporates only those exposures that exist as of December 31, 1999, it does not consider those exposures or positions which could arise after that date. Moreover, because firm commitments are not presented in the table above, the information presented therein has limited predictive value. As a result, the Company's ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, the Company's hedging strategies at that time, and interest rates. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements and Schedule Covered by Independent Auditors' Report Independent Auditors' Report 51 Consolidated Balance Sheets as of December 31, 1999 and 1998 52 For the Years Ended December 31, 1999, 1998 and 1997: - - Consolidated Statements of Income 53 - - Consolidated Statements of Stockholders' Equity 54 - - Consolidated Statements of Cash Flows 55 Notes to Consolidated Financial Statements 56 Financial Statement Schedule: - - Schedule III - Real Estate and Accumulated Depreciation 71 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The information required by Items 10 through 13 of Part III is incorporated by reference from the Registrant's Proxy Statement which will be mailed to stockholders in connection with the Registrant's annual meeting of stockholders scheduled to be held on May 18, 2000. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K A. 1. Financial Statements Independent Auditors' Report. The following consolidated financial statements of the Company and its subsidiaries are included in Item 8 of this report: Consolidated Balance Sheets as of December 31, 1999 and 1998. Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997. Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997. Notes to Consolidated Financial Statements. 2. Financial Statement Schedules Schedule III - Real Estate and Accumulated Depreciation All other schedules have been omitted as they are not applicable, or not required or because the information is given in the Consolidated Financial Statements or related Notes to Consolidated Financial Statements. 3. Exhibits Exhibit No.List of Exhibits 3.1 Charter of the Company, as amended, is incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-2, Registration No. 333- 921. 3.2 Amended and Restated Bylaws of the Company are incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.1 The Company's Automatic Dividend Reinvestment and Share Purchase Plan, as adopted by the Company, is incorporated herein by reference to Exhibit 4.1 to Amendment No. 2 to Registration Statement No. 2-94354 of ICM Property Investors Incorporated. 10.4 Second Amended and Restated Credit Agreement dated as of June 26, 1996, by and between the Company, as Borrower, Bank of America National Trust and Savings Association and the several financial institutions (the "Banks") is incorporated herein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. 10.5 Sale and Option Agreement dated as of August 26, 1995, by and between Kemper Investors Life Insurance Company, on behalf of itself and Participants (as defined therein), as Lender, the Company, as Purchaser, and Tustin Properties, as Owner, for 3002 Dow Business Center is incorporated herein by reference to Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.6 BPIA Agreement dated as of January 1, 1995, by and between Westminster Holdings, Inc., a California corporation and the Company is incorporated herein by reference to Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.7 Employment Agreement made as of February 17, 1993, by and between ICM Property Investors Incorporated and Peter B. Bedford is incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as amended by Form 10-K/A filed on May 1, 1995, and Form 10-K/A-2 filed on August 8, 1995. 10.8 Amendment No. 1 to Employment Agreement dated as of September 18, 1995, by and between Peter B. Bedford and the Company is incorporated herein by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.12 Purchase and Sale Agreement dated as of October 19, 1995, between Landsing Pacific Fund, Inc., a Maryland corporation as Seller, and the Company, the Buyer, as amended, is incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on December 27, 1995. 10.13 Amended and Restated Promissory Note date May 24, 1996 executed by the Company and payable to the order of Prudential Insurance Company of America is incorporated herein by reference to Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. 10.14 Loan Agreement dated as of December 24, 1996 between Bedford Property Investors, Inc. as Borrower and Union Bank of California, N.A. as Lender is incorporated herein by reference to Exhibit 10.14 to the Company's Form 10-K for the year ended December 31, 1996. 10.15 Loan Agreement dated as of January 30, 1998 between Bedford Property Investors, Inc. as Borrower and Prudential Insurance Company of America as Lender is incorporated herein by reference to Exhibit 10.15 to the Company's Form 10-K for the year ended December 31, 1997. 10.16 The Company's Amended and Restated Employee Stock Plan is incorporated herein by reference to Exhibit 10.16 to the Company's Form 10-K for the year ended December 31, 1997. 10.17 Form of Employee Stock Plan Option Agreement between the Company and the Named Executive Officers under the Company's Amended and Restated Employee Stock Plan is incorporated herein by reference to Exhibit 10.17 to the Company's Form 10-K for the year ended December 31, 1997. 10.18 The Company's Amended and Restated 1992 Directors' Stock Option Plan is incorporated herein by reference to Exhibit 10.18 to the Company's Form 10-K for the year ended December 31, 1997. 10.19 Form of Retention Agreement is incorporated herein by reference to Exhibit 10.19 to the Company's Form 10-K for the year ended December 31, 1997. 10.20 Employment Agreement made as of August 4, 1997, by and between Bedford Property Investors Incorporated and Scott R. Whitney is incorporated herein by reference to Exhibit 10.20 to the Company's Form 10-K for the year ended December 31, 1997. 10.21 Employment Agreement made as of November 18, 1997, by and between Bedford Property Investors Incorporated and Dennis Klimmek is incorporated herein by reference to Exhibit 10.21 to the Company's Form 10-K for the year ended December 31, 1997. 10.22 Credit Agreement made as of February 26, 1999, by and between Bedford Property Investors Incorporated and Bank of America National Trust and Savings Association and the several financial institutions as may be party thereto from time to time is incorporated herein by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 10.23 Revolving Note made as of March 5, 1999, by and between Bedford Property Investors Incorporated and Bank of America National Trust and Savings Association is incorporated herein by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 10.24 Revolving Note made as of March 5, 1999, by and between Bedford Property Investors Incorporated and Union Bank of California is incorporated herein by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 10.25 Promissory Note made as of May 28, 1999, by and between Bedford Property Investors, Incorporated and Teachers Insurance and Annuity Association of America is incorporated herein by reference to Exhibit 10.22 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. 10.26 Promissory Note made as of May 28, 1999, by and between Bedford Property Investors, Incorporated and Teachers Insurance and Annuity Association of America is incorporated herein by reference to Exhibit 10.23 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. 10.27 Promissory Note made as of May 28, 1999, by and between Bedford Property Investors, Incorporated and Teachers Insurance and Annuity Association of America is incorporated herein by reference to Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. 10.28* Promissory Note made as of November 22, 1999, by and between Bedford Property Investors, Incorporated and Teachers Insurance and Annuity Association of America. 12* Ratio of Earnings to Fixed Charges. 21.1* Subsidiaries of the Company. 23.1* Consent of KPMG LLP, independent public accountants. 27* Financial Data Schedules * Filed herewith B. Reports on Form 8-K The Company filed on May 11, 1999, a report on Form 8-K dated May 11, 1999, reporting items 5 and 7. The following financial statements were filed: (i) Historical Summary of Gross Income and Direct Operating Expenses for Cabrillo Executive Center, Parkpoint Business Center, Cimarron Business Park and Texaco Building for the year ended December 31, 1997, and (ii) pro forma income statement showing the effect resulting from all the Company's acquisitions through December 31, 1998. Independent Auditors' Report To the Stockholders and the Board of Directors of Bedford Property Investors, Inc.: We have audited the consolidated financial statements of Bedford Property Investors, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bedford Property Investors, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP San Francisco, California February 4, 2000 BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998 (in thousands, except share and per share amounts) 1999 1998 Assets: Real estate investments: Industrial buildings $279,367 $312,911 Office buildings 294,420 258,479 Operating properties held for sale 80,563 - Properties under development 19,246 24,686 Land held for development 6,137 3,905 679,733 599,981 Less accumulated depreciation 28,695 18,523 651,038 581,458 Cash 1,584 1,286 Other assets 18,788 15,580 $671,410 $598,324 Liabilities and Stockholders' Equity: Bank loan payable $137,156 $147,443 Mortgage loans payable 206,880 80,116 Accounts payable and accrued expenses 9,767 7,574 Dividends and distributions payable 8,270 8,191 Other liabilities 7,928 6,042 Total liabilities 370,001 249,366 Minority interest in consolidated partnership 1,229 1,369 Stockholders' equity: Common stock, par value $0.02 per share; authorized 50,000,000 shares; issued and outstanding 19,613,522 shares in 1999 and 22,666,856 shares in 1998 392 453 Additional paid-in capital 353,220 407,760 Accumulated dividends in excess of net income (53,432) (60,624) Total stockholders' equity 300,180 347,589 $671,410 $598,324 See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997 (in thousands, except share and per share amounts) 1999 1998 1997 Property operations: Rental income $90,527 $73,451 $46,377 Rental expenses: Operating expenses 14,550 11,026 6,852 Real estate taxes 8,074 6,220 3,977 Depreciation and amortization 13,016 10,265 5,716 Income from property operations 54,887 45,940 29,832 General and administrative expenses (3,561) (3,386) (2,337) Interest income 182 223 289 Interest expense (18,970) (11,164) (7,918) Income before gain on sales of real estate investments and minority interest 32,538 31,613 19,866 Gain on sales of real estate investments 7,743 - 11,533 Minority interest (128) (117) (108) Income before extraordinary item 40,153 31,496 31,291 Extraordinary item-loss on early extinguishment of debt (298) - - Net income $39,855 $31,496 $31,291 Net income applicable to common stockholders $39,855 $31,496 $27,791 Earnings per share - basic: Income before extraordinary item $ 1.88 $ 1.39 $ 2.21 Extraordinary item-loss on early extinguishment of debt (0.01) - - Net income $ 1.87 $ 1.39 $ 2.21 Weighted average number of shares - basic 21,267,088 22,634,656 12,566,065 Earnings per share - diluted: Income before extraordinary item $ 1.87 $ 1.38 $ 1.94 Extraordinary item-loss on early extinguishment of debt (0.01) - - Net income $ 1.86 $ 1.38 $ 1.94 Weighted average number of shares - diluted 21,477,013 22,929,807 16,166,454 See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (in thousands, except per share amounts) Accumulated Total Additional dividends stock- Common paid-in in excess of holders' stock capital net income equity Balances, December 31, 1996 $ 131 $147,622 $(73,997) $ 73,756 Issuance of common stock 321 265,622 - 265,943 Costs of issuance of common stock - (4,990) - (4,990) Redemption of partnership units - (45) - (45) Net income - - 31,291 31,291 Dividends to common stockholders ($1.13 per share) - - (16,029) (16,029) Dividends to preferred stockholders - - (3,500) (3,500) Balances, December 31, 1997 452 408,209 (62,235) 346,426 Issuance of common stock 1 1,366 - 1,367 Repurchase and retirement of common stock - (1,815) - (1,815) Net income - - 31,496 31,496 Dividends to common stockholders - - (29,885) (29,885) ($1.32 per share) Balances, December 31, 1998 453 407,760 (60,624) 347,589 Issuance of common stock 6 1,978 - 1,984 Repurchase and retirement of common stock (67) (56,518) - (56,585) Net income - - 39,855 39,855 Dividends to common stockholders ($1.56 per share) - - (32,663) (32,663) Balances, December 31, 1999 $ 392 $353,220 $(53,432) $300,180 See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (in thousands) 1999 1998 1997 Operating Activities: Net income $ 39,855 $ 31,496 $ 31,291 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest 128 117 108 Depreciation and amortization 14,212 11,508 6,697 Gain on sales of real estate investments (7,743) - (11,533) Increase in other assets (4,436) (7,259) (4,655) Increase in accounts payable and accrued expenses 1,534 1,656 1,282 Increase in other liabilities 1,990 1,431 1,851 Net cash provided by operating activities 45,540 38,949 25,041 Investing Activities: Investments in real estate (96,558) (168,018) (212,267) Proceeds from sales of real estate investments 24,241 - 31,909 Net cash used by investing activities (72,317) (168,018) (180,358) Financing Activities: Proceeds from bank loan payable 141,972 158,097 167,559 Repayment of bank loan payable (152,657) (19,889) (206,804) Proceeds from mortgage loans payable 134,208 21,084 - Repayment of mortgage loans payable (8,995) (1,107) (441) Issuance of common stock 2,004 1,367 210,953 Repurchase and retirement of common stock (56,585) (1,815) - Redemption of partnership units (160) (128) (257) Payment of dividends and distributions (32,712) (28,615) (15,660) Net cash provided by financing activities 27,075 128,994 155,350 Net increase (decrease) in cash 298 (75) 33 Cash at beginning of year 1,286 1,361 1,328 Cash at end of year $ 1,584 $ 1,286 $ 1,361 Supplemental disclosure of cash flow information a) Non-cash investing and financing activities: Debt incurred with real estate acquired $ 5,602 $ - $ 8,914 b) Cash paid during the year for interest, net of amounts capitalized $ 16,624 $ 9,329 $ 7,291 c) Conversion of preferred stock (see footnote 9) $ - $ - $ 50,000 See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization and Summary of Significant Accounting Policies and Practices The Company Bedford Property Investors, Inc. (the "Company") is a Maryland real estate investment trust with investments primarily in industrial and suburban office properties concentrated in the western United States. The Company's common stock trades under the symbol "BED" on both the New York Stock Exchange and Pacific Exchange. Principles of Consolidation The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and Bedford Realty Partners, L.P. All significant inter-entity balances have been eliminated in consolidation. Use of Estimates The preparation of these financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Federal Income Taxes The Company has elected to be taxed as a real estate investment trust under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the "Code"). A real estate investment trust is generally not subject to federal income tax on that portion of its real estate investment trust taxable income ("Taxable Income"), which is distributed to its stockholders, provided that at least 95% of Taxable Income is distributed and other requirements are met. The Company believes it is in compliance with the Code. Taxable Income differs from net income for financial reporting purposes primarily because of the different methods of accounting for depreciation. As of December 31, 1999, for federal income tax purposes, the Company had an ordinary loss carry forward of approximately $32 million. As the Company does not expect to incur income tax liabilities, the asset value of these losses has been effectively fully reserved. For federal income tax purposes, dividend distributions made for 1999 were classified 97% as ordinary income and 3% as capital gain; dividend distributions made for 1998 were classified 96% as ordinary income and 4% as return of capital; dividend distributions made for 1997 were classified 88% as ordinary income and 12% as capital gain. Real Estate Investments Buildings and improvements are carried at cost less accumulated depreciation. Buildings are depreciated on a straight-line basis over 45 years. Upon the acquisition of an investment by the Company, acquisition-related costs are added to the carrying cost of that investment. These costs are depreciated over the useful lives of the buildings. Leasing commissions and improvements to tenants' space incurred subsequent to the acquisition are amortized over the terms of the respective leases. Expenditures for repairs and maintenance, which do not add to the value or prolong the useful life of a property, are expensed as incurred. When the Company concludes that the recovery of the carrying amount of a real estate investment is impaired, it reduces such carrying amount to the estimated fair value of the investment. Investments which are considered as held for sale are carried at the lower of the carrying amount or fair value less costs to sell and such properties are no longer depreciated. Income Recognition Rental income from operating leases is recognized in income on a straight-line basis over the period of the related lease agreement. Aggregate rental income exceeded contractual rentals by $2,797,000, $2,252,000, and $1,644,000 for 1999, 1998, and 1997, respectively. Per Share Data Per share data are based on the weighted average number of common shares outstanding during the year. Stock options issued under the Company's stock option plans, non-vested restricted stock, and the limited partnership units of Bedford Realty Partners, L.P. are included in the calculation of diluted per share data if, upon exercise or vestiture, they would have a dilutive effect. Recent Accounting Pronouncements In April 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5, Reporting on the Costs of Start-up Activities. SOP 98-5 is effective for fiscal years beginning after December 15, 1998. The adoption of this statement did not have a material impact on the Company's financial statements. In June 1998, the FASB issued Financial Accounting Standard No. 133, Accounting for Derivatives Instruments and Hedging Activities. SFAS 133, as amended, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. Management believes that the adoption of this statement will not have a material impact on the Company's financial statements. Note 2 - Real Estate Investments As of December 31, 1999, the Company's real estate investments were diversified by property type as follows (dollars in thousands): Number of Percent Properties Cost of Total Industrial buildings 56 $ 279,367 41% Office buildings 25 294,420 43% Operating properties held for sale 21 80,563 12% Properties under development 8 19,246 3% Land held for development 4 6,137 1% Total 114 $ 679,733 100% Note 2 - Real Estate Investments (continued) The following table sets forth the Company's real estate investments as of December 31, 1999 (in thousands): Less Development Accumulated Land Building In Progress Depreciation Total Industrial buildings Northern California $ 44,238 $106,821 $ - $ 8,841 $142,218 Arizona 17,173 47,990 - 2,398 62,765 Southern California 17,663 40,288 - 3,031 54,920 Colorado 1,911 3,283 - 345 4,849 Total industrial buildings 80,985 198,382 - 14,615 264,752 Office buildings Northern California 6,801 23,256 - 1,082 28,975 Arizona 10,622 23,817 - 873 33,566 Southern California 9,361 21,410 - 1,271 29,500 Colorado 5,560 45,620 - 1,771 49,409 Greater Seattle Area 23,652 111,541 - 3,762 131,431 Nevada 2,102 10,678 - 658 12,122 Total office buildings 58,098 236,322 - 9,417 285,003 Operating properties held for sale Northern California 3,683 4,887 - 373 8,197 Arizona 1,332 2,679 - 153 3,858 Southern California 1,558 3,475 - 144 4,889 Greater Kansas City Area 6,571 20,742 - 2,184 25,129 Texas 5,932 18,220 - 813 23,339 Greater Portland Area 2,652 8,832 - 996 10,488 Total operating properties held for sale 21,728 58,835 - 4,663 75,900 Properties under development Northern California - - 660 - 660 Arizona - - 8,726 - 8,726 Colorado - - 6,157 - 6,157 Greater Seattle Area - - 3,703 - 3,703 Total properties under development - - 19,246 - 19,246 Land held for development Northern California 2,133 - - - 2,133 Southern California 703 - - - 703 Colorado 3,301 - - - 3,301 Total land held for development 6,137 - - - 6,137 Total $166,948 $493,539 $19,246 $28,695 $651,038 Company personnel directly manage all but eleven of the Company's properties from regional offices in Lafayette, CA; Tustin, CA; Phoenix, AZ; Lenexa, KS; and Seattle, WA. For the eleven properties located in markets not served by one of the Company's regional offices, the Company has subcontracted management to local firms. All financial record- keeping is centralized at the Company's corporate office in Lafayette, CA. Income from property operations for properties held for sale as of December 31, 1999 was $7,725,000, $6,094,000, and $4,483,000 for the twelve months ending December 31, 1999, 1998 and 1997, respectively. During 1999, 1998 and 1997, the Company capitalized interest costs relating to properties under development totaling $2,148,000, $2,177,000 and $627,000, respectively. The Company has contractual construction commitments of $13.2 million at December 31, 1999 relating to eight of its properties under development. Note 3 - Consolidated Partnership In December 1996, the Company formed Bedford Realty Partners, L.P. (the "Operating Partnership"), with the Company as the sole general partner, for the purpose of acquiring real estate. In exchange for contributing a property into the Operating Partnership, the owners of the property receive limited partnership units ("OP Units"). A limited partner can seek redemption of the OP Units at any time. The Company, at its option, may redeem the OP Units by either (i) issuing common stock at the rate of one share of common stock for each OP Unit, or (ii) paying cash to a limited partner based on the average trading price of its common stock. Each OP Unit is allocated partnership income and cash flow at a rate equal to the dividend being paid by the Company on a share of common stock. Additional partnership income and cash flow is allocated 99% to the Company and 1% to the limited partners. This acquisition strategy is referred to as a "Down REIT" transaction; as long as certain tax attributes are maintained, the income tax consequences to a limited partner are generally deferred until such time as the limited partner redeems their OP Units. On December 17, 1996, the Company acquired a $3.6 million industrial property located in Modesto, California utilizing the Operating Partnership. The sellers of the property received 108,495 OP Units. A director of the Company was a 9% owner of the property, but did not participate in the approval of the acquisition. In December 1999, the Modesto, California property was exchanged for a property located in Phoenix, Arizona. As of December 31, 1999 the Company has redeemed 30,505 OP units for cash. Note 4 - Leases Minimum future lease payments to be received as of December 31, 1999 are as follows (in thousands): 2000 $ 81,135 2001 74,904 2002 63,302 2003 53,049 2004 38,240 Thereafter 64,139 $374,769 The total minimum future lease payments shown above do not include tenants' obligations for reimbursement of operating expenses or taxes as provided by the terms of certain leases. Note 5 - Related Party Transactions The Company's activities relating to the acquisition of new properties and debt and equity financings have been performed by Bedford Acquisitions, Inc. (BAI) pursuant to a written contract dated January 1, 1995, as amended. The contract provides that BAI is obligated to provide services to the Company with respect to the Company's acquisition and financing activities, and that BAI is responsible for the payment of its expenses incurred in connection therewith. The contract provides that BAI is to be paid a fee in an amount equal to the lesser of (i) 1 1/2% of the gross amount of the aggregate purchase price of the property for acquisitions and dispositions, up to 1 1/2% of any loans arranged by BAI, plus 5% of development project costs, or (ii) an amount equal to (a) the aggregate amount of approved expenses funded by BAI through the time of such acquisition, disposition, loan, or development minus (b) the aggregate amount of fees previously paid to BAI pursuant to such arrangement. In no event will the aggregate amount of fees paid to BAI exceed the aggregate amount of costs funded by BAI. The agreement with BAI has a term of one year and is renewable at the option of the Company for additional one-year terms. The current agreement will expire on January 1, 2001. For 1999, 1998, and 1997, the Company paid BAI $2,783,000, $2,272,000, and $3,156,000, respectively, for acquisition and financing activities performed pursuant to the foregoing arrangements. The Company believes that since the fees charged under the foregoing arrangements (i) have been and continue to be comparable to those charged by other sponsors of real estate investment entities or other third party service providers and (ii) have been and continue to be charged only for services on acquired properties or completed financings, such fees are properly includable in direct acquisition costs and capitalized as part of the asset or financing activities. Note 6 - Stock Option Plans Initially 900,000 shares of the Company's Common Stock were reserved for issuance under the Employee Stock Option Plan (the "Employee Plan"). In May 1998, the shareholders approved an additional 2,100,000 shares. The Employee Plan expires in 2003. The Employee Plan provides for non-qualified stock options and incentive stock options. The Employee Plan is administered by the Compensation Committee of the Board of Directors, which determines the terms of options granted, including the exercise price, the number of shares subject to the option, and the exercisability of the options. Options granted to employees are exercisable upon vesting, and typically vest over a four-year period. The Employee Plan requires that the exercise price of incentive stock options be at least equal to the fair market value of such shares on the date of grant and that the exercise price of non-qualified stock options be equal to at least 85% of the fair market value of such shares on the date of the grant. The maximum term of options granted is ten years. Initially 250,000 shares of the Company's Common Stock were reserved for issuance under the Directors' Stock Option Plan (the "Directors' Plan"). In May 1996 and 1997, the shareholders approved an additional 250,000 shares and 500,000 shares, respectively. The Directors' Plan expires in 2002. The Directors' Plan provides for the grant of non-qualified stock options to directors of the Company. The Directors' Plan contains an automatic grant feature whereby a director receives a one-time "initial option" to purchase 25,000 shares upon a director's appointment to the Board of Directors and thereafter receives automatic annual grants of options to purchase 10,000 shares upon re-election to the Board of Directors. Options granted are generally exercisable six months from the date of grant. The Directors' Plan requires that the exercise price of options be equal to the fair market value of the underlying shares on the date of grant. The maximum term of options granted is ten years. In September 1995, the Company established a Management Stock Acquisition program. Under the program, options exercised by key members of management shortly after the grant date may be exercised either in cash or with a note payable to the Company. Such note bears interest at 7.5% or the Applicable Federal Rate as defined by the Internal Revenue Service, whichever is higher. The note is due in five years or within ninety days from termination of employment, with interest payable quarterly. During 1999, 1996 and 1995, options for 157,500 shares of Common Stock were exercised in exchange for notes payable to the Company. The notes bear interest at 7.5%. The unpaid balance of the notes was $974,000 and $1,021,000 at December 31, 1999 and 1998, respectively, and is included in the accompanying consolidated balance sheet as a reduction of additional paid-in capital. In addition, the Company may grant restricted stock to key employees. These shares generally vest over five years and are subject to forfeiture under certain conditions. For 1999, 1998 and 1997, the Company granted 219,888 shares, 50,200 shares, and 30,000 shares of restricted stock net of forfeitures, respectively. The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, compensation costs have not been recognized for either the Employee or the Directors' Plan. Had compensation costs for the plans been determined consistent with FASB Statement No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: 1999 1998 1997 Net income: As reported $39,855,000 $31,496,000 $31,291,000 Pro forma 39,496,000 31,158,000 31,045,000 Earnings per share - basic: As reported $ 1.87 $ 1.39 $ 2.21 Pro forma 1.86 1.38 2.19 Earnings per share - diluted: As reported $ 1.86 $ 1.38 $ 1.94 Pro forma 1.84 1.36 1.92 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted- average assumptions used for grants in 1999, 1998 and 1997, respectively: dividend yield of 9.4%, 7.3%, and 5.8%; expected volatility of 18.4%, 17.0%, and 16.8%; risk-free interest rates of 6.8%, 4.6%, and 5.7%. The expected life for the director's options is five years for each period. The expected life for the employee's options is ten years each for 1998 and five years for 1997. A summary of the status of the Company's plans as of December 31, 1999, 1998 and 1997 and changes during the years ended on those dates is presented below: 1999 1998 1997 Weighted Avg. Weighted Avg. Weighted Avg. Shares Exercise Price Shares Exercise Price Shares Exercise Price Employee Plan Outstanding at beginning of year 1,117,250 $18.10 713,750 $16.52 242,250 $12.94 Granted - - 619,000 19.67 483,000 18.25 Exercised (63,500) 13.66 (29,625) 13.03 (7,125) 13.37 Forfeited and cancelled (317,125) 19.15 (185,875) 18.05 (4,375) 14.99 Outstanding at end of year 736,625 $17.72 1,117,250 $18.10 713,750 $16.52 Options exercisable 330,875 239,250 118,750 Weighted average fair value of options granted during the year - $ 1.12 $ 1.94 Directors' Plan Outstanding at beginning of year 310,000 $15.79 365,000 $11.65 295,000 $ 9.94 Granted 70,000 17.72 70,000 19.56 70,000 18.82 Exercised (25,000) 12.97 (125,000) 5.81 - - Expired (10,000) 17.72 - - - - Outstanding at end of year 345,000 $16.33 310,000 $15.79 365,000 $11.65 Options exercisable 345,000 310,000 365,000 Weighted average fair value of options granted during the year $ 1.24 $ 1.32 $ 1.59 The following table summarizes information about stock options outstanding on December 31, 1999: Options Outstanding Options Exercisable Weighted Avg. Range of Number Remaining Weighted Avg. Number Weighted Avg. Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price Employee Plan $ 8.50 2,750 3.4 $ 8.50 2,750 $ 8.50 11.50 31,625 5.7 11.50 31,625 11.50 13.00 80,250 6.4 13.00 44,250 13.00 13.75 5,000 4.7 13.75 5,000 13.75 17.63 to 20.06 342,000 7.5 18.05 178,500 18.03 19.56 275,000 8.4 19.56 68,750 19.56 $ 8.50 to 20.06 736,625 7.6 $ 17.72 330,875 $ 16.91 Directors' Plan $11.82 to 11.85 75,000 1.2 11.84 75,000 11.84 14.22 70,000 6.8 14.22 70,000 14.22 17.72 60,000 9.8 17.72 60,000 17.72 18.82 70,000 7.8 18.82 70,000 18.82 19.56 70,000 8.8 19.56 70,000 19.56 $11.82 to 19.56 345,000 6.7 $16.33 345,000 $ 16.33 Note 7 - Bank Loan Payable In June 1998, the Company amended and restated its secured revolving line of credit facility led by Bank of America. Under the facility, which matures June 2001, the Company can borrow up to $175 million on a secured basis. The facility contains an unsecured sub-line of $50 million. The secured loans bear interest at a floating rate equal to either the lender's published "reference rate" or LIBOR plus a margin ranging from 1.10% to 1.35% depending on the Company's leverage level. The unsecured loans bear interest at either the lender's published "reference rate" or LIBOR plus a margin of 1.50%. At December 31, 1999, the facility, which was all secured, had an outstanding balance of $137,156,000, with an interest rate of LIBOR plus 1.35%. Approximately 52% ($75 million) of the loan was fixed at a six-month LIBOR rate which expires in June 2000. The credit facility is secured by mortgages on 44 properties, which properties collectively accounted for approximately 45% of the Company's annualized base rent and approximately 40% of the Company's total real estate assets as of December 31, 1999, together with the rental proceeds from such properties. In February 1999, the credit facility was restructured to include a $30 million bridge facility which carried the same interest rate as the $175 million facility. In May 1999, the Company obtained a total of $108 million of new first mortgage financing from TIAA. The proceeds from the mortgage loans were used to repay and retire the $30 million bridge facility and pay down the outstanding balance on its $175 million line of credit. The credit facility contains various restrictive covenants including, among other things, a covenant limiting quarterly dividends to 95% of average Funds From Operations. The Company was in compliance with the covenants and requirements of its revolving credit facility throughout 1999. The daily weighted average amount owed to the bank was $113,082,000 and $94,338,000 in 1999 and 1998, respectively. The weighted average interest rates in these periods were 6.48% and 6.81%, respectively. The effective interest rate at December 31, 1999 was 7.52%. Note 8 - Mortgage Loans Payable Mortgage loans payable at December 31, 1999 and 1998 consist of the following (in thousands): 1999 1998 Floating rate note due December 15, 1999 $ - $ 1,797 7.50% note due January 1, 2002 23,889 24,297 7.02% note due March 15, 2003 19,257 24,717 Floating rate note due January 1, 2005, current rate of 8.69% 4,600 - 7.17% note due June 1, 2005 27,150 - 8.90% note due July 31, 2006 8,513 8,674 6.91% note due July 31, 2006 20,288 20,631 7.95% note due December 1, 2006 22,150 - 7.17% note due June 1, 2007 36,928 - 7.75% note due April 1, 2009 973 - 7.17% note due June 1, 2009 43,132 - $206,880 $80,116 The mortgage loans are collaterized by 41 properties at December 31, 1999, which properties collectively accounted for approximately 47% of the Company's annualized base rent and approximately 45% of the Company's total real estate assets as of December 31, 1999, together with the rental proceeds from such properties. The Company was in compliance with the covenants and requirements of its various mortgage financings throughout 1999. The following table presents scheduled principal payments on mortgage loans as of December 31, 1999 (in thousands): 2000 $ 3,409 2001 3,673 2002 26,416 2003 21,440 2004 3,534 Thereafter 148,408 $206,880 Note 9 - Redeemable Preferred Stock On September 18, 1995, the Company issued and sold 8,333,334 shares of Series A Convertible Preferred Stock (the "Convertible Preferred Stock") for $6.00 per share. Holders of the Convertible Preferred Stock were entitled to cumulative quarterly dividends in cash in an amount equal to the greater of (i) $0.135 per share or (ii) the dividends payable on the Common Stock into which the Convertible Preferred Stock is convertible plus, in both cases, the accumulated but unpaid dividends on the Convertible Preferred Stock. Dividends may be declared and paid on shares of Common Stock only if full cumulative dividends have been paid or authorized and set apart on all shares of Convertible Preferred Stock. On October 14, 1997, the 8,333,334 shares of the Series A Convertible Preferred Stock were converted to 4,166,667 shares of common stock. Note 10 - Sales of Common Stock The Company completed the sale of 4,600,000 shares of common stock at $17 3/8 per share in February 1997 and 7,245,000 shares of common stock at $19 5/8 per share in November 1997. Net cash proceeds from these offerings were used to pay off the outstanding borrowings under the Company's credit facility. In July 1998, the Company's board of directors approved a share repurchase program of 3 million shares which was increased to 4.5 million shares in September 1999. Since November 1998, the Company has repurchased and retired 3,458,000 shares at an average price of $16.89 per share. Note 11 - Comprehensive Income There are no adjustments necessary to net income as presented in the accompanying consolidated statements of income to derive comprehensive income in accordance with FASB Statement No. 130, Reporting Comprehensive Income. Note 12 - Segment Disclosure The Company has five reportable segments organized by the region in which they operate: Northern California (Northern California, Utah and Nevada), Southwest (Arizona and greater Austin, Texas), Southern California, Northwest (greater Portland, Oregon and greater Seattle, Washington), and Midwest (greater Kansas City, Kansas/Missouri, greater Dallas, Texas and Colorado). The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based upon income from real estate from the combined properties in each segment. For the year ended December 31, 1999 (in thousands) Northern Southern Corporate California Southwest California Northwest Midwest & Other Consolidated Rental income $ 32,900 $ 15,726 $ 12,382 $ 15,528 $ 13,991 $ - $ 90,527 Operating expenses and real estate taxes 7,193 4,274 2,481 3,944 4,456 276 22,624 Depreciation and amortization 4,624 2,087 1,768 2,509 2,028 - 13,016 Income from property operations $ 21,083 $ 9,365 $ 8,133 $ 9,075 $ 7,507 $ (276) $ 54,887 Percent of income from property operations 38% 17% 15% 17% 14% (1)% 100% Interest income(1) 24 3 - 4 - 151 182 Interest expense - - - - - (18,970) (18,970) General and administrative expenses - - - - - (3,561) (3,561) Income before minority interest and gain on sales 21,107 9,368 8,133 9,079 7,507 (22,656) 32,538 Minority interest - - - - - (128) (128) Gain (loss) on sales of real estate investments 7,756 - 45 - (58) - 7,743 Income before extraordinary item 28,863 9,368 8,178 9,079 7,449 (22,784) 40,153 Loss on early extinguishment of debt (298) - - - - - (298) Net income $ 28,565 $ 9,368 $ 8,178 $ 9,079 $ 7,449 $(22,784) $ 39,855 Real estate investments $205,258 $133,511 $94,458 $150,381 $96,125 $ - $679,733 Additions/dispositions of real estate investments $ (4,331) $ 24,079 $17,060 $ 37,131 $ 5,813 $ - $ 79,752 Total assets $212,612 $123,411 $101,542 $134,843 $93,991 $5,011 $671,410 (1) The interest income in Northern California, Southwest, and Northwest segments represents interest earned from tenant notes receivable. For the year ended December 31, 1998 (in thousands) Northern Southern Corporate California Southwest California Northwest Midwest & Other Consolidated Rental income $ 30,759 $ 11,900 $ 10,274 $ 9,281 $ 11,260 $ (23) $ 73,451 Operating expenses and real estate taxes 6,954 3,200 2,142 1,345 3,261 344 17,246 Depreciation and amortization 3,939 1,629 1,495 1,586 1,616 - 10,265 Income from property operations $ 19,866 $ 7,071 $ 6,637 $ 6,350 $ 6,383 $ (367) $ 45,940 Percent of income from property operations 43% 15% 15% 14% 14% (1)% 100% Interest income(1) 15 - - 16 - 192 223 Interest expense - - - - - (11,164) (11,164) General and administrative expenses - - - - - (3,386) (3,386) Income before minority interest 19,881 7,071 6,637 6,366 6,383 (14,725) 31,613 Minority interest - - - - - (117) (117) Net income $ 19,881 $ 7,071 $ 6,637 $ 6,366 $ 6,383 $(14,842) $ 31,496 Real estate investments $209,589 $109,432 $ 77,398 $113,250 $ 90,312 $ - $599,981 Additions to real estate investments $ 24,182 $ 41,420 $ 6,349 $ 56,852 $ 39,107 $ - $167,910 Total assets $210,867 $103,637 $ 81,708 $109,471 $ 87,670 $ 4,971 $598,324 (1) The interest income in the Northern California and Northwest segments represents interest earned from tenant notes receivable. For the year ended December 31, 1997 (in thousands) Northern Southern Corporate California Southwest California Northwest Midwest & Other Consolidated Rental income $ 20,614 $ 5,367 $ 8,637 $ 4,112 $ 4,539 $ 3,108 $ 46,377 Operating expenses and real estate taxes 4,551 1,336 1,859 415 1,280 1,388 10,829 Depreciation and amortization 2,799 603 1,105 698 511 - 5,716 Income from property operations $ 13,264 $ 3,428 $ 5,673 $ 2,999 $ 2,748 $ 1,720 $ 29,832 Percent of income from property operations 44% 12% 19% 10% 9% 6% 100% Interest income(1) 9 - - 2 - 278 289 Interest expense - - - - - (7,918) (7,918) General and administrative expenses - - - - - (2,337) (2,337) Income before minority interest and gain on sales 13,273 3,428 5,673 3,001 2,748 (8,257) 19,866 Minority interest - - - - - (108) (108) Gain on sale of real estate investments - - - - - 11,533 11,533 Net income $ 13,273 $ 3,428 $ 5,673 $ 3,001 $ 2,748 $ 3,168 $ 31,291 Real estate investments $185,407 $ 68,012 $ 71,049 $ 56,398 $51,205 $ - $432,071 Additions to real estate investments $ 82,792 $ 58,764 $ 6,559 $ 33,233 $21,309 $ - $202,657 Total assets $183,714 $ 65,925 $ 73,491 $ 57,005 $49,042 $ 4,726 $433,903 (1) The interest income in the Northern California and Northwest segments represents interest earned from tenant notes receivable. Note 13 - Fair Value of Financial Instruments The carrying values of trade accounts payable and receivable approximate fair value due to the short-term maturity of these instruments. Management has determined that the market value of the $202,280 fixed rate debt is approximately $189,882 based on the terms of existing debt compared to those available in the marketplace. The carrying value of variable rate debt approximates fair value, as the interest rates and other terms are comparable to current market terms. Note 14 - Earnings per Share Following is a reconciliation of earnings per share: (in thousands, except share and per share amounts) Year Ended December 31, 1999 1998 1997 Basic: Income before extraordinary item $ 40,153 $ 31,496 $ 31,291 Less: Dividends on the Series A Convertible Preferred Stock - - (3,500) Extraordinary item - loss on early extinguishment of debt (298) - - Net income applicable to common stockholders $ 39,855 $ 31,496 $ 27,791 Weighted average number of shares - basic 21,267,088 22,634,656 12,566,065 Income before extraordinary item $ 1.88 $ 1.39 $ 2.21 Extraordinary item - loss on early extinguishment of debt (0.01) - - Net income $ 1.87 $ 1.39 $ 2.21 Diluted: Income before extraordinary item $ 40,153 $ 31,496 $ 31,291 Add: Minority interest 128 117 108 Extraordinary item - loss on early extinguishment of debt (298) - - Net income for diluted earnings per share $ 39,983 $ 31,613 $ 31,399 Weighted average number of shares (from above) 21,267,088 22,634,656 12,566,065 Weighted average shares issuable upon conversion of the Series A Convertible Preferred stock - - 3,264,840 Weighted average shares issuable upon exercise of dilutive stock options using average period stock price under the treasury stock method 62,196 205,522 237,185 Weighted average shares issuable upon the conversion of operating partnership units 82,402 89,629 98,364 Weighted average shares of non-vested restricted stock using average period stock price under the treasury stock method 65,327 - - Weighted average number of shares - diluted 21,477,013 22,929,807 16,166,454 Income before extraordinary item $ 1.87 $ 1.38 $ 1.94 Extraordinary item - loss on early extinguishment of debt (0.01) - - Net income for diluted earnings per share $ 1.86 $ 1.38 $ 1.94 Note 15 - Quarterly Financial Data-Unaudited The following is a summary of quarterly results of operations for 1999 and 1998 (in thousands of dollars, except per share data): 1999 Quarters Ended 3/31 6/30 9/30 12/31 Rental income $21,359 $22,346 $22,475 $24,347 Income from property operations 12,899 14,229 14,081 13,678 Income before gain on sales of real estate investments and minority interest 8,274 8,556 8,656 7,052 Net income $ 8,811 $15,267 $ 8,815 $ 6,962 Earnings per share - basic $ 0.39 $ 0.70 $ 0.41 $ 0.35 Earnings per share - diluted $ 0.39 $ 0.70 $ 0.41 $ 0.35 1998 Quarters Ended 3/31 6/30 9/30 12/31 Rental income $15,361 $17,118 $20,156 $20,816 Income from property operations 9,880 10,939 12,191 12,930 Income before gain on sales of real estate investments and minority interest 7,486 7,896 7,957 8,274 Net income $ 7,457 $ 7,868 $ 7,928 $ 8,243 Earnings per share - basic $ 0.33 $ 0.35 $ 0.35 $ 0.36 Earnings per share - diluted $ 0.33 $ 0.34 $ 0.35 $ 0.36 BEDFORD PROPERTY INVESTORS, INC. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1999 (in thousands of dollars) Initial Cost Cost Gross Amount Deprec- to Company Capitalized Carried at Close of Period Accumu- Date Deprec- Buildings Subsequent lated De- Con- Date iable & Improve- to Acquisi- precia- struct- Ac- Life Description Land ment tion Land Building Total tion ed quired (Years) Industrial buildings: Northern California Building #3 at Contra Costa Diablo Industrial Park, Concord* $ 495 $ 1,159 $ 46 $ 495 $ 1,205 $ 1,700 $ 243 1983 12/90 45 Building #8 at Contra Costa Diablo Industrial Park, Concord* 877 1,548 203 877 1,751 2,628 426 1981 12/90 45 Building #18 at Mason Industrial Park, Concord* 610 1,265 126 610 1,391 2,001 287 1984 12/90 45 Milpitas Town Center, Milpitas* 1,400 4,421 91 1,400 4,512 5,912 540 1983 8/94 45 598 Gibraltar Drive, Milpitas* 535 2,522 - 535 2,522 3,057 780 1996 5/96 45 Auburn Court, Fremont* 1,391 2,473 268 1,415 2,717 4,132 254 1983 12/95 45 47650 Westinghouse Drive, Fremont* 267 893 59 271 948 1,219 84 1982 12/95 45 410 Allerton, South San Francisco* 1,333 889 39 1,356 905 2,261 81 1970 12/95 45 400 Grandview, South San Francisco* 3,246 3,517 945 3,300 4,408 7,708 357 1976 12/95 45 342 Allerton, South San Francisco* 2,516 1,542 363 2,558 1,863 4,421 176 1969 12/95 45 301 East Grand, South San Francisco* 2,036 959 160 2,070 1,085 3,155 113 1974 12/95 45 Fourier Avenue, Fremont* 2,120 7,018 - 2,120 7,018 9,138 559 1982 5/96 45 Lundy Avenue, San Jose* 2,055 2,184 216 2,055 2,400 4,455 186 1982 7/96 45 115 Mason Circle, Concord* 697 854 46 697 900 1,597 74 1971 9/96 45 47600 Westinghouse Drive, Fremont* 356 1,067 43 356 1,110 1,466 82 1982 9/96 45 860-870 Napa Valley Corporate Way, Napa* 933 3,515 518 933 4,033 4,966 342 1984 9/96 45 47633 Westinghouse Drive, Fremont* 1,051 3,239 252 1,051 3,491 4,542 246 1983 10/96 45 47513 Westinghouse Drive, Fremont* 1,624 - 4,088 1,624 4,088 5,712 413 1998 10/96 45 Bordeaux Centre, Napa* 1,151 - 6,476 1,151 6,476 7,627 540 1998 12/96 45 O'Toole Business Park, San Jose* 3,933 5,748 494 3,933 6,242 10,175 442 1984 12/96 45 6500 Kaiser Drive, Fremont* 1,556 6,411 29 1,556 6,440 7,996 429 1990 1/97 45 Bedford Fremont Business Center, Fremont* 3,598 9,004 123 3,598 9,127 12,725 606 1990 3/97 45 Spinnaker Court, Fremont* 2,548 5,989 35 2,548 6,024 8,572 357 1986 5/97 45 See accompanying independent auditors' report. Industrial buildings (continued): Northern California (continued) 2277 Pine View Way, Petaluma* 1,861 7,074 2 1,861 7,076 8,937 406 1989 6/97 45 Mondavi Building, Napa* 1,315 5,214 - 1,315 5,214 6,529 261 1985 9/97 45 Building #2 at Monterey Commerce Center, Monterey* 611 1,833 1 611 1,834 2,445 85 1990 12/97 45 Building #3 at Monterey Commerce Center, Monterey* 604 1,812 (14) 604 1,798 2,402 84 1990 12/97 45 Parkpoint Business Center, Santa Rosa* 1,975 4,474 481 1,976 4,954 6,930 213 1981 2/98 45 2180 S. McDowell, Petaluma* 773 3,006 1 774 3,006 3,780 100 1990 7/98 45 2190 S. McDowell, Petaluma* 587 2,283 1 588 2,283 2,871 76 1996 7/98 45 Arizona Westech Business Center, Phoenix* 3,531 4,422 452 3,531 4,874 8,405 523 1985 4/96 45 Westech II, Phoenix* 1,033 - 3,967 1,033 3,967 5,000 550 1998 7/96 45 2601 W. Broadway, Tempe* 1,127 2,348 98 1,127 2,446 3,573 130 1977 7/97 45 Building #2 at Phoenix Airport Center, Phoenix* 723 3,278 16 723 3,294 4,017 176 1990 7/97 45 Building #3 at Phoenix Airport Center, Phoenix* 682 3,163 - 682 3,163 3,845 170 1990 7/97 45 Building #4 at Phoenix Airport Center, Phoenix* 517 1,732 - 517 1,732 2,249 93 1990 7/97 45 Building #5 at Phoenix Airport Center, Phoenix* 1,507 3,860 4 1,507 3,864 5,371 207 1990 7/97 45 Butterfield Business Center, Tucson* 909 4,230 77 910 4,306 5,216 208 1986 11/97 45 Butterfield Tech Center II, Tucson 102 - 1,559 102 1,559 1,661 34 1999 11/97 45 Greystone Business Park, Tempe 1,232 - 2,776 1,232 2,776 4,008 3 1999 12/97 45 Cimarron Business Park, Scottsdale* 1,776 4,471 173 1,778 4,642 6,420 182 1979-85 3/98 45 Expressway Corporate Center, Tempe 1,467 3,175 208 1,468 3,382 4,850 88 1985 11/98 45 The Adams Brothers Building, Phoenix 1,572 1,613 49 1,572 1,662 3,234 21 1988-95 6/99 45 Bedford Realty Partners, L.P., Phoenix* 992 6,241 80 992 6,321 7,313 12 1986 12/99 45 Southern California Dupont Industrial Center, Ontario* 3,588 6,162 202 3,588 6,364 9,952 869 1989 5/94 45 3002 Dow Business Center, Tustin* 4,209 7,291 948 4,305 8,143 12,448 953 1987-89 12/95 45 Building #1 at Carroll Tech Center, San Diego* 511 1,372 187 511 1,559 2,070 125 1984 10/96 45 See accompanying independent auditors' report. Industrial buildings (continued): Southern California (continued) Building #2 at Oak Ridge Business Center, Vista 566 1,832 - 566 1,832 2,398 129 1990 10/96 45 Signal Systems Building, San Diego* 2,228 7,264 - 2,228 7,264 9,492 484 1990 12/96 45 Building #2 at Carroll Tech Center, San Diego* 1,022 2,129 - 1,022 2,129 3,151 154 1984 10/96 45 2230 Oak Ridge Way, Vista* 684 2,191 - 684 2,191 2,875 115 1997 10/97 45 6960 Flanders Drive, San Diego* 864 2,591 (2) 865 2,588 3,453 86 1989 6/98 45 Canyon Vista Center, San Diego* 1,664 4,645 80 1,664 4,725 6,389 79 1986 4/99 45 6325 Lusk Blvd., San Diego* 2,229 3,484 10 2,229 3,494 5,723 39 1991 7/99 45 Colorado Bryant Street Quad, Denver* 1,394 2,181 140 1,416 2,299 3,715 235 1971-73 12/95 45 Bryant Street Annex, Denver* 487 866 127 495 985 1,480 110 1968 12/95 45 Office buildings: Northern California Village Green, Lafayette* 547 1,245 556 743 1,605 2,348 220 1983 7/94 45 100 View Street, Mountain View* 1,020 3,144 298 1,020 3,442 4,462 291 1985 5/96 45 Canyon Park, San Ramon* 1,933 3,098 1,073 1,933 4,171 6,104 164 1971-72 12/97 45 Crow Canyon Centre, San Ramon* 778 - 4,859 778 4,859 5,637 10 1999 12/97 45 Building #1 at Monterey Commerce Center, Monterey* 616 5,302 117 616 5,419 6,035 271 1990 12/97 45 3380 Cypress Drive, Petaluma* 1,709 3,760 - 1,709 3,760 5,469 125 1989 7/98 45 Arizona Executive Center at Southbank, Phoenix* 4,943 7,134 85 4,943 7,219 12,162 460 1989 3/97 45 Building #1 at Phoenix Airport Center, Phoenix* 944 1,541 46 944 1,587 2,531 84 1990 7/97 45 Phoenix Airport Center Parking, Phoenix* 1,369 81 - 1,369 81 1,450 4 1990 7/97 45 Cabrillo Executive Center, Phoenix* 480 5,614 194 481 5,807 6,288 254 1983 2/98 45 Mountain Pointe Office Park, Phoenix 837 - 3,670 837 3,670 4,507 - 1999 2/98 45 1355 S. Clearview Avenue, Mesa* 2,049 5,450 3 2,049 5,453 7,502 71 1998 6/99 45 See accompanying independent auditors' report. Office buildings (continued): Southern California Laguna Hills Square, Laguna* 2,436 3,655 542 2,436 4,197 6,633 420 1983 3/96 45 Building #3 at Carroll Tech Center, San Diego* 716 1,400 56 716 1,456 2,172 103 1984 10/96 45 Scripps Wateridge, San Diego* 4,160 12,472 3 4,160 12,475 16,635 693 1990 6/97 45 Building #4 at Carroll Tech Center, San Diego* 2,050 3,224 56 2,050 3,280 5,330 55 1986 3/99 45 Colorado Oracle Building, Denver* 1,860 13,249 60 1,860 13,309 15,169 644 1996 10/97 45 Texaco Building, Denver* 3,699 31,631 682 3,700 32,312 36,012 1,127 1981 5/98 45 Greater Seattle Area Kenyon Center, Bellevue* 5,095 7,250 92 5,095 7,342 12,437 539 1987 9/96 45 Orillia Office Park, Renton* 10,021 22,975 - 10,021 22,975 32,996 1,277 1986 7/97 45 Adobe Systems Bldg. 1, Seattle* - 22,403 3,923 - 26,326 26,326 877 1998 3/98 45 Adobe Systems Bldg. 2, Seattle* - 18,931 3,353 - 22,284 22,284 757 1998 3/98 45 Highlands Phase I, Bothell 3,828 - 11,299 3,828 11,299 15,127 155 1999 6/98 45 The Federal Way Building, Federal Way* 2,208 7,009 - 2,208 7,009 9,217 78 1999 6/99 45 Federal Way II, Federal Way 2,500 14,307 - 2,500 14,307 16,807 79 1999 9/99 45 Nevada U.S. Bank Centre, Reno* 2,102 10,264 414 2,102 10,678 12,780 658 1989 5/97 45 Operating properties held for sale: Northern California 350 E. Plumeria Drive, San Jose* 3,621 4,704 245 3,683 4,887 8,570 373 1983 9/95 45 Arizona Troika Building, Tucson* 1,332 2,631 47 1,332 2,678 4,010 153 1985 6/97 45 Southern California Vista I, Vista 646 2,135 64 646 2,199 2,845 116 1990 10/96 45 5502 Oberlin Drive, San Diego 911 1,274 3 912 1,276 2,188 28 1982 3/98 45 Greater Kansas City Area Ninety-Ninth Street #3, Lenexa* 360 2,167 191 360 2,358 2,718 511 1990 12/90 45 Lackman Business Center, Lenexa* 619 1,631 247 628 1,869 2,497 241 1985 9/95 45 See accompanying independent auditors' report. Operating properties held for sale (continued): Greater Kansas City Area (continued) Ninety-Ninth Street #1, Lenexa* 404 1,547 119 408 1,662 2,070 149 1988 9/95 45 Ninety-Ninth Street #2, Lenexa 180 555 93 183 645 828 60 1988 9/95 45 6600 College Boulevard, Overland Park* 2,480 3,880 207 2,518 4,049 6,567 388 1982-83 10/95 45 Ninety-Ninth Street #4, Lenexa 519 - 3,160 519 3,160 3,679 461 1998 6/96 45 Panorama Business Park, Kansas City* 675 3,098 309 675 3,407 4,082 286 1984 12/96 45 Didde Building, Overland Park 810 1,344 59 810 1,403 2,213 60 1981 1/98 45 Panorama III, Kansas City* 468 2,027 163 468 2,190 2,658 27 1986 7/99 45 Texas 9737 Great Hills Trail, Austin* 2,766 7,028 65 2,766 7,093 9,859 405 1984 5/97 45 Ferrell Drive, Farmers Branch* 1,105 1,639 48 1,106 1,686 2,792 76 1984 12/97 45 Austin Braker 2, Austin 413 1,864 (24) 414 1,839 2,253 62 1982 6/98 45 Austin Rutland 10, Austin 389 2,854 35 390 2,888 3,278 100 1979 6/98 45 Austin Southpark A, B and C, Austin 1,070 4,647 67 1,072 4,712 5,784 170 1981 6/98 45 Ferrell Drive Land, Farmers Branch 185 - 3 186 2 188 - N/A 5/98 45 Greater Portland Area, Oregon Twin Oaks Technology Center, Beaverton* 1,444 4,836 601 1,469 5,412 6,881 589 1984 12/95 45 Twin Oaks Business Center, Beaverton* 1,163 2,847 593 1,183 3,420 4,603 407 1984 12/95 45 Properties under development: Northern California Carneros Commons Phase I, Napa 500 - 160 500 160 660 - N/A 12/96 45 Arizona Rio Salado Corporate Centre, Tempe 1,723 2,882 861 1,723 3,743 5,466 - 1982-84 7/98 45 West Tempe Lots 30 and 31, Tempe 551 - 65 551 65 616 - N/A 7/98 45 Phoenix Tech Center, Phoenix 1,322 945 376 1,322 1,321 2,643 - 1985 8/98 45 Colorado Belleview Corporate Plaza II Office, Denver 2,622 - 459 2,622 459 3,081 - N/A 10/98 45 Belleview Corporate Plaza, Retail, Denver 807 - 115 807 115 922 - N/A 10/98 45 Belleview Corporate Plaza, Parking, Denver 487 - 48 487 48 535 - N/A 10/98 45 WaterPark @ Briarwood Phase I, Englewood 1,002 - 618 1,002 618 1,620 - N/A 4/99 45 See accompanying independent auditors' report. Properties under development (continued): Greater Seattle Area Highlands Phase II, Bothell 1,646 - 2,057 1,646 2,057 3,703 - N/A 6/98 45 Land held for development: Carneros Commons, Phase II, Napa 461 - - 461 - 461 - N/A 12/96 45 Scripps Land, San Diego, CA 622 - 82 622 82 704 - N/A 6/97 45 Mondavi Land, Napa Lot 12G, Northern CA 1,150 - 8 1,150 8 1,158 - N/A 3/98 45 210 Lafayette Circle, Northern CA 511 - 2 511 2 513 - N/A 11/98 45 WaterPark @ Briarwood Phase II, Englewood 1,002 - - 1,002 - 1,002 - N/A 4/99 45 Belleview Corporate Plaza III, IV, Denver, CO 2,299 - - 2,299 - 2,299 - N/A 10/99 45 $176,835 $434,128 $68,770 $177,516 $502,217 $679,733 $28,695 (A) (A) * Property is encumbered, see footnotes 7 and 8 to the consolidated financial statements. See accompanying independent auditors' report. NOTES TO SCHEDULE III (in thousands of dollars) (A) An analysis of the activity in real estate investments for the years ended December 31, 1999, 1998 and 1997 is presented below: Investment Accumulated Depreciation 1999 1998 1997 1999 1998 1997 BALANCE AT BEGINNING OF PERIOD $599,981 $432,071 $229,414 $18,523 $ 8,985 $4,913 Add (deduct): Acquisition of 6500 Kaiser Drive - - 7,967 - - - Acquisition of Bedford Fremont Business Center - - 12,602 - - - Acquisition of Spinnaker Court - - 8,537 - - - Acquisition of 2277 Pine View Way - - 8,935 - - - Acquisition of Mondavi Building - - 6,529 - - - Acquisition of Building #2 at Monterey Commerce Center - - 2,444 - - - Acquisition of Building #3 at Monterey Commerce Center - - 2,416 - - - Acquisition of 2230 Oak Ridge Way - - 2,875 - - - Acquisition of 2601 W. Broadway - - 3,475 - - - Acquisition of Building #3 at Phoenix Airport Center - - 3,845 - - - Acquisition of Continental Can - - 4,866 - - - Acquisition of Butterfield Business Center - - 5,139 - - - Acquisition of Ferrell Drive - - 2,744 - - - Acquisition of Scripps Wateridge - - 16,632 - - - Acquisition of Canyon Park - - 5,031 - - - Acquisition of Building #1 at Monterey Commerce Center - - 5,918 - - - Acquisition of Orillia Office Park - - 32,996 - - - Acquisition of Executive Center At Southbank - - 12,077 - - - Acquisition of Building #1 at Phoenix Airport Center - - 2,485 - - - Acquisition of Building #2 at Phoenix Airport Center - - 4,001 - - - Acquisition of Building #4 at Phoenix Airport Center - - 2,249 - - - Acquisition of Building #5 at Phoenix Airport Center - - 5,367 - - - Acquisition of Phoenix Airport Center Parking - - 1,450 - - - Acquisition of Troika Building - - 3,963 - - - Acquisition of U.S. Bank Centre - - 12,366 - - - Acquisition of 9737 Great Hills Trail - - 9,794 - - - Acquisition of Oracle Building - - 15,109 - - - Acquisition of Scripps Land - - 622 - - - Acquisition of Oak Ridge Way Lot - - 359 - - - Acquisition of Oracle Land - - 1,645 - - - Acquisition of Butterfield Land - - 102 - - - Acquisition of Canyon Park Land - - 778 - - - Acquisition of Eaton Freeway Land - - 1,232 - - - Sale of 1000 Town Center Drive (B) - - (6,622) - - (780) Sale of Mariner Court (B) - - (7,864) - - (419) Sale of Academy Place Shopping Center (C) - - (6,281) - - (110) Acquisition of Didde Building - 2,207 - - - - Acquisition of El Caro Executive Center - 6,279 - - - - Acquisition of Park Point Business Center - 6,897 - - - - Acquisition of Mountain Pointe Office Park - 2,878 - - - - See accompanying independent auditors' report. Acquisition of Mondavi Land, Napa Lot 12G - 1,157 - - - - Acquisition of Adobe I - 26,306 - - - - Acquisition of Adobe II - 22,254 - - - - Acquisition of 5502 Oberlin Drive - 2,188 - - - - Acquisition of Cimarron Business Park - 6,322 - - - - Acquisition of Ferrell Drive Land - 188 - - - - Acquisition of Texaco Building - 35,698 - - - - Acquisition of Geocon Building - 3,452 - - - - Acquisition of Austin Braker 2 - 2,245 - - - - Acquisition of Austin Rutland 10 - 3,255 - - - - Acquisition of Austin Southpark A, B and C - 5,753 - - - - Acquisition of Highlands Campus Land - 8,110 - - - - Acquisition of Rio Salado Corporate Centre - 4,906 - - - - Acquisition of West Tempe Land Lots 30 and 31 - 572 - - - - Acquisition of 3880 Cypress Drive - 5,470 - - - - Acquisition of 2180 S. McDowell Blvd. - 3,780 - - - - Acquisition of 2190 S. McDowell Blvd. - 2,870 - - - - Acquisition of 10232 S. 51st Street - 2,368 - - - - Acquisition of 210 Lafayette Circle - 511 - - - - Acquisition of Expressway Corporate Center - 4,644 - - - - Acquisition of Carroll Tech IV 5,330 - - - - - Acquisition of Canyon Vista Center 6,389 - - - - - Acquisition of WaterPark at Briarwood 1,620 - - - - - Acquisition of 1355 S. Clearview Avenue 7,502 - - - - - Acquisition of The Adams Brothers Building 3,234 - - - - - Acquisition of The Federal Way Building 9,217 - - - - - Acquisition of 6325 Lusk Blvd. 5,723 - - - - - Acquisition of Panorama III 2,658 - - - - - Acquisition of Federal Way II 16,807 - - - - - Acquisition of Belleview Corporate Plaza 6,837 - - - - - Sale of 417 Eccles (D) (1,200) - - (37) - - Sale of Woodlands Tower II (E) (6,963) - - (1,031) - - Sale of Oak Ridge Land (E) (378) - - - - - Sale of Doherty Avenue (F) (3,909) - - (152) - - Sale of Continental Can (G) (5,016) - - (124) - - Capitalized costs 31,901 7,600 16,874 - - - Depreciation - - - 11,516 9,538 5,381 BALANCE AT END OF PERIOD $679,733 $599,981 $432,071 $28,695 $18,523 $8,985 (B) The properties were sold in July 1997. (C) The property was sold in October 1997. (D) The property was sold in March 1999. (E) The properties were sold in June 1999. (F) The property was sold in August 1999. (G) The property was sold in December 1999. See accompanying independent auditors' report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. BEDFORD PROPERTY INVESTORS, INC. By: /s/ Peter B. Bedford Peter B. Bedford Chairman of the Board and Chief Executive Officer Dated: March 29, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacity and on the date indicated. /s/ Peter B. Bedford March 29, 2000 Peter B. Bedford, Chairman of the Board and Chief Executive Officer /s/ Claude M. Ballard March 29, 2000 Claude M. Ballard, Director /s/ Anthony Downs March 29, 2000 Anthony Downs, Director /s/ Anthony M. Frank March 29, 2000 Anthony M. Frank, Director /s/ Martin I. Zankel March 29, 2000 Martin I. Zankel, Director /s/ Thomas H. Nolan, Jr. March 29, 2000 Thomas H. Nolan, Jr., Director /s/ Hanh Kihara March 29, 2000 Hanh Kihara Senior Vice President and Chief Financial Officer /s/ Krista K. Rowland March 29, 2000 Krista K. Rowland, Vice President Controller Exhibit 12 Bedford Property Investors, Inc. Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends and Limited Partner Distributions (in thousands, except for ratio) Year Ended December 31, 1999 1998 1997 1996 1995 Net income $39,855 $31,496 $31,291 $11,021 $ 2,895 Fixed charges - interest and amortization of loan fees 18,970 11,164 7,918 4,347 1,594 Fixed charges - interest capitalized 2,148 2,177 627 - - Net income including fixed charges 60,973 44,837 39,836 15,368 4,489 Preferred dividends and limited partner distributions 128 117 3,608 4,505 1,288 Net income including fixed charges, preferred dividends and limited partner distributions $61,101 $44,954 $43,444 $19,873 $ 5,777 Ratio of earnings to fixed charges, including preferred dividends and limited partner distributions $ 2.88 $ 3.34 $ 3.57 $ 2.25 $ 2.00 Ratio of earnings to fixed charges, excluding preferred dividends and limited partner distributions $ 2.89 $ 3.36 $ 4.66 $ 3.54 $ 2.82 Exhibit 21.1 Subsidiaries of Bedford Property Investors, Inc. Name Under Subsidiary Which Subsidiary is Name State of Incorporation doing Business 1. ICMPI (Concord Diablo 3), Inc. Delaware ICMPI (Concord Diablo 3), Inc. 2. ICMPI (Concord Diablo 8), Inc. Delaware ICMPI (Concord Diablo 8), Inc. 3. ICMPI (Concord Mason 18), Inc. Delaware ICMPI (Concord Mason 18), Inc. 4. ICMPI (Overland Park), Inc. Delaware ICMPI (Overland Park), Inc. 5. ICMPI (Lenexa), Inc. Delaware ICMPI (Lenexa), Inc. Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors Bedford Property Investors, Inc.: We consent to incorporation by reference in the registration statements on Form S-3 (No.'s 333-23687, 333-33643 and 333-33795) and the registration statements on Form S-8 (No.'s 33-52375, 333-18215, 333-70681 and 333-74707) of Bedford Property Investors, Inc. of our report dated February 4, 2000, relating to the consolidated balance sheets of Bedford Property Investors, Inc. as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1999, and the related financial statement schedule as of December 31, 1999, which report appears in the December 31, 1999 annual report on Form 10-K of Bedford Property Investors, Inc. KPMG LLP San Francisco, California March 29, 2000