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, 2000 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 15, 2001 was approximately $322,358,000. The number of shares of Registrant's Common Stock, par value $0.02 per share, outstanding as of March 15, 2001 was 17,814,950. 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 17, 2001, 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 sections 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 in the western United States. As of December 31, 2000, the Company owned and operated, either directly or through wholly-owned subsidiaries, 86 properties aggregating approximately 6.9 million rentable square feet. Of these 86 properties (the "Properties"), there are 61 industrial (the "Industrial Properties") and 25 suburban office (the "Suburban Office Properties"). As of December 31, 2000, the Properties were approximately 97% leased to 466 tenants. The Properties are located in Northern and Southern California, Washington, Arizona, Nevada and Colorado. In addition to the Properties, the Company owns one suburban office and four office-flex development projects totaling 365,045 rentable square feet. During 2000, the Company completed the shell construction and began the initial lease- up on two of these projects, which were approximately 67% leased as of December 31, 2000. The Company seeks to grow its asset base through the development of new industrial and suburban office properties as well as through the acquisition of industrial and suburban office properties and portfolios of such 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) develop new industrial and suburban office properties, (iii) acquire quality industrial and suburban office properties and/or portfolios of such 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 2000, leases for 1,510,323 square feet of space expired with a weighted average base rental rate of $10.91 per square foot. Approximately 91% of this space has been re-leased, and the weighted average base rental rate of the new leases is $13.79 per square foot, an increase of 26.5%. Past performance is not necessarily indicative of results that will be obtained in the future, and no assurance can be given in that regard. 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 management and permanent financing. Since 2000, the Company has been especially focused on the development of office tech and flex tech product. These are multi-tenant buildings designed to meet the needs of a wide 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 and Southern California and Colorado, and is considering developing additional properties in the same markets as well as in the Pacific Northwest. The Company's management team has significant development experience in each of these markets. The Company's activities relating to the development 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, 2002. 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. Acquisitions of properties for the Company are conducted by BAI as noted above. Share Repurchase From November 1998 through the early part of 2000, the Company's stock traded at a discount to its net asset value (estimated based on current cap rate and earning estimates) as a result of the softening of the REIT capital markets. With a dividend yield approximately equal to 9% and an average borrowing cost of 7.24%, the repurchase and retirement of the Company's common stock increases the stockholders' percentage ownership in the Company and therefore brings additional value to that ownership. In July 1998, the Company's board of directors approved a share repurchase program of 3 million shares which was increased first to 4.5 million shares in September 1999 and later to 8 million shares in September 2000. Since November 1998, the Company has repurchased and retired 5.7 million shares at an average price of $17.49 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 continue 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, as well as 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. During 2000, the Company decided to take advantage of the growth opportunities in the strong markets of the West Coast and exited the slow-velocity markets of the Mid-West by selling all of its operating properties in Kansas and Texas. 3. Develop and Acquire "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 or continued storefront 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 development and 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 has redefined its geographical focus in the western United States and sold real estate assets that did 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, Petaluma, and San Diego, California; Phoenix, Arizona; Denver, Colorado; and Federal Way, Washington. Transactions and Significant Events During 2000 Development and Acquisitions Development activity during the year included the continued leasing of 389,000 square feet in six projects located in Arizona, Washington, and Northern California, which were shell complete during 1999. As of December 31, 2000, these projects were 94% leased with yields ranging from 11% to 12%. The Company also completed the shell construction and partial lease-up of two projects located in Colorado and Northern California, adding 143,000 square feet to the available inventory. As of December 31, 2000 these projects were 67% leased. In addition, the Company commenced the construction of one new project in Northern California and two new projects in Colorado, which will add approximately 222,000 rentable square feet to the inventory of available space in 2001. This new leasable space provides the Company with a significant opportunity to increase its operating revenue. The Company also acquired three parcels of vacant land in Napa and Ontario, California, aggregating 21 acres for a total investment of approximately five million dollars. These parcels of land are adjacent to existing Properties. The Company is in the preliminary planning stage to develop industrial or office properties on each of these parcels. During the year, the Company acquired a 165,000 square foot three- building single-story office complex in Denver, Colorado for $21.5 million. The property is 97% leased and has a first year going-in yield of 9.42%. Sell Selected Assets During the year, the Company sold 20 Properties, including 15 Industrial Properties and 5 Suburban Office Properties, aggregating 1.2 million rentable square feet for $135,576,000. In addition, the Company sold one 1.43 acre parcel of land for $160,000. These sales produced gain totaling $38,171,000. The disposition of one Suburban Office Property was structured as a like-kind exchange to defer approximately $12 million of taxable gain. The cash proceeds from other sales were used to fund the repurchases of the Company's common stock and pay down debt. Use of Information Technology The Company's management has made a significant commitment to employ information technology in all the day-to-day operations of the firm. A number of steps have been taken during the last two years to digitize internal practices and eliminate redundancies. These steps include the creation of a management information system designed to facilitate real-time dissemination of operating results to field offices. This system provides the framework for timely operations reviews with each Regional Manager, the focus of which are market opportunities and the action steps necessary to take advantage of them. In addition, all basic business functions have been, or are being, digitized to simplify practices, reduce paper-flow, and enhance productivity. The Company's Markets The Properties are located in select markets proximate to metropolitan areas in Northern and Southern California, Washington, Arizona, Nevada and Colorado. 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. As the current economic expansion matures, job growth in several of the Company's markets has slowed. Additions to the commercial real estate stock have not been excessive, however, compared to previous cycles, and most of the markets in which the Company operates remain healthy. Accordingly, the Company expects commercial property values to remain in equilibrium during this period of slowing economic growth. Occupancy levels and rents will not be as robust as during the earlier recovery phase, but considering the absence of overbuilding in most markets, they should remain buoyant. 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 15% 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. Environmental concerns, as well as topographic and other barriers to entry, have effectively limited significant additions to real estate stock. The 2001 edition of Emerging Trends in Real Estate, a publication of PricewaterhouseCoopers and Lend Lease Real Estate Investments, ranked San Francisco (for the fifth consecutive year) and Seattle, as the number one and number six investment markets in the United States, respectively. Operating Performance For the year ended December 31, 2000, the Company reported income before gain on sales and extraordinary item of $29,916,000, on rental revenues of $97,518,000, compared with income before gain on sale and extraordinary item of $32,410,000, on rental revenues of $90,527,000 for the year ended December 31, 1999. Gain on sale of real estate investments for the year ended December 31, 2000 was $38,171,000 compared with gain on sale of real estate investments of $7,743,000 for the year ended December 31, 1999. The Company's Funds From Operations ("FFO": see definition under "Selected Financial Data") for the year ended December 31, 2000 was $43,864,000 as compared to $45,554,000 for the year ended December 31, 1999. The decrease in income before gain on sale and extraordinary item and the decrease in FFO for the year ended December 31, 2000, when compared with income before gain on sale and extraordinary item and FFO for the year ended December 31, 1999, are due to the increased borrowings under the Company's line of credit which were used to partially fund the repurchases of the Company's common stock in 1999. With the share repurchase program, FFO was spread over fewer shares, resulting in the growth of the "per share" amount. Increase in Dividends on Common Stock In September 2000, the Company announced a 7% increase in its quarterly Common Stock dividend from $0.42 to $0.45 per share, or $1.80 on an annualized basis. The higher dividend rate commenced with the Company's dividend for the third quarter of 2000. The dividends declared for the four quarters in 2000 totaled $1.74, a 12% increase compared with the dividends declared for the four quarters in 1999. 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, 2000, the facility, which was all secured, had an outstanding balance of $77,320,000, with an interest rate of LIBOR plus 1.35%. The Company was in compliance with the covenants and requirements of its revolving credit facility throughout 2000. Currently the Company is in the process of renewing the credit facility with its existing bank group. Mortgage Loans Payable 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 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. In July 2000, the Company secured $30.89 million of new first mortgage financing from Security Life of Denver Insurance Company. The financing consists of two cross-collateralized five-year loans, each bearing interest at a floating rate of 30-day LIBOR plus 140 basis points with a provision to convert to a fixed rate and extend the term within the first three years. Proceeds of the mortgage loans were used to pay down the outstanding balance of the Company's credit facility. 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 thirteen times since that time from $0.10 per share in the second quarter of 1993 to $0.45 per share in the fourth quarter of 2000. In March 2001, the Company declared a dividend distribution for the first quarter 2001 to its stockholders in the amount of $0.45 per share of Common Stock, payable 15 days after the quarter-end. Tenants Based on rentable square feet, as of December 31, 2000, the Suburban Office Properties and Industrial Properties were approximately 97% occupied by a total of 466 tenants, of which 111 were Suburban Office Property tenants and 355 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 renewing the credit facility with its existing bank group. 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 $10 million subject to a deductible of 5-10% of total insurable value per building with respect to the earthquake coverage. Additional flood and earthquake coverage with an aggregate limit of $20 million is provided for property located in California. 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 33 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, 2000, 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 60 $ 305,857 47% Office buildings 27 310,882 48% Operating properties held for sale 2 5,226 1% Properties under development 5 13,702 2% Land held for development 9 11,721 2% Total 103 $ 647,388 100% As of December 31, 2000, 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 31 $155,023 24 Arizona 16 76,560 12 Southern California 11 61,015 9 Greater Seattle Area 2 13,259 2 Total industrial buildings 60 305,857 47 Office buildings Northern California 5 27,984 4 Arizona 6 39,802 6 Southern California 4 31,215 5 Colorado 5 81,384 13 Greater Seattle Area 6 117,591 18 Nevada 1 12,906 2 Total office buildings 27 310,882 48 Operating properties held for sale Colorado 2 5,226 * Total operating properties held for sale 2 5,226 1 Properties under development Northern California 1 983 * Colorado 4 12,719 2 Total properties under development 5 13,702 2 Land held for development Northern California 3 3,844 * Southern California 2 3,971 * Colorado 3 3,262 * Arizona 1 644 * Total land held for development 9 11,721 2 Total 103 $647,388 100% * 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, 2000. Percentage Occupied/Number of Tenants Occupying 10% or more 1996 1997 1998 1999 2000 Property % # % # % # % # % # Principal Business at December 31, 2000 INDUSTRIAL PROPERTIES Northern California Building #3 at Contra Costa Diablo Ind. Park, Concord 100% 1 100% 1 100% 1 100% 1 100% 1 Television cable service. 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% 2 100% 2 92% 2 100% 2 100% 2 Warehouse of scaffolding materials and construction supplies; roofing contractor. Milpitas Town Center, Milpitas 100% 4 100% 4 100% 3 100% 4 100% 3 Manufacturer of blood glucose meters; integrated technology solutions; manufacturer of vacuum pumps and related parts. 598 Gibraltar Drive, Milpitas 100% 1 100% 1 100% 1 100% 1 100% 1 Electronic computer component manufacturer. Auburn Court, Fremont 100% 4 100% 4 100% 4 68% 3 100% 4 Research and development of silicon implants and other medical products; electronic computer component manufacturer; computer software developer; high-performance fiber optic components supplier. 47650 Westinghouse Drive, Fremont 100% 1 100% 1 100% 1 100% 1 100% 1 Electronic personal computer board assembly. Percentage Occupied/Number of Tenants Occupying 10% or more 1996 1997 1998 1999 2000 Property % # % # % # % # % # Principal Business at December 31, 2000 INDUSTRIAL PROPERTIES (continued) Northern California (continued) 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% 4 100% 4 100% 4 100% 4 Radiology research and developer; freight forwarding; retail display company. 342 Allerton, South San Francisco 100% 4 100% 4 100% 4 100% 4 100% 4 Freight forwarding; food broker. 301 East Grand, South San Francisco 100% 3 100% 3 100% 3 75% 2 100% 3 Freight forwarding; distributor of MRI equipment; moving company. Fourier Avenue, Fremont 100% 1 100% 1 100% 1 100% 1 100% 1 Manufacturer of testers and equipment for semi-conductors. Lundy Avenue, San Jose 100% 2 100% 2 82% 1 100% 2 100% 2 Testing and distribution of semi- conductors and other related electronic components; software sales and development. 115 Mason Circle, Concord 100% 5 100% 5 100% 5 100% 5 100% 5 Manufacturer and distributor of pipeline; distributor of fund raising products; distributor of water purifying systems; fluid sealing and handling company. 47600 Westinghouse Drive, Fremont 100% 1 100% 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 96% 3 86% 3 100% 3 88% 2 94% 2 Winery; engineering company and software developer. Percentage Occupied/Number of Tenants Occupying 10% or more 1996 1997 1998 1999 2000 Property % # % # % # % # % # Principal Business at December 31, 2000 INDUSTRIAL PROPERTIES (continued) 47633 Westinghouse Drive, Fremont 100% 1 100% 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 100% 2 100% 2 100% 2 Manufacturer of semi-conductor equipment; manufacturer and designer of arterial balloon catheters and other related devices. Carneros Commons Phase I, N/A N/A N/A N/A 0% 0 New development project in lease-up phase. Napa Bordeaux Centre, Napa N/A N/A 38% 2 89% 4 100% 5 Cork manufacturer; marine electronics distributor; wine storage and distributor; research and development of packaging material; and wine club distributor. O'Toole Business Park, San Jose 94% 0 90% 0 89% 0 100% 0 100% 1 Manufacturer of peptides used in pharmaceutical research. 6500 Kaiser Drive, Fremont N/A 100% 1 100% 1 100% 1 100% 1 Office, research and development, manufacturer of computers. Bedford Fremont Business Park, Fremont N/A 100% 1 100% 1 97% 1 97% 1 Administration and testing of samples for managed care organizations. Spinnaker Court, Fremont N/A 100% 2 100% 2 100% 2 100% 3 Design-to-distribution of computing solutions; manufacturer of electronic components for semiconductor; developer of broadband products and related components. 2277 Pine View Way, Petaluma N/A 100% 1 100% 1 100% 1 100% 1 Manufacturer and distributor of eyeglass lenses for world-wide distribution. The Mondavi Building, Napa N/A 100% 1 100% 1 100% 1 100% 1 Wine storage and administration. Percentage Occupied/Number of Tenants Occupying 10% or more 1996 1997 1998 1999 2000 Property % # % # % # % # % # Principal Business at December 31, 2000 INDUSTRIAL PROPERTIES (continued) Northern California (continued) Monterey Commerce Center 2, Monterey N/A 100% 1 100% 1 100% 1 100% 1 Language interpretation. Monterey Commerce Center 3, Monterey N/A 100% 3 100% 3 100% 3 81% 4 Office equipment sales/service; telephone/data switching center; electronic building systems sales/service/warehousing; pharmaceutical sales/service/warehousing. Parkpoint Business Center, Santa Rosa N/A N/A 100% 3 100% 3 95% 3 Physical therapy and rehabilitation; point of sale machine manufacturer; mortgage broker. 2180 S. McDowell, Petaluma N/A N/A 100% 2 81% 1 69% 1 Manufacturer of high-end, commercial grade sound equipment. 2190 S. McDowell, Petaluma N/A N/A 100% 2 100% 2 100% 2 Bread distributor; distributor of paper and packaging products. Southern California Dupont Industrial Center, Ontario 59% 0 100% 1 97% 1 100% 2 100% 1 Distributor of swimming pool supplies. 3002 Dow Business Center, Tustin 99% 0 100% 0 99% 0 99% 0 98% 0 No single tenant over 10%. Carroll Tech I, San Diego 100% 1 100% 1 100% 1 100% 1 100% 1 Sales and service of point of sales equipment. Vista 1, Vista 100% 1 100% 1 0% 0 0% 0 100% 1 Water purifying components manufacturer. Vista 2, Vista 100% 1 100% 1 100% 1 100% 1 100% 1 Manufacturer of graphite golf club shaft. Percentage Occupied/Number of Tenants Occupying 10% or more 1996 1997 1998 1999 2000 Property % # % # % # % # % # Principal Business at December 31, 2000 INDUSTRIAL PROPERTIES (continued) Southern California (continued) Signal Systems Building, San Diego 100% 1 100% 1 100% 1 100% 1 100% 1 Developer and manufacturer of avionic diagnostic equipment. Carroll Tech II, San Diego 100% 1 100% 1 100% 1 100% 1 100% 1 Bio-technology company. 2230 Oak Ridge Way, Vista N/A 100% 1 100% 1 100% 1 100% 1 Manufacturer of equipment for circuit board assembly. 6960 Flanders Drive, San Diego N/A N/A 100% 1 100% 1 100% 1 Geotechnical and environmental consultant. Canyon Vista Center, San Diego N/A N/A N/A 100% 3 100% 3 Designer of interactive entertainment software; product development testing and marketing; testing of computer networking products. 6325 Lusk Blvd., San Diego N/A N/A N/A 100% 2 100% 2 Bio-tech company developing diabetes self-test products; apparel company. Colorado Bryant Street Quad, Denver 100% 3 100% 3 100% 3 100% 3 95% 4 Health care provider; photo processing lab; developer and manufacturer of heat exchangers and systems; distributor of hearth products. Bryant Street Annex, Denver 100% 2 100% 2 100% 2 100% 2 100% 2 Office supplies distributor; automotive paint distributor. Arizona Westech Business Center, Phoenix 93% 0 96% 0 95% 0 96% 0 95% 0 N/A Westech II, Phoenix N/A N/A 100% 3 100% 2 100% 2 Healthcare consultants; travel agency. 2601 W. Broadway, Tempe N/A 100% 1 100% 1 100% 1 100% 1 Wireless phone service provider. Phoenix Airport Center #2, Phoenix N/A 100% 1 100% 1 100% 1 100% 1 Electronic parts sales and customer service. Percentage Occupied/Number of Tenants Occupying 10% or more 1996 1997 1998 1999 2000 Property % # % # % # % # % # Principal Business at December 31, 2000 INDUSTRIAL PROPERTIES (continued) Arizona (continued) Phoenix Airport Center #3, Phoenix N/A 100% 1 100% 1 100% 1 100% 1 Cosmetic manufacturer and distributor. Phoenix Airport Center #4, Phoenix N/A 100% 1 100% 1 100% 1 100% 1 Package delivery/service call center. Phoenix Airport Center #5, Phoenix N/A N/A 100% 1 100% 1 100% 1 Healthcare maintenance organization corporate office. Butterfield Business Center, Tucson N/A 100% 3 100% 3 100% 2 100% 2 Sears call center; research and development of automobile care items. Butterfield Tech Center II, Tucson N/A N/A N/A 56% 2 100% 4 Package distribution facilities; school book distribution facility; distributor of industrial uniform supplies. Greystone Business Park, Tempe N/A N/A N/A 11% 1 86% 3 Sales and service of electronic equipment; business communications equipment and multimedia integrations services; sales, service and support facilities for distribution of electrical components. Cimarron Business Park, Scottsdale N/A N/A 98% 2 97% 2 90% 1 Printing and sales office. Rio Salado Corporate Centre, Phoenix N/A N/A N/A N/A 0% Rehabilitation completed during 2000; under lease-up. Phoenix Tech Center, Phoenix N/A N/A N/A N/A 100% 1 Reprocessing/recycling of single-use non- medical devices. Percentage Occupied/Number of Tenants Occupying 10% or more 1996 1997 1998 1999 2000 Property % # % # % # % # % # Principal Business at December 31, 2000 INDUSTRIAL PROPERTIES (continued) Arizona (continued) Expressway Corporate Center, Tempe N/A N/A 68% 1 100% 2 100% 2 Manufacturer of photographic equipment for wafer circuiting; food supplement manufacturer. The Adams Brothers Building, Phoenix N/A N/A N/A 100% 1 100% 1 Interior design and home products sales. Bedford Realty Partners, L.P., Phoenix N/A N/A N/A 100% 2 100% 2 Medical research; consulting engineers. Washington Highlands Campus Building B, Bothell N/A N/A N/A N/A 86% 4 Manufacturer and distributor of micro- biological lab testing equipment; medical prescription service provider; wholesaler of flooring products; telecommunication. Highlands Campus Building C, Bothell N/A N/A N/A N/A 60% 2 Civil engineering consulting; manufacturer and distributor of ultrasound equipment. SUBURBAN OFFICE PROPERTIES Northern California Village Green, Lafayette 100% 1 99% 1 100% 2 100% 2 100% 2 Environmental consultant; real estate investment trust. Canyon Park, San Ramon N/A 100% 2 100% 2 100% 2 100% 2 Geotechnical lab and research; healthcare provider. Crow Canyon Centre, San Ramon N/A N/A N/A 50% 1 100% 2 Health care provider; real estate mortgage and interior designer. Monterey Commerce Center 1, Monterey N/A 87% 4 82% 4 79% 3 88% 3 Technology - software; technology - digital audio discs; financing/loan servicing. Percentage Occupied/Number of Tenants Occupying 10% or more 1996 1997 1998 1999 2000 Property % # % # % # % # % # Principal Business at December 31, 2000 SUBURBAN OFFICE PROPERTIES (continued) 3380 Cypress, Petaluma N/A N/A 100% 1 100% 1 100% 1 Manufacturer of hearing devices. Southern California Laguna Hills Square, Laguna 86% 2 96% 4 93% 4 95% 4 100% 2 Medical facility; optometry and eye surgery. Carroll Tech III, San Diego N/A 100% 1 100% 1 100% 1 100% 1 On-line game developer. Scripps Wateridge, San Diego N/A 100% 2 100% 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 100% 1 100% 1 Manufacturer of video games. Colorado Oracle Building, Denver N/A 100% 2 100% 2 100% 2 100% 2 Software company; banking. Texaco Building, Denver N/A N/A 100% 1 100% 1 100% 1 Oil company. WaterPark @ Briarwood Bldg. 1, Englewood N/A N/A N/A N/A 62% 1 Corporate travel agency. WaterPark @ Briarwood Bldg. 2, Englewood N/A N/A N/A N/A 70% 2 Data processing solutions for the finance industry; distributor of electrical components and computer products. Bedford Center @ Rampart, Englewood N/A N/A N/A N/A 97% 3 Office equipment sales and lease; insurance company; corporate travel agency. Arizona Executive Center at Southbank, Phoenix N/A 98% 3 98% 3 98% 3 92% 3 Travel agency; call center for medical records; telemarketing call center. Percentage Occupied/Number of Tenants Occupying 10% or more 1996 1997 1998 1999 2000 Property % # % # % # % # % # Principal Business at December 31, 2000 SUBURBAN OFFICE PROPERTIES (continued) Arizona (continued) Troika Building, Tucson N/A 100% 1 100% 1 100% 1 100% 1 Architectural services Phoenix Airport Center #1, Phoenix N/A 100% 5 100% 5 100% 3 100% 5 Electronics marketing; banking services; security services and sales office; electronic marketing and sales; engineering consulting. Cabrillo Executive Center, Phoenix N/A N/A 97% 2 100% 2 94% 3 Healthcare insurance company; insurance company; provider of email systems and software for businesses. Mountain Pointe Office Park, Phoenix N/A N/A N/A 0% 0 100% 1 Civil engineering. 1355 S. Clearview Avenue, Mesa N/A N/A N/A 100% 1 100% 1 Debt collection services. Greater Seattle Area Orillia Office Park, Renton N/A 100% 1 100% 1 100% 1 100% 1 Manufacturer of aircraft. Adobe Systems Bldg. 1, Seattle N/A N/A 100% 1 100% 1 100% 1 Computer software design and engineering. Adobe Systems Bldg. II, Seattle N/A N/A 77% 1 100% 2 100% 2 Computer software design and engineering; non-profit acupuncture and alternative medicine school and clinic. Highlands Campus, Bldg. A, Bothell N/A N/A N/A 38% 1 100% 2 Computer software development and online services; software developer. The Federal Way Building, Federal Way N/A N/A N/A 100% 3 100% 2 Property/casualty insurance company; gasoline company. Percentage Occupied/Number of Tenants Occupying 10% or more 1996 1997 1998 1999 2000 Property % # % # % # % # % # Principal Business at December 31, 2000 SUBURBAN OFFICE PROPERTIES (continued) Greater Seattle Area (continued) Federal Way Building II, Federal Way N/A N/A N/A 100% 4 100% 3 Producer of semiconductor/computer technology components; financial advisor and lender; and full service insurance company. Nevada U. S. Bank Centre, Reno N/A 94% 1 99% 1 100% 2 90% 2 Insurance services; mining. Lease Expirations - Real Estate Portfolio The following table presents lease expirations for each of the ten years and thereafter beginning January 1, 2001. The table presents: (i) the number of leases that expire each year, (ii) the square feet covered by such expiring leases, and (iii) the percentage of total occupied square feet for expiring leases. Number of Percentage Leases Occupied of Occupied Year Expiring Square Feet Square Feet 2001 111 940,947 14.0% 2002 89 768,166 11.5 2003 90 986,768 14.7 2004 68 1,364,764 20.4 2005 70 1,117,461 16.7 2006 16 473,002 7.1 2007 10 493,042 7.4 2008 2 11,170 0.2 2009 2 41,758 0.6 2010 and thereafter 8 496,075 7.4 Total 466 6,693,153 100.0% 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 2000. Annual # of Leases Square Feet Contract Rent Property with 10% or Project of Each ($/Sq/Yr) Lease Renewal Property Taxes/Rate More of GLA Square Feet Tenant At End of Year Expiration Options INDUSTRIAL PROPERTIES Northern California Building #3 at Contra Costa $17,002 1 21,840 21,840 $8.04 Feb. 02 1-3 yr. Diablo Ind. Park, Concord $1.01/100 Building #8 at Contra Costa $24,308 1 31,800 31,800 $11.61 Dec. 05 1-5 yr. Diablo Ind. Park, Concord $1.01/100 Building #18 at Mason $19,936 2 28,836 7,225 $7.44 May 03 None Industrial Park, Concord $1.01/100 4,825 $7.79 Feb. 01 None Milpitas Town Center, $70,544 4 102,620 23,924 $18.00 Apr. 02 1-5 yr. Milpitas $1.10/100 24,426 $11.28 Apr. 02 1-2 yr. 30,840 $14.40 Jul. 03 1-5 yr. 23,430 $13.80 Jan. 05 None 598 Gibraltar Drive, $47,213 1 45,090 45,090 $19.20 Apr. 05 None Milpitas $1.10/100 Auburn Court, Fremont $47,692 4 68,030 16,095 $14.93 Jul. 01 1-5 yr. $1.04/100 12,060 $13.80 Apr. 03 None 15,755 $14.40 Mar. 03 None 18,160 $21.00 Jul. 05 None 47650 Westinghouse Drive, $16,500 1 24,030 24,030 $10.80 Sep. 04 None Fremont $1.04/100 410 Allerton, $26,558 1 46,050 46,050 $7.80 Apr. 01 None South San Francisco $1.03/100 400 Grandview, $82,359 4 107,004 21,841 $8.19 Dec. 03 None South San Francisco $1.03/100 43,642 $8.33 Jul. 02 1-5 yr. 18,789 $8.90 May 04 None 18,864 $6.60 Jan. 03 None 342 Allerton, $53,060 4 69,312 19,751 $10.80 Mar. 03 None South San Francisco $1.03/100 9,720 $9.47 Mar. 02 None 30,953 $10.51 Jun. 04 None 8,888 $10.12 Aug. 02 None 301 East Grand, $33,846 3 57,846 26,240 $8.44 Jun. 03 None South San Francisco $1.03/100 17,206 $5.04 Dec. 03 None 14,400 $8.40 Jan. 05 1-5 yr. Fourier Avenue, Fremont $106,562 1 104,400 104,400 $8.99 Apr. 04 None $1.04/100 Lundy Avenue, San Jose $53,936 2 60,428 49,342 $14.40 Apr. 06 1-5 yr. $1.09/100 11,086 $15.00 Jul. 04 1-5 yr. 115 Mason Circle, Concord $18,923 5 35,000 5,833 $6.84 Apr. 05 None $1.01/100 5,832 $7.08 Jul. 01 None 8,154 $7.69 Aug. 02 None 7,296 $6.80 Nov. 02 1-3 yr. 7,885 $7.44 Apr. 03 None 47600 Westinghouse Drive, $17,103 1 24,030 24,030 $11.28 Oct. 03 1-3 yr. Fremont $1.04/100 860-870 Napa Valley Corporate $86,090 2 67,775 17,551 $11.46 Feb. 03 None Way, Napa $1.03/100 7,558 $11.02 Sep. 01 None 47633 Westinghouse Drive, $53,353 1 50,088 50,088 $12.31 Oct. 03 1-3 yr. Fremont $1.04/100 47513 Westinghouse Drive, $110,729 2 65,385 35,132 $15.96 Feb. 05 1-5 yr. Fremont $1.04/100 30,253 $15.00 Feb. 04 1-5 yr. Carneros Commons Phase I, $29,989 0 40,290 N/A N/A N/A N/A Napa $1.03/100 Bordeaux Centre, Napa $145,119 5 150,000 22,075 $7.86 Nov. 07 2-5 yr. $1.03/100 16,076 $7.43 Nov. 07 1-5 yr. 51,790 $5.93 Jan. 04 1-5 yr. 18,434 $6.04 Dec. 04 1-5 yr. 16,180 $8.66 May 05 1-5 yr. O'Toole Business Park, $116,347 1 122,320 15,514 $20.57 Sep. 03 None San Jose $1.09/100 6500 Kaiser Drive, Fremont $176,614 1 78,611 78,611 $10.20 Sep. 04 2-5 yr. $1.04/100 Bedford Fremont Business Center, $169,826 1 146,509 71,532 $16.08 Jul. 03 1-3 yr. Fremont $1.04/100 Spinnaker Court, Fremont $157,740 3 98,500 53,380 $12.00 Mar. 01 None $1.04/100 24,350 $10.20 Mar. 05 None 20,770 $27.00 Oct. 05 1-5 yr. 2277 Pine View Way, $105,099 1 120,480 120,480 $7.25 Mar. 07 2-5 yr. Petaluma $1.07/100 The Mondavi Building, Napa $104,432 1 120,157 120,157 $5.17 Sep. 12 1-5 yr. $1.03/100 Monterey Commerce $23,317 1 28,020 28,020 $15.60 Dec. 00 1-3 yr. Center 2, Monterey $1.00/100 Monterey Commerce $23,009 4 24,240 3,817 $14.28 Jul. 01 1-5 yr. Center 3, Monterey $1.00/100 3,050 $14.76 Nov. 03 1-3 yr. 4,448 $15.00 Oct. 05 1-5 yr. 8,350 $16.80 Oct. 05 1-5 yr. Parkpoint Business Center, $73,054 3 67,869 8,767 $15.60 Oct. 02 1-5 yr. Santa Rosa $1.09/100 7,894 $16.07 Oct. 01 1-5 yr. 17,505 $15.60 Mar. 03 1-5 yr. 2180 McDowell, Petaluma $40,073 1 43,197 29,709 $8.28 Mar. 05 None $1.09/100 2190 S. McDowell, Petaluma $30,429 2 32,719 17,131 $9.16 Mar. 04 1-5 yr. $1.09/100 15,588 $8.59 Apr. 06 2-5 yr. Southern California Dupont Industrial Center, $203,880 1 451,192 183,244 $2.88 Jan. 07 2-5 yr. Ontario $1.04/100 3002 Dow Business Center, $187,575 0 192,125 N/A N/A N/A N/A Tustin $1.01/100 Carroll Tech I, $22,218 1 21,936 21,936 $9.47 Nov. 05 2-3 yr. San Diego $1.11/100 Vista 1, Vista $20,372 1 42,508 42,508 $3.11 Oct. 10 1-10 yr. $1.03/100 Vista 2, Vista $33,328 1 47,550 47,550 $7.44 Sep. 01 1-5 yr. $1.03/100 Signal Systems Building, $101,106 1 109,780 109,780 $10.79 Aug. 06 2-5 yr. San Diego $1.02/100 Carroll Tech II, $36,254 1 37,586 37,586 $14.40 Dec. 01 None San Diego $1.11/100 2230 Oak Ridge Way, $33,282 1 44,063 44,063 $6.83 Aug. 04 2-5 yr. Vista $1.01/100 6960 Flanders Drive, $39,165 1 33,144 33,144 $10.38 May 03 1-5 yr. San Diego $1.11/100 Canyon Vista Center, $63,889 3 63,746 17,591 $7.68 Dec. 04 1-5 yr. San Diego $1.11/100 18,643 $11.40 Jan. 06 1-3 yr. 27,512 $10.66 May 02 1-5 yr. 6325 Lusk Blvd., $62,203 2 49,942 31,849 $16.09 Nov. 03 None San Diego $1.11/100 18,093 $7.49 Jun. 01 None Colorado Bryant Street Quad, Denver $84,960 4 155,536 17,440 $4.50 Apr. 02 None $6.73/100 20,726 $3.30 Dec. 06 1-5 yr. 16,055 $4.25 Feb. 02 1-3 yr. 22,044 $5.08 Jan. 03 None Bryant Street Annex, Denver $34,558 2 55,000 42,148 $4.25 Nov. 01 2-1 yr. $6.73/100 12,852 $4.50 Feb. 02 1-2 yr. Arizona Westech Business Center, Phoenix $131,593 0 143,940 N/A N/A N/A N/A $13.02/100 Westech II, Phoenix $113,033 3 80,878 14,615 $9.24 Oct. 04 None $13.02/100 11,819 $9.78 Nov. 02 1-2 yr. 11,739 $8.76 Nov. 02 1-2 yr. 2601 W. Broadway, Tempe $60,424 1 44,244 44,244 $7.43 Jan. 07 2-5 yr. $12.55/100 Phoenix Airport Center #2, $59,607 1 35,768 35,768 $7.80 Aug. 06 1-5 yr. Phoenix $13.02/100 Phoenix Airport Center #3, $57,108 1 55,122 55,122 $7.02 Jul. 01 2-5 yr. Phoenix $13.02/100 Phoenix Airport Center #4, $34,589 1 30,504 30,504 $8.36 Jun. 05 1-5 yr. Phoenix $13.02/100 Phoenix Airport Center #5, $93,282 1 60,000 60,000 $9.56 Sep. 02 1-5 yr. Phoenix $13.02/100 Butterfield Business Center, $116,915 3 95,746 50,000 $6.30 Aug. 04 2-5 yr. Tucson $16.81/100 14,982 $2.86 Aug. 04 1-5 yr. 26,026 $8.75 Jun. 01 None Butterfield Tech Center II, $37,088 4 33,082 7,383 $7.52 Mar. 06 2-5 yr. Tucson $16.81/100 11,064 $6.48 Sep. 02 1-2 yr. 7,259 $6.49 Dec. 02 1-2 yr. 7,376 $7.08 Nov. 04 None Greystone Business Park, $89,004 3 60,738 6,520 $10.88 Nov. 04 2-3 yr. Tempe $12.55/100 34,471 $10.67 Mar. 07 1-3 yr. 11,511 $11.40 Sep. 05 2-5 yr. Cimarron Business Park, $141,842 1 94,800 13,800 $10.72 Mar. 04 None Scottsdale $12.06/100 Rio Salado Corporate Centre, $73,111 0 80,322 N/A N/A N/A N/A Tempe $12.55/100 Phoenix Tech Center, $36,032 1 39,280 39,280 $9.90 Feb. 05 2-5 yr. Phoenix $13.28/100 Expressway Corporate Center, $90,643 2 79,331 40,528 $8.40 Mar. 03 None Tempe $12.55/100 18,825 $9.77 Aug. 06 None The Adams Brothers Building, $94,496 1 71,345 71,345 $4.69 Jan. 04 2-5 yr. Phoenix $17.91/100 Bedford Realty Partners, L.P., $181,373 2 101,835 32,729 $9.60 Dec. 01 None Phoenix $17.91/100 30,409 $7.08 Jun. 05 None Washington Highlands Campus Building B, $67,697 4 69,821 14,970 $12.65 Aug. 04 1-5 yr. Bothell $1.31/100 20,831 $10.63 Jan. 01 1-5 yr. 9,412 $11.95 Jul. 08 1-5 yr. 9,201 $16.00 Sep. 05 None Highlands Campus Building C, $75,832 2 57,478 7,008 $12.36 Jul. 07 1-5 yr. Bothell $1.31/100 27,251 $15.00 Dec. 07 None SUBURBAN OFFICE PROPERTIES Northern California Village Green, Lafayette $26,587 2 16,795 2,119 $30.11 Sep. 05 None $1.12/100 11,062 $25.09 Mar. 05 None Canyon Park, $62,371 2 57,667 48,265 $21.03 Feb. 05 2-5 yr. San Ramon $1.03/100 9,402 $20.32 Jan. 03 None Crow Canyon Centre, $50,680 2 39,108 19,615 $25.20 Oct. 06 2-5 yr. San Ramon $1.03/100 16,478 $25.20 Jan. 05 1-5 yr. Monterey Commerce Center 1, $63,065 4 50,031 5,809 $20.40 Aug. 02 1-3 yr. Monterey $1.00/100 7,000 $19.56 Mar. 03 1-5 yr. 16,088 $20.40 Jul. 03 None 7,166 $20.40 Jul. 04 1-5 yr. 3880 Cypress Dr., $59,165 1 35,100 35,100 $13.56 May 07 1-5 yr. Santa Rosa $1.07/100 Southern California Laguna Hills Square, Laguna $66,258 5 51,734 8,474 $28.80 Nov. 10 2-5 yr. $1.04/100 7,368 $26.38 Sep. 05 1-5 yr. 6,391 $26.47 Sep. 05 2-5 yr. 9,229 $20.88 Jun. 02 2-3 yr. 5,981 $28.32 Oct. 10 None Carroll Tech III, San Diego $24,362 1 29,307 29,307 $9.98 Aug. 06 1-5 yr. $1.11/100 Scripps Wateridge, San Diego $196,853 2 123,853 49,295 $12.85 Jul. 06 1-5 yr. $1.11/100 74,558 $13.76 Aug. 05 2-3 yr. Carroll Tech IV, San Diego $51,236 1 43,415 43,415 $12.44 Aug. 06 None $1.11/100 Colorado Oracle Building, Denver $327,705 2 90,712 10,043 $18.00 Aug. 11 4-5 yr. $10.10/100 77,090 $24.00 Sep. 03 None Texaco Building, Denver $562,666 1 237,055 237,055 $20.06 Jan. 05 2-5 yr. $8.53/100 Waterpark @ Briarwood Bldg. 1, $35,749 1 29,405 18,295 $12.90 Aug. 05 1-5 yr. Englewood $12.54/100 Waterpark @ Briarwood Bldg. 2, $26,423 2 73,781 15,362 $14.30 Oct. 05 2-5 yr. Englewood $12.54/100 36,077 $12.70 Oct. 05 None Bedford @ Rampart $502,862 3 165,191 36,857 $12.50 Mar. 04 2-2 yr. Englewood $11.14/100 41,717 $12.50 Dec. 04 2-2 yr. 55,550 $12.75 Oct. 05 2-3 yr. Arizona Executive Center at Southbank, $280,819 4 140,157 38,106 $10.03 Apr. 02 1-5 yr. Phoenix $17.91/100 17,910 $8.69 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 $130,169 1 52,000 52,000 $10.00 Oct. 01 None $17.94/100 Phoenix Airport Center #1, $48,768 5 32,460 11,195 $10.34 Nov. 05 2-5 yr. Phoenix $13.02/100 4,527 $15.00 Dec. 01 1-5 yr. 4,449 $19.05 Dec. 02 None 4,041 $18.33 Jul. 01 None 8,248 $11.76 Jan. 01 None Cabrillo Executive Center, $137,503 3 60,321 12,400 $17.75 Aug. 01 1-5 yr. Phoenix $13.19/100 6,034 $18.79 Oct. 02 1-5 yr. 21,056 $17.00 Dec. 01 None Mountain Pointe Office Park, $63,500 1 54,584 54,584 $19.20 Oct. 10 1-5 yr. Phoenix $13.02/100 1355 S. Clearview Avenue, $71,131 1 57,193 57,193 $12.72 Apr. 05 2-5 yr. Mesa $11.02/100 Greater Seattle Area Orillia Office Park, Renton $361,828 1 334,255 334,255 $10.50 Feb. 04 None $1.30/100 Adobe Systems Bldg. 1, $291,786 1 161,117 161,117 $15.53 Jul. 10 2-5 yr. Seattle $1.22/100 Adobe Systems Bldg. 2, $237,330 2 136,111 93,211 $15.53 Jul. 10 2-5 yr. Seattle $1.22/100 19,867 $19.88 May 03 None Highlands Campus Building A $109,243 2 74,559 39,824 $14.56 Aug. 04 1-5 yr. Bothell $1.31/100 13,498 $15.50 Dec. 04 1-5 yr. The Federal Way Building, $75,500 2 65,000 32,871 $13.10 Apr. 06 2-3 yr. Federal Way $1.35/100 26,420 $14.22 Oct. 04 1-5 yr. Federal Way II, $112,591 3 115,032 16,230 $15.00 Jun. 05 1-5 yr. Federal Way $1.35/100 33,716 $14.99 Dec. 04 None 40,000 $13.44 Aug. 09 2-5 yr. Nevada U.S. Bank Centre, Reno $140,724 2 104,324 39,656 $24.00 Oct. 01 None $3.45/100 13,064 $20.76 Jun. 04 None Average Base Rent The following table sets forth the average rent at the end of each year for the last five years for each property owned as of December 31, 2000. Average Base Rent ($/Sq Ft/Yr) At End of Year 1996 1997 1998 1999 2000 INDUSTRIAL PROPERTIES: Northern California Building #3 at Contra Costa Diablo $6.64 $6.84 $6.84 $7.80 $8.04 Building #8 at Contra Costa Diablo $6.00 $6.00 $6.00 $6.72 $11.61 Building #18 at Mason Industrial Park $6.78 $6.88 $6.93 $7.22 $7.54 Milpitas Town Center $8.03 $8.90 $10.69 $12.74 $14.36 598 Gibraltar Drive $9.48 $9.48 $10.44 $10.44 $19.20 Auburn Court $6.78 $7.80 $10.62 $11.25 $16.13 47650 Westinghouse Drive $5.52 $9.00 $9.60 $10.20 $10.80 410 Allerton $5.16 $5.16 $6.60 $7.20 $7.80 400 Grandview $7.53 $7.03 $7.50 $7.95 $8.27 342 Allerton $7.18 $7.57 $7.73 $9.13 $10.40 301 East Grand $5.57 $5.58 $6.30 $6.90 $7.42 Fourier Avenue $8.99 $8.99 $8.99 $8.99 $8.99 Lundy Avenue $7.09 $7.09 $7.36 $14.40 $14.51 115 Mason Circle $6.05 $6.22 $6.59 $6.78 $7.21 47600 Westinghouse Drive $5.94 $10.20 $10.56 $10.92 $11.28 860-870 Napa Valley Corporate $9.44 $8.86 $9.48 $9.90 $11.06 47633 Westinghouse Drive $11.37 $11.60 $11.83 $12.06 $12.31 47513 Westinghouse Drive N/A N/A $14.32 $14.92 $15.52 Carneros Commons Phase I* N/A N/A N/A N/A - Bordeaux Centre N/A N/A $7.33 $6.57 $7.06 O'Toole Business Center $8.75 $10.31 $13.81 $14.38 $17.16 6500 Kaiser Drive N/A $9.00 $9.60 $9.60 $10.20 Bedford Fremont Business Center N/A $11.93 $14.63 $16.39 $17.97 Spinnaker Court N/A $8.01 $8.25 $8.25 $14.72 2277 Pine View Way N/A $6.91 $6.91 $7.25 $7.25 The Mondavi Building N/A $4.92 $4.92 $5.17 $5.17 Monterey Commerce Center 2 N/A $14.16 $14.64 $15.12 $15.60 Monterey Commerce Center 3 N/A $14.70 $15.22 $15.32 $15.59 Parkpoint Business Center N/A N/A $15.19 $15.68 $16.50 2180 McDowell N/A N/A $8.37 $11.20 $8.28 2190 McDowell N/A N/A $8.19 $8.39 $8.89 Southern California Dupont Industrial Center $3.53 $3.40 $3.44 $3.67 $3.82 3002 Dow Business Center $8.55 $8.32 $8.86 $9.52 $10.20 Carroll Tech I $10.35 $11.93 $3.17 $9.11 $9.47 Vista 1 $5.16 $0.00 $0.00 $0.00 $3.11 * Shell construction completed during 2000; property in lease-up phase. Average Base Rent ($/Sq Ft/Yr) At End of Year 1996 1997 1998 1999 2000 INDUSTRIAL PROPERTIES (continued): Southern California (continued) Vista 2 $6.36 $6.61 $6.88 $7.15 $7.44 Signal Systems Building $7.80 $8.11 $10.20 $10.42 $10.79 Carroll Tech II N/A $11.52 $12.00 $13.79 $14.40 2230 Oak Ridge Way N/A N/A $6.49 $6.63 $6.83 6960 Flanders Drive N/A N/A $9.60 $9.98 $10.38 Canyon Vista Center N/A N/A N/A $8.86 $10.05 6325 Lusk Blvd. N/A N/A N/A $12.48 $12.98 Colorado Bryant Street Quad $3.39 $3.82 $3.96 $4.13 $4.32 Bryant Street Annex $3.93 $4.09 $4.17 $4.17 $4.31 Arizona Westech Business Center $8.85 $9.44 $9.99 $9.97 $10.37 Westech II N/A N/A $8.86 $8.87 $9.63 2601 W. Broadway N/A $7.14 $7.14 $7.14 $7.43 Phoenix Airport Center #2 N/A $7.20 $7.20 $7.80 $7.80 Phoenix Airport Center #3 N/A $6.36 $6.36 $7.02 $7.02 Phoenix Airport Center #4 N/A $7.20 $7.80 $7.80 $8.36 Phoenix Airport Center #5 N/A $7.21 $8.68 $8.68 $9.56 Butterfield Business Center N/A $7.08 $7.11 $6.38 $6.45 Butterfield Tech Center II N/A N/A N/A $6.67 $6.85 Greystone Business Park N/A N/A N/A $10.56 $10.85 Cimarron Business Park N/A N/A $8.94 $10.09 $10.29 Rio Salado Corporate Centre N/A N/A N/A N/A $0.00 Phoenix Tech Center N/A N/A N/A N/A $9.90 Expressway Corporate Center N/A N/A $8.21 $8.78 $8.97 The Adams Brothers Building N/A N/A N/A $4.56 $4.69 Bedford Realty Partners, L.P. N/A N/A N/A $7.21 $8.00 Washington Highlands Campus Building B N/A N/A N/A N/A $12.34 Highlands Campus Building C N/A N/A N/A N/A $14.46 Average Base Rent ($/Sq Ft/Yr) At End of Year 1996 1997 1998 1999 2000 SUBURBAN OFFICE PROPERTIES: Northern California Village Green $19.99 $23.24 $23.70 $24.45 $26.69 Canyon Park N/A $15.92 $16.44 $16.44 $20.92 Crow Canyon Centre N/A N/A N/A $25.20 $25.43 Monterey Commerce Center 1 N/A $20.12 $19.78 $19.69 $20.36 3880 Cypress Drive N/A N/A $13.08 $13.08 $13.56 Southern California Laguna Hills Square $25.38 $23.90 $24.79 $25.17 $24.44 Carroll Tech III N/A $8.52 $8.52 $9.60 $9.98 Scripps Wateridge N/A $11.41 $12.53 $13.16 $13.40 Carroll Tech IV N/A N/A N/A $15.00 $12.44 Colorado Oracle Building N/A $23.37 $23.34 $23.34 $23.34 Texaco Building N/A N/A $18.05 $18.05 $20.06 WaterPark @ Briarwood Bldg. 1* N/A N/A N/A N/A $12.90 WaterPark @ Briarwood Bldg. 2* N/A N/A N/A N/A $13.18 Bedford Center @ Rampart N/A N/A N/A N/A $12.73 Arizona Executive Center at Southbank N/A $9.23 $9.46 $9.64 $9.89 Troika Building N/A $9.00 $10.00 $10.00 $10.00 Phoenix Airport Center #1 N/A $13.81 $13.69 $13.97 $9.97 Cabrillo Executive Center N/A N/A $16.64 $17.03 $17.24 Mountain Pointe Office Park N/A N/A N/A N/A $19.20 1355 S. Clearview Avenue N/A N/A N/A $12.72 $12.72 Greater Seattle Area Orillia Office Park N/A $9.35 $9.35 $9.35 $10.50 Adobe Systems Bldg. 1 N/A N/A $15.53 $15.53 $15.53 Adobe Systems Bldg. 2 N/A N/A $22.04 $16.71 $16.74 Highlands Campus Building A N/A N/A N/A $12.51 $15.06 The Federal Way Building N/A N/A N/A $12.65 $13.77 Federal Way II N/A N/A N/A $14.20 $14.31 Nevada U.S. Bank Centre N/A $18.59 $18.76 $19.03 $22.48 * Shell construction completed during 2000; property in lease-up phase. Tax Information The following table sets forth tax information of the Company's real estate investments at December 31, 2000, 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 31.5 105,807 2.56% Straight Line 39.0 109,590 Southern California 42,647 2.56% Straight Line 39.0 Colorado 3,314 2.56% Straight Line 39.0 Arizona 54,206 2.56% Straight Line 39.0 Greater Seattle Area 15,154 2.56% Straight Line 39.0 Total depreciable assets for industrial properties 224,911 SUBURBAN OFFICE PROPERTIES Northern California 22,162 2.56% Straight Line 39.0 Southern California 21,853 2.56% Straight Line 39.0 Colorado 60,738 2.56% Straight Line 39.0 Arizona 25,749 2.56% Straight Line 39.0 Greater Seattle Area 101,402 2.56% Straight Line 39.0 Nevada 10,803 2.56% Straight Line 39.0 Total depreciable assets for suburban office properties 242,707 $467,618 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, 2000 the Company had 940 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 1999 and 2000. Dividend High Low Per Share 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 2000 First Quarter $17 5/8 $15 5/8 $.42 Second Quarter $19 7/16 $15 5/8 $.42 Third Quarter $21 1/16 $18 9/16 $.45 Fourth Quarter $20 3/4 $18 $.45 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) 2000 1999 1998 1997 1996 Operating Data: Rental income $ 97,518 $ 90,527 $ 73,451 $ 46,377 $ 27,541 Gain (loss) on sales of real estate investments 38,171 7,743 - 11,533 406 Net income 68,087 39,855 31,496 31,291 11,021 Net income applicable to common stockholders 68,087 39,855 31,496 27,791 6,516 Per common share - assuming dilution Income before extraordinary item $ 3.69 $ 1.87 $ 1.38 $ 1.94 $ 1.14 Net income $ 3.69 $ 1.86 $ 1.38 $ 1.94 $ 1.14 Balance Sheet Data: Real estate investments, net $611,444 $651,038 $581,458 $423,086 $224,501 Bank loan payable 77,320 137,156 147,443 8,216 46,097 Mortgage loans payable 224,205 206,880 80,116 60,323 51,850 Redeemable preferred shares - - - - 50,000 Common and other stockholders' equity 299,515 300,180 347,589 346,426 73,756 Other Data: Net cash provided by operating activities $ 44,290 $ 45,540 $ 38,949 $ 25,041 $ 14,378 Net cash provided (used) by investing activities 70,005 (72,317) (168,018) (180,358) (96,964) Net cash provided (used) by financing activities (112,719) 27,075 128,994 155,350 82,887 Funds From Operations(1) 43,864 45,554 42,312 25,582 13,645 Dividends declared per share $ 1.74 $ 1.56 $ 1.32 $ 1.13 $ 1.00 (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 is generally defined by the National Association of Real Estate Investment Trusts as net income (loss) (computed in accordance with generally accepted accounting principles), excluding extraordinary items such as gains (losses) from debt restructurings and sales of property, 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 are no longer 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: 2000 1999 1998 Number of Square Number of Square Number of Square Properties Feet Properties Feet Properties Feet Acquisitions Industrial - - 5 334,000 10 531,000 Office 1 165,000 4 280,000 6 650,000 1 165,000 9 614,000 16 1,181,000 Development Industrial 3 160,000 2 235,000 - - Office 2 103,000 3 154,000 - - 5 263,000 5 389,000 - - Sales Industrial 15 917,000 3 448,000 - - Office 5 314,000 1 114,000 - - 20 1,231,000 4 562,000 - - Comparison of 2000 to 1999 Income from Property Operations Income from property operations (defined as rental income less rental expenses) increased $3,085,000 or 6% in 2000 compared with 1999. This is due to an increase in rental income of $6,991,000 offset by an increase in rental expenses (which include operating expenses, real estate taxes and depreciation and amortization) of $3,906,000. The increase in rental income and expenses is primarily attributable to properties acquired and properties developed during 2000 and 1999. These acquisition and development activities increased rental income and rental expenses in 2000 by $9,513,000 and $4,367,000, respectively, as compared to 1999. These increases were partially offset by the sale of one office property and three industrial properties in 1999, and the sale of fifteen industrial properties and five office properties in 2000, which resulted in a reduction in rental income and rental expenses of $7,300,000 and $2,946,000, respectively, as compared to 1999. The remaining increase in rental income of $4,778,000 is primarily due to an increase in rental rates and expense recovery income. The remaining increase of $2,485,000 in rental expenses is mainly due to increases in property tax assessments, management fees and electricity costs. Other Income During 2000, the Company recorded $615,000 in other income. This sum represents a forfeited earnest money deposit from a buyer who failed to perform under the terms of the Purchase and Sale Agreement for a property located in Tempe, Arizona. Expenses Interest expense, which includes amortization of loan fees, increased $5,856,000 or 31% in 2000 compared with 1999. The increase is attributable to the Company's higher borrowing costs and related costs to finance the property acquisitions and development activities during 1999 and 2000 and the repurchase of shares since November 1998. The amortization of loan fees was $1,658,000 and $1,495,000 for 2000 and 1999, respectively. General and administrative expenses increased $648,000 or 18% in 2000 compared to 1999, primarily as a result of increased costs associated with stock compensation benefits. Gain on Sales In the first quarter 2000, the Company sold an industrial property in San Jose, California and two industrial properties in Beaverton, Oregon for net sale prices totaling $36,338,000, which resulted in an aggregate gain of approximately $15,234,000. In the second quarter 2000, the Company sold an industrial property in San Diego, California for a net sale price of $2,165,000, which resulted in a loss of approximately $6,000. In the third quarter 2000, the Company sold three office properties, ten industrial properties, and a .99 acre parcel of land for net sale prices totaling $74,773,000, which resulted in an aggregate net gain of approximately $20,219,000. The properties were located in Mountain View, California; Bellevue, Washington; Overland Park and Lenexa, Kansas; Kansas City, Missouri; and Austin, Texas. In the fourth quarter 2000, the Company sold an office property in Overland Park, Kansas, an office property in Austin, Texas, and an industrial property in Farmers Branch, Texas, which included 1.43 acres of land. These properties were sold for net sale prices totaling $17,306,000, which resulted in an aggregate net gain of $2,724,000. In the first quarter 1999, the Company sold an industrial property in South San Francisco, California for a net sale price of $1,789,000, which resulted in a gain of approximately $540,000. In the second quarter 1999, the Company sold an office property in Salt Lake City, Utah and a 1.35 acre parcel of land in Vista, California for net sale prices totaling $13,545,000, which resulted in an aggregate gain of approximately $7,043,000. In the third quarter 1999, the Company sold an industrial property in Modesto, California for a net sale price of $4,012,000, which resulted in a gain of approximately $218,000. In the fourth quarter 1999, the Company sold an industrial property in Lenexa, Kansas for a net sale price of $4,895,000, which resulted in a loss of approximately $58,000. Dividends Common stock dividends and distributions per OP Unit declared for the first and second quarters of 2000 were $0.42 per share, and $0.45 per share for the third and fourth quarters. Consistent with the Company's policy, dividends and distributions were paid in the quarter after the quarter in which they were declared. Comparison of 1999 to 1998 Income from Property Operations Income from property operations 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 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 acquisition and development 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 expenses 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 Sales In the first quarter 1999, the Company sold an industrial property in South San Francisco, California for a net sale price of $1,789,000, which resulted in a gain of approximately $540,000. In the second quarter 1999, the Company sold an office property in Salt Lake City, Utah and a 1.35 acre parcel of land in Vista, California for net sale prices totaling $13,545,000, which resulted in an aggregate gain of approximately $7,043,000. In the third quarter 1999, the Company sold an industrial property in Modesto, California for a net sale price of $4,012,000, which resulted in a gain of approximately $218,000. In the fourth quarter 1999, the Company sold an industrial property in Lenexa, Kansas for a net sale price of $4,895,000, which resulted in a loss of approximately $58,000. Dividends Common stock dividends and distributions per OP Unit declared were $0.36 for the first quarter of 1999, $0.39 for the second and third quarters, and $0.42 for the fourth quarter. Consistent with the Company's policy, dividends and distributions were paid in the quarter after the quarter in which they were declared. Financial Condition Total assets of the Company at December 31, 2000 decreased by $37,244,000 compared with December 31, 1999, primarily resulting from the sale of real estate investments of $92,410,000, offset by additions of $27,246,000 in development costs and $27,268,000 in property and land acquisitions. Total liabilities at December 31, 2000 decreased by $36,579,000 compared with December 31, 1999, primarily as a result of the pay down of debt with proceeds from real estate sales. 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 1, 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% depending on the Company's leverage level. The interest rate on the unsecured loans is either the lender's published "reference rate" or LIBOR plus a margin of 1.50%. As of December 31, 2000, the facility, which was all secured, had an outstanding balance of $77,320,000 and an effective interest rate of 7.98%. Currently, the Company is in the process of renewing the credit facility with its existing bank group. In May 1999, the Company obtained a total of $108 million of 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 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%. In July 2000, the Company obtained a total of $30.89 million of mortgage financing from Security Life of Denver Insurance Company. The loans have a 5-year term with options to renew for four additional 5-year terms. Interest on the mortgages are at a variable rate of LIBOR plus 1.40%. Proceeds from the mortgage loans, net of loan costs, were used to pay down a portion of 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 2000. 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, 2000, the Company's operating activities provided cash flow of $44,290,000. Investing activities utilized cash of $60,576,000 for real estate investments and development, offset by proceeds from real estate sales of $130,581,000. Financing activities utilized net cash flow of $112,719,000 consisting of the net proceeds from bank borrowings and mortgage loans of $109,777,000 and net proceeds from the issuance of common stock of $4,764,000, offset by repayment of bank borrowings and mortgage loans of $153,344,000, payment of dividends and distributions of $31,978,000, and the repurchase of 2,280,837 shares of common stock for $41,938,000. 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 expenditures, costs associated with lease renewals and reletting of space, repayment of indebtedness, share repurchases, 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, the $4.6 million mortgage loan from Union Bank, and the $30.89 million mortgage loans from Security Life of Denver Insurance Company 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 2001 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, including escalations in electricity costs in California and neighboring states, however, could result in an increase in the Company's borrowing and other operating expenses. 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, 2000 was $10,533,000 and $43,864,000, respectively. During the same periods in 1999, FFO was $11,014,000 and $45,554,000, 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 is generally defined by the National Association of Real Estate Investment Trusts as net income (loss) (computed in accordance with accounting principles generally accepted in the United States of America), excluding extraordinary items such as gains (losses) from debt restructurings and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO was computed by the Company in accordance with this definition. In accordance with the clarification of Funds From Operations issued by NAREIT's leadership in October 1999, beginning in the first quarter of 2000, non-recurring items other than extraordinary items as defined by generally accepted accounting principles are no longer 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. Funds From Operations (in thousands, except share amounts): Three Months Ended Twelve Months Ended December 31, December 31, 2000 1999 2000 1999 Net income $ 9,490 $ 6,962 $ 68,087 $ 39,855 Add: Depreciation and amortization 3,752 3,962 13,812 13,016 Minority interest 35 32 136 128 Extraordinary item - - - 298 (Gain) loss on sales (2,744) 58 (38,171) (7,743) Funds From Operations $ 10,533 $ 11,014 $ 43,864 $ 45,554 Weighted average number of shares - diluted: 17,666,761 20,163,669 18,501,905 21,477,013 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 2001 2002 2003 2004 2005 Thereafter Total Value Variable rate LIBOR debt $77,789 $ 508 $ 551 $ 598 $ 4,873 $ 28,313 $112,632 $112,632 Average interest rate 7.98% 8.15% 8.15% 8.15% 9.03% 8.02% 8.04% 8.04% Fixed rate debt $ 3,341 $17,333 $21,278 $ 3,358 $27,710 $115,872 $188,892 $189,452 Average interest rate 7.32% 7.46% 7.07% 7.36% 7.19% 7.37% 7.32% 7.25% As the table incorporates only those exposures that exist as of December 31, 2000, 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 The response to this item is submitted as a separate section of this Form 10-K. See Item 14. 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 17, 2001. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K A. 1. Financial Statements Page Independent Auditors' Report. 48 Consolidated Balance Sheets as of December 31, 2000 and 1999. 49 Consolidated Statements of Income for the years ended December 50 31, 2000, 1999 and 1998. Consolidated Statements of Stockholders' Equity for the years 51 ended December 31, 2000, 1999 and 1998. Consolidated Statements of Cash Flows for the years ended 52 December 31, 2000, 1999 and 1998. Notes to Consolidated Financial Statements. 53 2. Financial Statement Schedules Page Schedule III - Real Estate and Accumulated Depreciation 69 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(a) Articles of Incorporation of Bedford Property Investors, Inc. is incorporated herein by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-2 (File No. 333-00921) filed on February 14, 1996. 3.1(b) Charter of the Company, as amended, is incorporated herein by reference to Exhibit 4.2 of the Company's Amendment No. 1 to its Registration Statement on Form S-2 (File No. 333-00921) filed on March 29, 1996. 3.1(c) Articles of Amendment of Charter of Bedford Property Investors, Inc. is incorporated herein by reference to Exhibit 3.1 to the Company's Form 10-Q for the quarter ended June 30, 1997. 3.2* Amended and Restated Bylaws of the Company. 10.6(a)* BPIA Agreement dated as of January 1, 1995, by and between Westminster Holdings, Inc., a California corporation doing business as BPI Acquisitions and Bedford Property Investors, Inc. 10.6(b)* Amendment to BPIA Agreement dated as of January 1, 1997. 10.6(c)* Second Amendment to BPIA Agreement dated as of January 1, 1999. 10.6(d)* Third Amendment to BPIA Agreement dated as of December 10, 2000. 10.6(e)* Fourth Amendment to BPIA Agreement dated as of December 10, 2000. 10.13 Promissory Note dated March 20, 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 Amendment No. 1 to its Registration Statement on Form S-2 (File No. 333-00921) filed on March 29, 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 The Company's Dividend Reinvestment and Stock Purchase Plan is incorporated herein by reference to the Company's post-effective Amendment No. 1 to its Registration Statement on Form S-3 (File No. 333-33795) filed on November 20, 1997. 10.16 The Company's Amended and Restated Employee Stock Plan incorporated herein by reference to Exhibit 10.16 to the Company's Form 10-K for the year ended December 31, 1997. 10.17 Fourth Amended and Restated Credit Agreement (Secured Loan) among Bedford Property Investors, Inc., The Banks Party Hereto and Bank of America National Trust and Savings Association, as Arranger and as Administrative Agent for the Banks, and Union Bank of California, NA as Co-Agent for the Banks, dated June 15, 1998 is incorporated herein by reference to Exhibit 10.17 to the Company's Form 10-Q for the quarter ended June 30, 1998. 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. 10.22 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 Form 10-Q for the quarter ended June 30, 1999. 10.23 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 Form 10-Q for the quarter ended June 30, 1999. 10.24 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 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 is incorporated herein by reference to Exhibit 10.28 to the Company's Form 10-K for the year ended December 31, 1999. 10.29 Loan Agreement dated as of July 27, 2000, between Bedford Property Investors, Inc. as Borrower and Security Life of Denver Insurance Company as Lender is incorporated herein by reference to Exhibit 10.29 to the Company's Form 10-Q for the quarter ended June 30, 2000. 10.30 Loan Agreement dated as of July 27, 2000, between Bedford Property Investors, Inc. as Borrower and Security Life of Denver Insurance Company as Lender is incorporated herein by reference to Exhibit 10.30 to the Company's Form 10-Q for the quarter ended June 30, 2000. 10.31 Amended and Restated Promissory Note dated 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 Form 10-Q for the quarter ended June 30, 1996. 10.32 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. 10.33 Amended and Restated Unsecured Credit Agreement among Bedford Property Investors, Inc., The Banks Party Hereto and Bank of America National Trust and Savings Association, as Arranger and as Administrative Agent for the Banks, and Union Bank of California, N.A., as Co- Agent for the Banks, dated June 15, 1999, is incorporated herein by reference to Exhibit 10.18 to the Company's Form 10-Q for the quarter ended June 30, 1998. 10.34* Form of Retention Agreement. 12* Ratio of Earnings to Fixed Charges. 21.1* Subsidiaries of the Company. 23.1* Consent of KPMG LLP, independent public accountants. * Filed herewith 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 auditing standards generally accepted in the United States of America. 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. 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 2, 2001 BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2000 AND 1999 (in thousands, except share and per share amounts) 2000 1999 Assets: Real estate investments: Industrial buildings $305,857 $279,367 Office buildings 310,882 294,420 Operating properties held for sale 5,226 80,563 Properties under development 13,702 19,246 Land held for development 11,721 6,137 647,388 679,733 Less accumulated depreciation 35,944 28,695 611,444 651,038 Cash and cash equivalents 3,160 1,584 Other assets 19,562 18,788 $634,166 $671,410 Liabilities and Stockholders' Equity: Bank loan payable $ 77,320 $137,156 Mortgage loans payable 224,205 206,880 Accounts payable and accrued expenses 15,665 9,767 Dividends and distributions payable 8,005 8,270 Other liabilities 8,227 7,928 Total liabilities 333,422 370,001 Minority interest in consolidated partnership 1,229 1,229 Stockholders' equity: Common stock, par value $0.02 per share; authorized 50,000,000 shares; issued and outstanding 17,709,738 shares in 2000 and 19,613,472 shares in 1999 354 392 Additional paid-in capital 316,084 353,220 Accumulated dividends in excess of net income (16,923) (53,432) Total stockholders' equity 299,515 300,180 $634,166 $671,410 See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998 (in thousands, except share and per share amounts) 2000 1999 1998 Property operations: Rental income $97,518 $90,527 $73,451 Rental expenses: Operating expenses 16,814 14,550 11,026 Real estate taxes 8,920 8,074 6,220 Depreciation and amortization 13,812 13,016 10,265 Income from property operations 57,972 54,887 45,940 General and administrative expenses (4,209) (3,561) (3,386) Interest income 500 182 223 Interest expense (24,826) (18,970) (11,164) Other income 615 - - Income before gain on sales of real estate investments and minority interest 30,052 32,538 31,613 Gain on sales of real estate investments, net 38,171 7,743 - Minority interest (136) (128) (117) Income before extraordinary item 68,087 40,153 31,496 Extraordinary item-loss on early extinguishment of debt - (298) - Net income $68,087 $39,855 $31,496 Earnings per share - basic: Income before extraordinary item $ 3.73 $ 1.88 $ 1.39 Extraordinary item-loss on early extinguishment of debt - (0.01) - Net income per share - basic $ 3.73 $ 1.87 $ 1.39 Weighted average number of shares - basic 18,236,512 21,267,088 22,634,656 Earnings per share - diluted: Income before extraordinary item $ 3.69 $ 1.87 $ 1.38 Extraordinary item-loss on early extinguishment of debt - (0.01) - Net income per share - diluted $ 3.69 $ 1.86 $ 1.38 Weighted average number of shares - diluted 18,501,905 21,477,013 22,929,807 See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (in thousands, except per share amounts) Accumulated Total Additional dividends stock- Common paid-in in excess of holders' stock capital net income equity Balance, 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) Balance, 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) Balance, December 31, 1999 $ 392 $353,220 $(53,432) $300,180 Issuance of common stock 8 4,756 - 4,764 Repurchase and retirement of common stock (46) (41,892) - (41,938) Net income - - 68,087 68,087 Dividends to common stockholders ($1.74 per share) - - - (31,578) (31,578) Balance, December 31, 2000 $ 354 $316,084 $(16,923) $299,515 See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (in thousands) 2000 1999 1998 Operating Activities: Net income $68,087 $39,855 $31,496 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest 136 128 117 Depreciation and amortization 5,767 14,212 11,508 Gain on sales of real estate investments, net (38,171) (7,743) - Change in other assets (6,815) (4,436) (7,259) Change in accounts payable and accrued expenses 4,931 1,534 1,656 Change in other liabilities 355 1,990 1,431 Net cash provided by operating activities 44,290 45,540 38,949 Investing Activities: Investments in real estate (60,576) (96,558) (168,018) Proceeds from sales of real estate investments, net 130,581 24,241 - Net cash provided (used) by investing activities 70,005 (72,317) (168,018) Financing Activities: Proceeds from bank loan payable 79,624 141,972 158,097 Repayments of bank loan payable (139,778) (152,657) (19,889) Proceeds from mortgage loans payable, net of loan costs 30,153 134,208 21,084 Repayments of mortgage loans payable (13,566) (8,995) (1,107) Issuance of common stock 4,764 2,004 1,367 Repurchase and retirement of common stock (41,938) (56,585) (1,815) Redemption of partnership units - (160) (128) Payment of dividends and distributions (31,978) (32,712) (28,615) Net cash (used) provided by financing activities (112,719) 27,075 128,994 Net increase (decrease) in cash and cash equivalents 1,576 298 (75) Cash and cash equivalents at beginning of year 1,584 1,286 1,361 Cash and cash equivalents at end of year $ 3,160 $ 1,584 $ 1,286 Supplemental disclosure of cash flow information a) Non-cash investing and financing activities: Debt incurred with real estate acquired $ - $ 5,602 $ - b) Cash paid during the year for interest, net of amounts capitalized $23,372 $16,624 $ 9,329 See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 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. Cash and Cash Equivalents The Company considers all demand deposits, money market accounts and investments in certificates of deposit and repurchase agreements purchased with a maturity of three months or less, at the date of purchase, to be cash equivalents. The Company maintains its cash and cash equivalents at financial institutions. The combined account balances at each institution periodically exceed the Federal Depository Insurance Corporation ("FDIC") insurance coverage, and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company believes that the risk is not significant, as the Company does not anticipate their non- performance. Use of Estimates The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America 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. As of December 31, 2000, for federal income tax purposes, the Company had an ordinary loss carry forward of approximately $19 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 2000 were classified 2% as ordinary, 19% as unrecaptured section 1250 gain, and 79% capital gain; dividend distributions made for 1999 were classified 97% as ordinary and 3% as capital gain; dividend distributions made for 1998 were classified 96% as ordinary and 4% as return of capital. 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 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 $2,597,000, $2,797,000, and $2,252,000 for 2000, 1999, and 1998, respectively. Stock-Based Compensation The Company measures compensation expense for its employee stock-based compensation plans using the intrinsic value method and has provided in Note 6 pro forma disclosures of the effect on net income and earnings per share as if the fair value-based method had been applied in measuring compensation expense. In March 2000, the FASB issued FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation - an interpretation of APB Opinion No. 25 (FIN 44). The provisions of FIN 44 were effective July 1, 2000. The adoption of FIN 44 did not have a material impact on the Company's financial statements. 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. 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 June 1998, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133, as amended, is effective for all fiscal quarters of 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, 2000, 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 60 $305,857 47% Office buildings 27 310,882 48% Operating properties held for sale 2 5,226 1% Properties under development 5 13,702 2% Land held for development 9 11,721 2% Total 103 $647,388 100% Note 2 - Real Estate Investments (continued) The following table sets forth the Company's real estate investments as of December 31, 2000 (in thousands): Less Development Accumulated Land Building In Progress Depreciation Total Industrial buildings Northern California $ 44,738 $110,285 $ - $12,002 $143,021 Arizona 20,218 56,342 - 4,172 72,388 Southern California 18,308 42,707 - 4,312 56,703 Greater Seattle Area 3,409 9,850 - 469 12,790 Total industrial buildings 86,673 219,184 - 20,955 284,902 Office buildings Northern California 5,781 22,203 - 1,487 26,497 Arizona 11,954 27,848 - 1,692 38,110 Southern California 9,361 21,854 - 1,818 29,397 Colorado 10,373 71,011 - 2,904 78,480 Greater Seattle Area 16,811 100,780 - 5,767 111,824 Nevada 2,102 10,804 - 922 11,984 Total office buildings 56,382 254,500 - 14,590 296,292 Operating properties held for sale Colorado 1,911 3,315 - 399 4,827 Total operating properties held for sale 1,911 3,315 - 399 4,827 Properties under development Northern California 461 - 522 - 983 Colorado 4,111 - 8,608 - 12,719 Total properties under development 4,572 - 9,130 - 13,702 Land held for development Northern California 3,822 - 22 - 3,844 Arizona 644 - - - 644 Southern California 3,887 - 84 - 3,971 Colorado 3,106 - 156 - 3,262 Total land held for development 11,459 - 262 - 11,721 Total as of December 31, 2000 $160,997 $476,999 $ 9,392 $35,944 $611,444 Total as of December 31, 1999 $166,948 $493,539 $19,246 $28,695 $651,038 Company personnel directly manage all but five of the Company's properties from regional offices located in Lafayette, CA; Tustin, CA; Phoenix, AZ; Greenwood Village, CO; and Seattle, WA. The Company has retained outside managers to assist in some of the management functions for these five properties, which are U.S. Bank Centre in Reno, NV and Bryant Street Quad, Bryant Street Annex, Texaco and Oracle in Denver, CO. 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, 2000 was $821,000, $715,000, and $609,000 for the twelve months ending December 31, 2000, 1999 and 1998, respectively. During 2000, 1999 and 1998, the Company capitalized interest costs relating to properties under development totaling $1,964,000, $2,148,000 and $2,177,000, respectively. 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 received 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 108,497 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, 2000 the Company has redeemed 30,505 OP units for cash. Note 4 - Leases Minimum future lease payments to be received as of December 31, 2000 are as follows (in thousands): 2001 $ 78,243 2002 72,034 2003 64,818 2004 48,920 2005 28,710 Thereafter 49,120 $341,845 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 development and 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 expires on December 31, 2001. The agreement is to be automatically extended for an additional term of one year unless either party gives notice of its intent to terminate the agreement by October 31, 2001. For 2000, 1999, and 1998, the Company paid BAI $2,431,000, $2,783,000, and $2,272,000, 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 Compensation 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 1998, 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 which was subsequently modified by the Board in 1999. Under the program, certain options may be exercised by option holders with a recourse 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 on the first of nine years and nine months after the date of the grant or within ninety days from termination of employment, with interest payable quarterly. During 2000, 1999, 1996 and 1995, options for 200,750 shares of Common Stock were exercised in exchange for notes payable to the Company. The unpaid balance of the notes was $2,150,000 and $974,000 at December 31, 2000 and 1999, 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 employees pursuant to the Employee Plan. These shares generally vest over five years and are subject to forfeiture under certain conditions. For 2000, 1999, 1998 and 1997, the Company granted 110,651 shares, 201,751 shares, 48,500 shares, and 30,000 shares of restricted stock net of forfeitures, respectively. Deferred compensation associated with unvested restricted stock was $4,003,000 and $3,958,000 as of December 31, 2000 and 1999, respectively, and is included in the accompanying consolidated balance sheets as a reduction of additional paid-in capital. 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: 2000 1999 1998 Net income: As reported $68,087,000 $39,855,000 $31,496,000 Pro forma 67,865,000 39,496,000 31,158,000 Earnings per share - basic: As reported $ 3.73 $ 1.87 $ 1.39 Pro forma 3.72 1.86 1.38 Earnings per share - diluted: As reported $ 3.69 $ 1.86 $ 1.38 Pro forma 3.68 1.84 1.36 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 2000, 1999 and 1998, respectively: dividend yield of 9.2%, 9.4%, and 7.3%; expected volatility of 18.2%, 18.4% and 17.0%; risk-free interest rates of 5.1%, 6.8% and 4.6%. The expected life for the director's options is ten years for 2000 and five years for 1999 and 1998. The expected life for the employee's options is ten years for each period. A summary of the status of the Company's plans as of December 31, 2000, 1999 and 1998 and changes during the years ended on those dates is presented below: 2000 1999 1998 Weighted Weighted Weighted Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price Employee Plan Outstanding at beginning of year 736,625 $17.72 1,117,250 $18.10 713,750 $16.52 Granted 127,000 17.94 - - 619,000 19.67 Exercised (138,375) 13.26 (63,500) 13.66 (29,625) 13.03 Forfeited and cancelled (250,000) 18.89 (317,125) 19.15 (185,875) 18.05 Outstanding at end of year 475,250 $18.46 736,625 $17.72 1,117,250 $18.10 Options exercisable 141,250 330,875 239,250 Weighted average fair value of options granted during the year $ 1.04 - $ 1.12 Directors' Plan Outstanding at beginning of year 345,000 $16.33 310,000 $15.79 365,000 $11.65 Granted 50,000 17.94 70,000 17.72 70,000 19.56 Exercised (145,000) 14.24 (25,000) 12.97 (125,000) 5.81 Expired (10,000) 17.72 (10,000) 17.72 - - Outstanding at end of year 240,000 $17.79 345,000 $16.33 310,000 $15.79 Options exercisable 240,000 345,000 310,000 Weighted average fair value of options granted during the year $ 1.04 $ 1.24 $ 1.32 The following table summarizes information about stock options outstanding on December 31, 2000: 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 $13.00 1,250 5.4 $13.00 1,250 $13.00 17.63 to 20.06 474,000 7.5 18.47 140,000 18.06 $13.00 to 20.06 475,250 7.5 $18.46 141,250 $18.01 Directors' Plan $14.22 40,000 5.8 $14.22 40,000 $14.22 17.72 50,000 8.8 17.72 50,000 17.72 17.94 50,000 9.8 17.94 50,000 17.94 18.82 50,000 6.8 18.82 50,000 18.82 19.56 50,000 7.8 19.56 50,000 19.56 $14.22 to 19.56 240,000 7.9 $17.79 240,000 $17.79 Note 7 - Bank Loan Payable In June 1998, the Company amended and restated its secured revolving credit facility led by Bank of America. Under this facility, which matures June 1, 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, 2000, the facility, which was all secured, had an outstanding balance of $77,320,000 with an interest rate of LIBOR plus 1.35%. The credit facility is secured by mortgages on 26 properties, which properties collectively accounted for approximately 27% of the Company's annualized base rent and approximately 29% of the Company's total real estate assets as of December 31, 2000, together with the rental proceeds from such properties. 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 2000. The daily weighted average amount owed to the bank was $116,683,000 and $113,082,000 in 2000 and 1999, respectively. The weighted average interest rates in these periods were 7.75% and 6.48%, respectively. The effective interest rate at December 31, 2000 was 7.98%. Currently, the Company is in the process of renewing the credit facility with its existing bank group. Note 8 - Mortgage Loans Payable In May 1999, the Company obtained a total of $108 million of 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 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%. In July 2000, the Company obtained a total of $30.89 million of mortgage financing from Security Life of Denver Insurance Company. The loans have a 5-year term with options to renew for four additional 5-year terms. Interest on the mortgages are at a variable rate of LIBOR plus 1.40%. Proceeds from the mortgage loans, net of loan costs, were used to pay down a portion of the outstanding balance of the Company's $175 million line of credit. Mortgage loans payable at December 31, 2000 and 1999 consist of the following (in thousands): 2000 1999 7.50% note due January 1, 2002 $ 14,321 $ 23,889 7.02% note due March 15, 2003 18,916 19,257 Floating rate note due January 1, 2005, current rate of 9.16% 4,553 4,600 7.17% note due June 1, 2005 26,727 27,150 8.90% note due July 31, 2006 8,336 8,513 6.91% note due July 31, 2006 19,920 20,288 7.95% note due December 1, 2006 21,858 22,150 7.17% note due June 1, 2007 36,353 36,928 7.75% note due April 1, 2009 - 973 7.17% note due June 1, 2009 42,461 43,132 Floating rate note due August 1, 2005, current rate of 8.015% 7,444 - Floating rate note due August 1, 2005, current rate of 8.015% 23,316 - $224,205 $206,880 The mortgage loans are collateralized by 49 properties at December 31, 2000, which properties collectively accounted for approximately 57% of the Company's annualized base rent and approximately 52% of the Company's total real estate assets as of December 31, 2000, together with the rental proceeds from such properties. The Company was in compliance with the covenants and requirements of its various mortgage financings throughout 2000. The following table presents scheduled principal payments on mortgage loans as of December 31, 2000 assuming the exercise of the four additional 5-year terms on the Security Life of Denver Insurance Company mortgages (in thousands): 2001 $ 3,810 2002 17,842 2003 21,829 2004 3,956 2005 32,582 Thereafter 144,186 $224,205 Note 9 - Repurchases of Common Stock In July 1998, the Company's board of directors approved a share repurchase program of 3 million shares which was increased first to 4.5 million shares in September 1999 and later to 8 million shares in September 2000. Since November 1998, the Company has repurchased and retired 5,739,000 shares at an average price of $17.49 per share. Note 10 - Segment Disclosure The Company has six reportable segments organized by the region in which they operate: Northern California (Northern California and Nevada), Southwest (Arizona and greater Austin, Texas), Southern California, Northwest (greater Portland, Oregon and greater Seattle, Washington), Midwest (greater Kansas City, Kansas/Missouri and 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, 2000 (in thousands, except percentages) Northern Southern Corporate California Southwest California Northwest Midwest Colorado & Other Consolidated Rental income $ 33,438 $ 18,497 $ 13,788 $ 18,755 $ 3,628 $ 9,412 $ - $ 97,518 Operating expenses and real estate taxes 7,368 5,264 2,656 5,769 1,238 3,439 - 25,734 Depreciation and amortization 4,861 2,587 1,913 3,306 (86) 1,231 - 13,812 Income from property operations $ 21,209 $ 10,646 $ 9,219 $ 9,680 $ 2,476 $ 4,742 $ - $ 57,972 Percent of income from property operations 37% 18% 16% 17% 4% 8% - % 100% Interest income(1) 26 4 - 1 1 - 468 500 Interest expense - (450) - - - - (24,376) (24,826) General and administrative expenses - - - - - - (4,209) (4,209) Other income - 615 - - - - - 615 Income before minority interest and gain on sales 21,235 10,815 9,219 9,681 2,477 4,742 (28,117) 30,052 Minority interest - - - - - - (136) (136) Gain (loss) on sales of real estate investments 26,174 2,756 (6) 5,431 3,816 - - 38,171 Net income $ 47,409 $ 13,571 $ 9,213 $ 15,112 $ 6,293 $ 4,742 $(28,253) $ 68,087 Real estate investments $200,741 $117,005 $ 96,201 $130,849 $ - $102,592 $ - $647,388 Additions/dispositions of real estate investments $ (4,517) $(16,506) $ 1,743 $(19,532) $(30,293) $ 36,760 $ - $(32,345) Total assets $210,137 $108,337 $105,497 $115,247 $ 7,253 $ 83,636 $ 4,059 $634,166 (1) The interest income in Northern California, Southwest, Northwest, and Midwest segments represents interest earned from tenant notes receivable. For the year ended December 31, 1999 (in thousands, except percentages) Northern Southern Corporate California Southwest California Northwest Midwest Colorado & Other Consolidated Rental income $ 32,900 $ 15,726 $ 12,382 $ 15,528 $ 5,363 $ 8,628 $ - $ 90,527 Operating expenses and real estate taxes 7,193 4,274 2,481 3,944 1,509 2,947 276 22,624 Depreciation and amortization 4,624 2,087 1,768 2,509 874 1,154 - 13,016 Income from property operations $ 21,083 $ 9,365 $ 8,133 $ 9,075 $ 2,980 $ 4,527 $ (276) $ 54,887 Percent of income from property operations 38% 17% 15% 17% 6% 8% (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 2,980 4,527 (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 2,922 4,527 (22,784) 40,153 Loss on early extinguishment of debt (298) - - - - - - (298) Net income $ 28,565 $ 9,368 $ 8,178 $ 9,079 $ 2,922 $ 4,527 $(22,784) $ 39,855 Real estate investments $205,258 $133,511 $ 94,458 $150,381 $ 30,293 $ 65,832 $ - $679,733 Additions/dispositions of real estate investments $ (4,331) $ 24,079 $ 17,060 $ 37,131 $ (1,918) $ 7,731 $ - $ 79,752 Total assets $212,612 $123,411 $101,542 $134,843 $ 29,662 $ 64,329 $ 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, except percentages) Northern Southern Corporate California Southwest California Northwest Midwest Colorado & Other Consolidated Rental income $ 30,759 $ 11,900 $ 10,274 $ 9,281 $ 4,943 $ 6,317 $ (23) $ 73,451 Operating expenses and real estate taxes 6,954 3,200 2,142 1,345 1,326 1,935 344 17,246 Depreciation and amortization 3,939 1,629 1,495 1,586 779 837 - 10,265 Income from property operations $ 19,866 $ 7,071 $ 6,637 $ 6,350 $ 2,838 $ 3,545 $ (367) $ 45,940 Percent of income from property operations 43% 15% 15% 14% 6% 8% (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 2,838 3,545 (14,725) 31,613 Minority interest - - - - - - (117) (117) Net income $ 19,881 $ 7,071 $ 6,637 $ 6,366 $ 2,838 $ 3,545 $(14,842) $ 31,496 Real estate investments $209,589 $109,432 $ 77,398 $113,250 $ 32,211 $ 58,101 $ - $599,981 Additions to real estate investments $ 24,182 $ 41,420 $ 6,349 $ 56,852 $ 2,927 $ 36,180 $ - $167,910 Total assets $210,867 $103,637 $ 81,708 $109,471 $ 30,486 $ 57,184 $ 4,971 $598,324 (1) The interest income in the Northern California and Northwest segments represents interest earned from tenant notes receivable. Note 11 - Fair Value of Financial Instruments The carrying values of trade accounts payable and receivables approximate fair value due to the short-term maturity of these instruments. Management has determined that the market value of the $188,892,000 fixed rate debt at December 31, 2000 is approximately $189,452,000 based on the terms of existing debt compared to those available in the marketplace. At December 31, 1999, the fixed rate debt of $202,280,000 had an approximate market value of $189,882,000. The carrying value of variable rate debt approximates fair value, as the interest rates and other terms are comparable to current market terms. Note 12 - Earnings per Share Following is a reconciliation of earnings per share: (in thousands, except share and per share amounts) Year Ended December 31, 2000 1999 1998 Basic: Income before extraordinary item $ 68,087 $ 40,153 $ 31,496 Extraordinary item - loss on early extinguishment of debt - (298) - Net income $ 68,087 $ 39,855 $ 31,496 Weighted average number of shares - basic 18,236,512 21,267,088 22,634,656 Earnings per share: Income before extraordinary item $ 3.73 $ 1.88 $ 1.39 Extraordinary item - loss on early extinguishment of debt - (0.01) - Net income for basic earnings per share $ 3.73 $ 1.87 $ 1.39 Diluted: Income before extraordinary item $ 68,087 $ 40,153 $ 31,496 Add: Minority interest 136 128 117 Extraordinary item - loss on early extinguishment of debt - (298) - Net income for diluted earnings per share $ 68,223 $ 39,983 $ 31,613 Weighted average number of shares (from above) 18,236,512 21,267,088 22,634,656 Weighted average shares of dilutive stock options using average period stock price under the treasury stock method 52,958 62,196 205,522 Weighted average shares issuable upon the conversion of operating partnership units 77,992 82,402 89,629 Weighted average shares of non-vested restricted stock using average period stock price under the treasury stock method 134,443 65,327 - Weighted average number of shares - diluted 18,501,905 21,477,013 22,929,807 Earnings per share: Income before extraordinary item $ 3.69 $ 1.87 $ 1.38 Extraordinary item - loss on early extinguishment of debt - (0.01) - Net income for diluted earnings per share $ 3.69 $ 1.86 $ 1.38 Since their effect would have been antidilutive, 280,000, 817,000, and 729,000 of the Company's stock options have been excluded from diluted earnings per share for the years ended December 31, 2000, 1999, and 1998, respectively. Note 13 - Quarterly Financial Data-Unaudited The following is a summary of quarterly results of operations for 2000 and 1999 (in thousands of dollars, except per share data): 2000 Quarters Ended 3/31 6/30 9/30 12/31 Rental income $24,392 $24,957 $24,662 $23,507 Income from property operations 14,941 14,708 14,942 13,380 Income before gain on sales of real estate investments and minority interest 8,030 7,550 7,689 6,781 Net income $23,231 $ 7,511 $27,854 $ 9,490 Earnings per share - basic $ 1.20 $ 0.41 $ 1.54 $ 0.55 Earnings per share - diluted $ 1.19 $ 0.41 $ 1.52 $ 0.54 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 Note 14 - Commitments and Contingencies The Company has contractual construction commitments of $13.5 million as of December 31, 2000 relating to its properties under development. From time to time, the Company is subject to legal claims in the ordinary course of business. The Company currently is not aware of any such legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, prospects, financial condition or operating results. BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2000 (in thousands of dollars) Initial Cost Cost Cap- Gross Amount to Company italized Carried at De- Build- Subsequent Close of Period Accum- Date Date preciable ings & to Ac- ulated De- Con- Ac- Life Description Land Improvement quisition Land Building Total preciation structed quired (Years) Industrial buildings: Northern California Building #3 at Contra Costa Diablo Industrial Park, Concord* $ 495 $ 1,159 $ 47 $ 495 $ 1,206 $ 1,701 $ 276 1983 12/90 45 Building #8 at Contra Costa Diablo Industrial Park, Concord* 877 1,548 203 877 1,751 2,628 488 1981 12/90 45 Building #18 at Mason Industrial Park, Concord* 610 1,265 133 610 1,398 2,008 319 1984 12/90 45 Milpitas Town Center, Milpitas* 1,400 4,421 149 1,400 4,570 5,970 651 1983 8/94 45 598 Gibraltar Drive, Milpitas* 535 2,522 - 535 2,522 3,057 993 1996 5/96 45 Auburn Court, Fremont* 1,391 2,473 359 1,415 2,808 4,223 349 1983 12/95 45 47650 Westinghouse Drive, Fremont* 267 893 60 271 949 1,220 106 1982 12/95 45 410 Allerton, South San Francisco* 1,333 889 39 1,356 905 2,261 102 1970 12/95 45 400 Grandview, South San Francisco* 3,246 3,517 969 3,300 4,432 7,732 464 1976 12/95 45 342 Allerton, South San Francisco* 2,516 1,542 379 2,558 1,879 4,437 224 1969 12/95 45 301 East Grand, South San Francisco* 2,036 959 167 2,070 1,092 3,162 138 1974 12/95 45 Fourier Avenue, Fremont* 2,120 7,018 - 2,120 7,018 9,138 715 1982 5/96 45 Lundy Avenue, San Jose* 2,055 2,184 257 2,055 2,441 4,496 246 1982 7/96 45 115 Mason Circle, Concord* 697 854 68 697 922 1,619 104 1971 9/96 45 47600 Westinghouse Drive, Fremont* 356 1,067 43 356 1,110 1,466 106 1982 9/96 45 860-870 Napa Valley Corporate Way, Napa* 933 3,515 648 933 4,163 5,096 464 1984 9/96 45 47633 Westinghouse Drive, Fremont* 1,051 3,239 251 1,051 3,490 4,541 324 1983 10/96 45 47513 Westinghouse Drive, Fremont* 1,624 - 4,089 1,625 4,088 5,713 680 1998 10/96 45 Carneros Commons Phase I, Napa 500 - 2,398 500 2,398 2,898 0 2000 12/96 45 Bordeaux Centre, Napa* 1,151 - 6,708 1,151 6,708 7,859 912 1998 12/96 45 O'Toole Business Park, San Jose* 3,933 5,748 500 3,933 6,248 10,181 604 1984 12/96 45 6500 Kaiser Drive, Fremont* 1,556 6,411 28 1,556 6,439 7,995 572 1990 1/97 45 Bedford Fremont Business Center, Fremont* 3,598 9,004 215 3,598 9,219 12,817 835 1990 3/97 45 Spinnaker Court, Fremont* 2,548 5,989 177 2,549 6,165 8,714 491 1986 5/97 45 2277 Pine View Way, Petaluma* 1,861 7,074 3 1,861 7,077 8,938 564 1989 6/97 45 Mondavi Building, Napa* 1,315 5,214 - 1,315 5,214 6,529 377 1985 9/97 45 Building #2 at Monterey Commerce Center, Monterey* 611 1,833 1 611 1,834 2,445 126 1990 12/97 45 Building #3 at Monterey Commerce Center, Monterey* 604 1,812 161 604 1,973 2,577 136 1990 12/97 45 Parkpoint Business Center, Santa Rosa* 1,975 4,474 491 1,976 4,964 6,940 344 1981 2/98 45 2180 S. McDowell, Petaluma* 773 3,006 13 774 3,018 3,792 168 1990 7/98 45 2190 S. McDowell, Petaluma* 587 2,283 - 587 2,283 2,870 127 1996 7/98 45 Arizona Westech Business Center, Phoenix* 3,531 4,422 512 3,531 4,934 8,465 707 1985 4/96 45 Westech II, Phoenix* 1,033 - 3,954 1,033 3,954 4,987 822 1998 7/96 45 2601 W. Broadway, Tempe* 1,127 2,348 102 1,127 2,450 3,577 185 1977 7/97 45 Building #2 at Phoenix Airport Center, Phoenix* 723 3,278 16 723 3,294 4,017 249 1990 7/97 45 Building #3 at Phoenix Airport Center, Phoenix* 682 3,163 - 682 3,163 3,845 240 1990 7/97 45 Building #4 at Phoenix Airport Center, Phoenix* 517 1,732 - 517 1,732 2,249 132 1990 7/97 45 Building #5 at Phoenix Airport Center, Phoenix* 1,507 3,860 5 1,507 3,865 5,372 293 1990 7/97 45 Butterfield Business Center, Tucson* 909 4,230 76 909 4,306 5,215 305 1986 11/97 45 Butterfield Tech Center II, Tucson 102 - 1,752 102 1,752 1,854 168 1999 11/97 45 Greystone Business Park, Tempe 1,232 - 4,407 1,232 4,407 5,639 190 1999 12/97 45 Cimarron Business Park, Scottsdale* 1,776 4,471 258 1,778 4,727 6,505 302 1979-85 3/98 45 Rio Salado Corporate Center, Tempe 1,723 2,882 1,666 1,723 4,548 6,271 42 1982-84 7/98 45 Phoenix Tech Center, Phoenix 1,322 945 877 1,322 1,822 3,144 119 1985 8/98 45 Expressway Corporate Center, Tempe* 1,467 3,175 213 1,468 3,387 4,855 207 1985 11/98 45 The Adams Brothers Building, Phoenix* 1,572 1,613 49 1,572 1,662 3,234 58 1988-95 6/99 45 Bedford Realty Partners, L.P., Phoenix* 992 6,241 99 992 6,340 7,332 152 1986 12/99 45 Southern California Dupont Industrial Center, Ontario* 3,588 6,162 239 3,588 6,401 9,989 1,039 1989 5/94 45 3002 Dow Business Center, Tustin* 4,209 7,291 1,073 4,305 8,268 12,573 1,261 1987-89 12/95 45 Carroll Tech I, San Diego* 511 1,372 187 511 1,559 2,070 179 1984 10/96 45 Vista I, Vista 646 2,135 64 646 2,199 2,845 202 1990 10/96 45 Vista II, Vista 566 1,832 - 566 1,832 2,398 170 1990 10/96 45 Signal Systems Building, San Diego* 2,228 7,264 - 2,228 7,264 9,492 646 1990 12/96 45 Carroll Tech II, San Diego* 1,022 2,129 - 1,022 2,129 3,151 201 1984 10/96 45 2230 Oak Ridge Way, Vista* 684 2,191 - 684 2,191 2,875 165 1997 10/97 45 6960 Flanders Drive, San Diego* 864 2,591 (2) 865 2,588 3,453 144 1989 6/98 45 Canyon Vista Center, San Diego* 1,664 4,645 137 1,664 4,782 6,446 189 1986 4/99 45 6325 Lusk Blvd., San Diego* 2,229 3,484 9 2,229 3,493 5,722 116 1991 7/99 45 Greater Seattle Area Highlands Campus Building B, Bothell 1,762 - 5,529 1,762 5,529 7,291 410 1999 6/98 45 Highlands Campus Building C, Bothell 1,646 - 4,322 1,646 4,322 5,968 58 2000 6/98 45 Office buildings: Northern California Village Green, Lafayette* 547 1,245 588 743 1,637 2,380 268 1983 7/94 45 Canyon Park, San Ramon* 1,933 3,098 3,001 1,933 6,099 8,032 309 1971-72 12/97 45 Crow Canyon Centre, San Ramon* 778 - 5,253 778 5,253 6,031 275 1999 12/97 45 Building #1 at Monterey Commerce Center, Monterey* 616 5,302 153 616 5,455 6,071 427 1990 12/97 45 3380 Cypress Drive, Petaluma* 1,709 3,760 1 1,710 3,760 5,470 209 1989 7/98 45 Arizona Executive Center at Southbank, Phoenix* 4,943 7,134 102 4,943 7,236 12,179 626 1989 3/97 45 Troika Building, Tucson* 1,332 2,631 46 1,332 2,677 4,009 212 1985 6/97 45 Building #1 at Phoenix Airport Center, Phoenix* 944 1,541 77 944 1,618 2,562 119 1990 7/97 45 Phoenix Airport Center Parking, Phoenix* 1,369 81 - 1,369 81 1,450 6 1990 7/97 45 Cabrillo Executive Center, Phoenix* 480 5,614 234 480 5,848 6,328 401 1983 2/98 45 Mountain Pointe Office Park, Phoenix 837 - 4,935 837 4,935 5,772 135 1999 2/98 45 1355 S. Clearview Avenue, Mesa* 2,049 5,450 3 2,049 5,453 7,502 192 1998 6/99 45 Southern California Laguna Hills Square, Laguna* 2,436 3,655 967 2,436 4,622 7,058 582 1983 3/96 45 Building #3 at Carroll Tech Center, San Diego* 716 1,400 56 716 1,456 2,172 137 1984 10/96 45 Scripps Wateridge, San Diego* 4,160 12,472 3 4,160 12,475 16,635 971 1990 6/97 45 Building #4 at Carroll Tech Center, San Diego* 2,050 3,224 76 2,050 3,300 5,350 128 1986 3/99 45 Colorado Oracle Building, Denver* 1,860 13,249 88 1,860 13,337 15,197 945 1996 10/97 45 Texaco Building, Denver* 3,699 31,631 1,044 3,700 32,674 36,374 1,849 1981 5/98 45 WaterPark @ Briarwood Building 1, Englewood 286 - 2,682 286 2,682 2,968 48 2000 4/99 45 WaterPark @ Briarwood Building 2, Englewood 716 - 5,008 716 5,008 5,724 28 2000 4/99 45 Bedford Center at Rampart, Englewood 3,811 18,031 (720) 3,811 17,311 21,122 33 1998 11/00 45 Greater Seattle Area Orillia Office Park, Renton* 10,021 22,975 - 10,021 22,975 32,996 1,787 1986 7/97 45 Adobe Systems Bldg. 1, Seattle* - 22,403 3,923 - 26,326 26,326 1,462 1998 3/98 45 Adobe Systems Bldg. 2, Seattle* - 18,931 3,353 - 22,284 22,284 1,261 1998 3/98 45 Highlands Campus, Building A, Bothell 2,066 - 7,763 2,066 7,763 9,829 619 1999 6/98 45 The Federal Way Building, Federal Way* 2,208 7,009 29 2,208 7,038 9,246 240 1999 6/99 45 Federal Way II, Federal Way 2,500 14,307 102 2,515 14,394 16,909 398 1999 9/99 45 Nevada U.S. Bank Centre, Reno 2,102 10,264 541 2,102 10,805 12,907 922 1989 5/97 45 Operating properties held for sale: Colorado Bryant Street Quad, Denver* 1,394 2,181 171 1,416 2,330 3,746 269 1971-73 12/95 45 Bryant Street Annex, Denver* 487 866 127 495 985 1,480 130 1968 12/95 45 Properties under development: Northern California Carneros Commons Phase II, Napa 461 - 523 461 523 984 - N/A 12/96 45 Colorado Belleview Corporate Plaza II Office, Denver 2,622 - 5,721 2,622 5,721 8,343 - N/A 10/98 45 Belleview Corporate Plaza, Parking, Denver 487 - 75 487 75 562 - N/A 10/98 45 WaterPark @ Briarwood Phase II, Englewood 1,002 - 2,812 1,002 2,812 3,814 - N/A 4/99 45 Land held for development: Scripps Land, San Diego, CA 622 - 83 622 83 705 - N/A 6/97 45 Mondavi Land, Napa Lot 12G, Northern CA 1,150 - 12 1,150 12 1,162 - N/A 3/98 45 West Tempe Lots 30 and 31, Tempe, AZ 551 - 93 644 - 644 - N/A 7/98 45 210 Lafayette Circle, Northern CA 511 - 2 511 2 513 - N/A 11/98 45 Belleview Corporate Plaza III, IV, Denver, CO 2,299 - 26 2,299 26 2,325 - N/A 10/99 45 Belleview Corporate Plaza, Retail, Denver, CO 807 - 129 807 129 936 - N/A 10/98 45 Napa Lots 9B & 8D, Napa, CA 2,161 - 7 2,161 7 2,168 - N/A 11/00 45 Ontario (Jurupa) Land, Ontario, CA 3,266 - - 3,266 - 3,266 - N/A 12/00 45 $160,376 $393,823 $93,189 $160,997 $486,391 $647,388 $35,944 (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, 2000, 1999, and 1998 is presented below: Investment Accumulated Depreciation 2000 1999 1998 2000 1999 1998 BALANCE AT BEGINNING OF PERIOD $679,733 $599,981 $432,071 $28,695 $18,523 $8,985 Add (deduct): 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 - - - 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 (B) - (1,200) - - (37) - Sale of Woodlands Tower II (C) - (6,963) - - (1,031) - Sale of Oak Ridge Land (C) - (378) - - - - Sale of Doherty Avenue (D) - (3,909) - - (152) - Sale of Continental Can (E) - (5,016) - - (124) - Acquisition of Bedford Center at Rampart 21,122 - - - - - Acquisition of Napa Land Lots 9B & 8D 2,161 - - - - - Acquisition of Jurupa Land 3,266 - - - - - Sale of 350 E. Plumeria (F) (8,570) - - (373) - - Sale of Twin Oaks Technology Center (F) (6,904) - - (620) - - Sale of Twin Oaks Business Center (F) (4,617) - - (380) - - Sale of 5502 Oberlin Drive (G) (2,188) - - (28) - - Sale of 100 View Street (H) (4,636) - - (365) - - Sale of Kenyon Center (I) (15,075) - - (677) - - Sale of 99th Street #1 (I) (2,276) - - (159) - - Sale of 99th Street #2 (I) (828) - - (54) - - Sale of 99th Street #3 (I) (2,718) - - (505) - - Sale of 99th Street #4 (I) (3,723) - - (391) - - Sale of Lackman Business Center (I) (2,517) - - (245) - - Sale of Panorama (I) (4,125) - - (289) - - Sale of Panorama III (I) (2,649) - - (22) - - Sale of Overland Park Land (I) (1) - - - - - Sale of 6600 College Blvd. (I) (6,619) - - (382) - - Sale of Austin Braker 2 (I) (2,285) - - (59) - - Sale of Austin Rutland (I) (3,280) - - (94) - - Sale of Austin SouthPark(I) (5,815) - - (160) - - Sale of Didde Building (J) (2,226) - - (58) - - Sale of Great Hills Trail (J) (9,859) - - (394) - - Sale of Ferrell Drive (J) (2,791) - - (73) - - Sale of Ferrell Drive Land (J) (188) - - - - - Capitalized costs 34,996 31,901 7,600 - - - Depreciation - - - 12,577 11,516 9,538 BALANCE AT END OF PERIOD $647,388 $679,733 $599,981 $35,944 $28,695 $18,523 (B) The property was sold in March 1999. (C) The properties were sold in June 1999. (D) The property was sold in August 1999. (E) The property was sold in December 1999. (F) The properties were sold in March 2000. (G) The property was sold in June 2000. (H) The property was sold in August 2000. (I) The properties were sold in September 2000. (J) The properties were sold in October 2000. 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, 2001 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, 2001 Peter B. Bedford, Chairman of the Board and Chief Executive Officer /s/ Anthony Downs March 29, 2001 Anthony Downs, Director /s/ Anthony M. Frank March 29, 2001 Anthony M. Frank, Director /s/ Martin I. Zankel March 29, 2001 Martin I. Zankel, Director /s/ Thomas H. Nolan, Jr. March 29, 2001 Thomas H. Nolan, Jr., Director /s/ Hanh Kihara March 29, 2001 Hanh Kihara Senior Vice President and Chief Financial Officer /s/ Krista K. Rowland March 29, 2001 Krista K. Rowland, Vice President Controller Exhibit 12 Bedford Property Investors, Inc. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends and Limited Partner Distributions (in thousands, except ratios) Year Ended December 31, 2000 1999 1998 1997 1996 Net income $68,087 $39,855 $31,496 $31,291 $11,021 Fixed charges - interest and amortization of loan fees 24,826 18,970 11,164 7,918 4,347 Fixed charges - interest capitalized 1,964 2,148 2,177 627 - Net income including fixed charges 94,877 60,973 44,837 39,836 15,368 Preferred dividends and limited partner distributions 136 128 117 3,608 4,505 Net income including fixed charges, preferred dividends and limited partner distributions $95,013 $61,101 $44,954 $43,444 $19,873 Ratio of earnings to fixed charges, including preferred dividends and limited partner distributions 3.53 2.88 3.34 3.57 2.25 Ratio of earnings to fixed charges, excluding preferred dividends and limited partner distributions 3.54 2.89 3.36 4.66 3.54 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 033-52375, 333-18215, 333-70681 and 333- 74707) of Bedford Property Investors, Inc. of our report dated February 2, 2001, relating to the consolidated balance sheets of Bedford Property Investors, Inc. and subsidiaries as of December 31, 2000 and 1999, 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, 2000, and the related financial statement schedule as of December 31, 2000, which report appears in the December 31, 2000 annual report on Form 10-K of Bedford Property Investors, Inc. KPMG LLP San Francisco, California March 29, 2001