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, 2001
Commission file number 1-12222
BEDFORD PROPERTY INVESTORS, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 68-0306514
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
270 Lafayette Circle, Lafayette, CA 94549
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(Address of principal executive offices)
Registrant's telephone number, including area code (925) 283-8910
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Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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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, 2002 was approximately $380,456,000. The number of
shares of Registrant's Common Stock, par value $0.02 per share,
outstanding as of March 15, 2002 was 16,692,040.
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 16, 2002, 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
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ITEM 1. BUSINESS
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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, 2001, the Company owned and operated 86 properties
totaling approximately 6.7 million rentable square feet. Of these 86
properties (the "Properties"), 58 are industrial (the "Industrial
Properties") and 28 are suburban office (the "Suburban Office
Properties"). As of December 31, 2001, the Properties were leased to
444 tenants with average occupancy of approximately 96%. The
Properties are located in Northern and Southern California,
Washington, Arizona, Nevada and Colorado.
In addition to the Properties, the Company owns four development
properties: one suburban office, one service center flex and two
office-flex projects totaling 233,900 rentable square feet, which were
approximately 29% leased as of December 31, 2001.
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 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 2001, leases for 1,071,773 square feet of space expired with a
weighted average base rental rate of $11.37 per square foot. As of
December 31, 2001, approximately 95% of this space has been re-leased,
and the weighted average base rental rate of the new leases is $13.05
per square foot, an increase of 14.8%. 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 its
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 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. Peter Bedford, the Company's Chairman
of the Board and Chief Executive Officer. For these services, 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 7%
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 December 31, 2002,
which is automatically extended for an additional term of one year
unless either party gives notice of its intent to terminate the
agreement by October 31, 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 $150 million
credit facility which contains a $25 million accordion feature, (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 and 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 described above.
Share Repurchase
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 then to 8 million shares in
September 2000 and later to 10 million shares in January 2002. Since
November 1998, the Company has repurchased and retired 7.1 million
shares at an average price of $17.90 per share. This represents 31%
of the shares outstanding at November 30, 1998 when the Company began
implementing its share repurchase program.
From November 1998 when the Company's stock traded at a discount to
its estimated net asset value (estimated based on current cap rate and
earning estimates), the Company bought in shares under the share
repurchase program. During 2001, with a dividend yield approximately
equal to 9% and an average borrowing cost of 6.9%, the Company
continued to repurchase its common stock because buying back stock
increases the stockholders' relative percentage ownership in the
Company and therefore brings additional value to that ownership.
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. These markets have not been immune to the
economic slowdown that began in the second half of 2000. Job growth
in many of the markets in which the Company operates has slowed
significantly and has stopped altogether in others. Markets that
tended to be the strongest participants in the
telecommunication/technology boom of the late 1990s have been the
hardest hit by slowing job-formation. As a consequence, demand for
commercial space has declined as well. However, the Company believes
that the combination of the quality of its assets, the long-term
attractiveness of its sub-markets, and its experience in these markets
will provide an opportunity for good returns to its shareholders in
the future.
In 2001, the Company continued the process of selling assets which had
either reached their point of inflection relative to continued growth
opportunities, were located in secondary markets, or were of a quality
inconsistent with the balance of the portfolio. Included in these
sales were properties located in Phoenix, Tucson, and Denver.
3. Develop and Acquire "Service Center Flex and Suburban
Office" Properties.
Among the Company's targeted properties are service center flex
industrial properties as well as suburban office flex 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 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. Sell Selected Assets
The Company funds a portion of its development and acquisition
activities and the share repurchase program through the sale of
selected assets. Such assets include buildings that, in our opinion,
have maximized their value or have become obsolete due to their
physical attributes, are in secondary markets, or are not of a quality
consistent with the rest of our properties. In addition, in 2000 the
Company redefined its geographical focus in the western United States
and sold real estate assets that did not fit this western orientation.
5. Continue Neighborhooding
Neighborhooding describes 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, Ontario, Petaluma,
and San Diego, California; Phoenix, Arizona; Denver, Colorado; and
Federal Way, Washington.
6. Utilize In-House Asset and Property Management
The Company believes that the long-term value of its Properties is
enhanced through in-house asset management. As of December 31, 2001,
the Company directly manages 85 of its 86 properties. The Company
conducts its Northern California property management activities out of
its headquarters office in Lafayette, California; its Southern
California property management activities out of its regional office
in Tustin, California; its Arizona property management activities out
of its regional office in Phoenix, Arizona; its Seattle property
management activities out of its regional office in Seattle,
Washington; and its Colorado property management activities out of its
office in Denver, Colorado. A single asset, a suburban office
property located in Reno, Nevada is managed by a local firm.
The Company's asset management team develops and monitors a
comprehensive asset management plan for each Property in an effort to
ensure its efficient operation. The Company's Vice President of
Property/Asset Management works directly with the Company's internal
finance and accounting staff to develop and monitor detailed budgets
and financial reports for each Property. He also works with each
property manager to identify and implement opportunities to improve
cash flow from each Property and to maximize each Property's long-term
investment value. The Company's property management staff is
generally responsible for leasing activities, ordinary maintenance and
repairs, keeping financial records on income and expenses, rent
collection, payment of operating expenses and property operations.
The Company's property management philosophy is based on the belief
that the long-term value of the Properties is enhanced by attention to
detail and hands-on service provided by professional in-house property
management. The Company believes that a successful leasing program
starts by servicing existing tenants first. Costs associated with
tenant turnover (i.e., tenant improvements, leasing commissions and
the loss of income due to vacancy) can be significant and, by
addressing and attending to existing tenants' needs, the Company
believes that it can increase its retention of existing tenants and
simultaneously make its properties more attractive to new tenants.
7. Cooperate with Local Real Estate Brokers
The Company seeks to develop strong relationships with local real
estate brokers, who can provide access to tenants as well as general
market intelligence and research. The Company believes that these
relationships have enhanced the Company's ability to attract and
retain tenants.
Transactions and Significant Events During 2001
Development and Acquisitions
Development activity during the year included the continued leasing of
144,000 square feet in two projects located in Denver, Colorado and
Napa, California, which were shell complete during 2000. As of
December 31, 2001, these projects were 80% leased with estimated
yields ranging from 11% to 12%. The Company also completed the shell
construction and partial lease-up of two projects located in Napa and
Ontario, California, and two projects in Denver, Colorado, adding
263,000 square feet to the available inventory. As of December 31,
2001, these projects were 36% leased. This new leasable space
provides the Company with a significant opportunity to increase its
operating revenue.
The Company also acquired a 9.3 acre parcel of vacant land in Napa,
California. This parcel of land is adjacent to existing Properties
and will be used for future development opportunities.
Sell Selected Assets
During the year, the Company sold four Properties, including three
Industrial Properties and one Suburban Office Property, totaling
342,000 rentable square feet for $20,178,000. These sales produced
gains totaling $5,938,000.
The cash proceeds from these sales were used to fund a portion of the
repurchases of the Company's common stock and a portion of the
development costs.
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 past three 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 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. During the economic recovery of the second half of the
1990s, these markets were characterized by strong demand for
commercial property without significant increases in supply. Those
trends began to shift during late 2000 and throughout 2001. Job
growth and demand for commercial real estate facilities has slowed in
concert with a national recession that has not left these markets
untouched.
The Company believes that, for the most part, the commercial real
estate excesses attending the expansion that ended in 1990 have been
avoided in this cycle. There have not been improvident additions to
the stock of suburban office or flex space and, in consequence, the
current imbalance is demand-related and not a function of new supply.
Nonetheless, vacancies began to move up last year and surplus sub-
lease space came on the markets in abundant supply. Generally, those
markets which had experienced the highest rate of job-formation also
experienced the largest proportion of surplus space. The East Side of
Seattle and Silicon Valley in California, both of which experienced
significant growth in telecommunications, technology, and internet-
related employment, are good examples of this trend.
Looking beyond the current economic slowdown, the Company continues to
believe that the Properties which it has acquired and built are of
excellent quality and will retain strong occupancy rates in a
competitive market context. In particular the San Francisco Bay Area,
Seattle, and San Diego, areas in which the Company has over 50% of its
square footage, are again areas ranked favorably as investment markets
in the 2002 edition of Emerging Trends in Real Estate, a publication
of PricewaterhouseCoopers and Lend Lease Real Estate Investments.
Quality of life, a well-educated workforce, and natural and
environmentally derived barriers to entry are present in these markets
and are characteristics which have been associated with good real
estate returns in the past.
Operating Performance
For the year ended December 31, 2001, the Company reported income
before gain on sales and extraordinary item of $30,785,000, on rental
revenues of $99,949,000, compared with income before gain on sale and
extraordinary item of $29,916,000, on rental revenues of $97,518,000
for the year ended December 31, 2000. Gain on sales of real estate
investments for the year ended December 31, 2001 was $5,938,000
compared with gain on sales of real estate investments of $38,171,000
for the year ended December 31, 2000. The Company's Funds From
Operations ("FFO": see definition under "Selected Financial Data") for
the year ended December 31, 2001 was $47,110,000 as compared to
$43,864,000 for the year ended December 31, 2000. Due to 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 2001, the Company announced a 7% increase in its
quarterly Common Stock dividend from $0.45 to $0.48 per share, or
$1.92 on an annualized basis. The higher dividend rate commenced with
the Company's dividend for the third quarter of 2001. The dividends
declared for the four quarters in 2001 totaled $1.86, a 7% increase
compared with the dividends declared for the four quarters in 2000.
Credit Facility
In May 2001, the Company renewed its revolving credit facility with a
bank group led by Bank of America. The facility, which matures on
June 2004, consists of a $150 million secured line with an accordion
feature to expand the facility to $175 million, if needed. Interest
on the facility is at a floating rate equal to either the lender's
published "reference rate" or LIBOR plus a margin ranging from 1.30%
to 1.55%, depending on the Company's leverage level. At December 31,
2001, the facility had an outstanding balance of $80,925,000, with an
interest rate of LIBOR plus 1.55% (an effective rate of 4.99%). The
Company was in compliance with the covenants and requirements of its
revolving credit facility throughout 2001.
Mortgage Loans
In November 2001, the Company obtained $21,819,000 of new first
mortgage financing from Union Bank of California. The financing, a
renewal of an existing mortgage with the same lender, consists of a
three-year loan, bearing interest at a floating rate of LIBOR plus
1.6% (an effective rate of 4.02% as of December 31, 2001). The old
loan, which had an outstanding balance of approximately $14 million
and a maturity date of January 2, 2002, carried a fixed interest of
7.5%. The $21,819,000 mortgage is collaterized by the same property
pool as the expiring loan, namely nine properties located in
California. Proceeds of the new mortgage loan were used to pay off
the expiring mortgage and to pay down a portion of the outstanding
balance of the Company's credit facility.
In August 2001, the Company closed on $18 million of mortgage
financing from Washington Mutual Bank. The loan has a 10-year term
and bears interest at a floating rate of a trailing 1-year treasury
rate plus 2.60% (an effective rate of 7.92% as of December 31, 2001).
Proceeds from the loan were used to pay down a portion of the
outstanding balance of the $150 million line of credit.
Dividends
The Company has made regular quarterly distributions to the holders of
its Common Stock every quarter since the second quarter of 1993, and
has increased the dividend fifteen times since then from $0.10 per
share in the second quarter of 1993 to $0.48 per share in the fourth
quarter of 2001. In March 2002, the Company declared a dividend
distribution for the first quarter 2002 to its stockholders in the
amount of $0.48 per share of Common Stock, payable 15 days after the
quarter-end.
Tenants
Based on rentable square feet, as of December 31, 2001, the Suburban
Office Properties and Industrial Properties were approximately 96%
occupied by a total of 444 tenants, of which 117 were Suburban Office
Property tenants and 327 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, 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.
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. This coverage is subject to certain
exclusions, including terrorism and mold. Separate flood and
earthquake insurance is provided with an annual aggregate limit of $10
million subject to a deductible of 2-10% 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 typically competes in its markets with other
REITs, institutional owners, and private operators of commercial
property.
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. For example, the Company owns property in the
east side market in Seattle. This market has been negatively affected
by job loss in that region and there is considerable inventory
available. In addition, the Company owns property in Phoenix, Arizona
and in Denver, Colorado. In both of these cities, substantial amounts
of development have occurred, resulting in excess inventory at a time
when demand has slackened.
The Company believes that its competitive strengths will enable it to
operate successfully in the face of these risks. These competitive
strengths include an experienced management team, a long history of
operations in all of its current markets, a diversified tenant base,
and limited exposure to a significant single-tenant default.
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
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Real Estate Summary
As of December 31, 2001, the Company's real estate investments were
diversified by property type as follows (dollars in thousands):
Number of Percent
Properties Cost of Total
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Industrial buildings 58 $303,563 46%
Office buildings 29 328,619 50%
Operating properties held for sale 3 11,157 2%
Land held for development 11 13,469 2%
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Total 101 $656,808 100%
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As of December 31, 2001, the Company's real estate
investments were diversified by geographic region
as follows
(dollars in thousands):
Number of Investment % of Total
Properties Amount Investment
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Industrial buildings
Northern California 29 $152,296 23
Arizona 15 72,343 11
Southern California 12 64,715 10
Greater Seattle Area 2 14,209 2
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Total industrial buildings 58 303,563 46
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Office buildings
Northern California 5 26,151 4
Arizona 5 36,223 5
Southern California 4 31,396 5
Colorado 8 104,247 16
Greater Seattle Area 6 117,648 18
Nevada 1 12,954 2
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Total office buildings 29 328,619 50
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Operating properties held for sale
Northern California 3 11,157 2
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Total operating properties held
for sale 3 11,157 2
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Land held for development
Northern California 4 5,717 *
Arizona 1 645 *
Southern California 4 3,168 *
Colorado 2 3,939 *
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Total land held for development 11 13,469 2
------------------------------------
Total 101 $656,808 100%
------------------------------------
------------------------------------
* 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, 2001.
Percentage Occupied/Number of Tenants Occupying 10% or more
1997 1998 1999 2000 2001
Property % # % # % # % # % # Principal
Business at
December 31, 2001
- -------------------------------------------------------------------------------------------------
INDUSTRIAL BUILDINGS
- ---------------------
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 100% 2 92% 2 100% 2 100% 2 100% 2 Warehouse of
scaffolding
materials and
construction
supplies; roofing
contractor.
Milpitas Town Center, Milpitas 100% 4 100% 3 100% 4 100% 3 100% 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 68% 3 100% 4 100% 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.
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% 4 100% 4 100% 4 100% 4 100% 4 Radiology
research and
developer;
freight
forwarding
companies;
retail display
company.
342 Allerton, South
San Francisco 100% 4 100% 4 100% 4 100% 4 100% 4 Freight
forwarding
companies; food
broker.
301 East Grand, South
San Francisco 100% 3 100% 3 75% 2 100% 3 100% 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 82% 1 100% 2 100% 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 86% 3 100% 3 88% 2 94% 2 100% 2 Winery;
engineering
company and
software
developer.
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 100% 2 100% 2 100% 2 100% 2 Manufacturer of
semi-conductor
equipment;
manufacturer and
designer of
arterial balloon
catheters and
other related
devices.
Bordeaux Centre, Napa N/A 38% 2 89% 4 100% 5 100% 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 90% 0 89% 0 100% 0 100% 1 84% 1 Commercial print
shop.
6500 Kaiser Drive, Fremont 100% 1 100% 1 100% 1 100% 1 100% 1 Research and
development,
manufacturer of
computers.
Bedford Fremont Business Park,
Fremont 100% 1 100% 1 97% 1 97% 1 97% 1 Administration
and testing of
samples for
managed care
organizations.
Spinnaker Court, Fremont 100% 2 100% 2 100% 2 100% 3 100% 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 100% 1 100% 1 100% 1 100% 1 100% 1 Manufacturer and
distributor of
eyeglass lenses
for world-wide
distribution.
The Mondavi Building, Napa 100% 1 100% 1 100% 1 100% 1 100% 1 Wine storage and
administration.
Monterey Commerce Center 2,
Monterey* 100% 1 100% 1 100% 1 100% 1 100% 1 Language
interpretation.
Monterey Commerce Center 3,
Monterey* 100% 3 100% 3 100% 3 81% 4 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 100% 3 100% 3 95% 3 98% 3 Physical therapy
and
rehabilitation;
point of sale
machine
manufacturer;
mortgage broker.
2180 S. McDowell Blvd.,
Petaluma N/A 100% 2 81% 1 69% 1 100% 2 Manufacturer of
high-end,
commercial grade
sound equipment;
valve and
regulator
automation sales
and manufacturer.
2190 S. McDowell Blvd.,
Petaluma N/A 100% 2 100% 2 100% 2 100% 2 Bread
distributor;
distributor of
paper and
packaging
products.
Carneros Commons Phase II,
Napa N/A N/A N/A N/A 63% 1 Wine maker and
exporter.
Southern California
Dupont Industrial Center,
Ontario 100% 1 97% 1 100% 2 100% 1 97% 1 Distributor of
swimming pool
supplies.
3002 Dow Business Center,
Tustin 100% 0 99% 0 99% 0 98% 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 0% 0 0% 0 100% 1 100% 1 Water purifying
components
manufacturer.
Vista 2, Vista 100% 1 100% 1 100% 1 100% 1 100% 1 Manufacturer of
graphite golf
club shaft.
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 100% 1 100% 1 100% 1 100% 1 100% 1 Manufacturer of
equipment for
circuit board
assembly.
6960 Flanders Drive, San Diego N/A 100% 1 100% 1 100% 1 100% 1 Geotechnical and
environmental
consultant.
Canyon Vista Center, San Diego N/A N/A 100% 3 100% 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 100% 2 100% 2 100% 1 Bio-tech company
developing
diabetes self-
test products.
Jurupa Business Center, Phase I,
Ontario N/A N/A N/A N/A 0% 0 New development
project in lease-
up phase.
Arizona
Westech Business Center, Phoenix 96% 0 95% 0 96% 0 95% 0 94% 0 No single tenant
over 10%.
Westech II, Phoenix N/A 100% 3 100% 2 100% 2 100% 2 Healthcare
consultants;
travel agency.
2601 W. Broadway, Tempe 100% 1 100% 1 100% 1 100% 1 100% 1 Wireless phone
service provider.
Phoenix Airport Center #2,
Phoenix 100% 1 100% 1 100% 1 100% 1 100% 1 Electronic parts
sales and
customer service.
Phoenix Airport Center #3,
Phoenix 100% 1 100% 1 100% 1 100% 1 100% 1 Cosmetic
manufacturer and
distributor.
Phoenix Airport Center #4,
Phoenix 100% 1 100% 1 100% 1 100% 1 100% 1 Package
delivery/service
call center.
Phoenix Airport Center #5,
Phoenix N/A 100% 1 100% 1 100% 1 100% 1 Healthcare
maintenance
organization
corporate office.
Butterfield Business Center,
Tucson 100% 3 100% 3 100% 2 100% 2 100% 2 Sears call
center; research
and development
of automobile
care items.
Butterfield Tech Center II,
Tucson N/A N/A 56% 2 100% 4 100% 4 Package
distribution
facilities;
school book
distribution
facility;
distributor of
industrial
uniform supplies.
Greystone Business Park,
Tempe N/A N/A 11% 1 86% 3 100% 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 98% 2 97% 2 90% 1 79% 1 Printing and
sales office.
Rio Salado Corporate Centre,
Phoenix N/A N/A N/A 0% 0% Rehabilitated
property in
lease-up phase.
Phoenix Tech Center,
Phoenix N/A N/A N/A 100% 1 100% 1 Reprocessing/
recycling of
single-use non-
medical devices.
The Adams Brothers Building,
Phoenix N/A N/A 100% 1 100% 1 100% 1 Interior design
and home products
sales.
Bedford Realty Partners, L.P.,
Phoenix N/A N/A 100% 2 100% 2 91% 2 Medical research;
consulting
engineers.
Greater Seattle Area
Highlands Campus Building B,
Bothell N/A N/A N/A 86% 4 93% 4 Manufacturer and
distributor of
micro-biological
lab testing
equipment;
medical
prescription
service provider;
wholesaler of
flooring
products;
tele-
communication.
Highlands Campus Building C,
Bothell N/A N/A N/A 60% 2 75% 3 Civil engineering
consulting;
manufacturer and
distributor of
ultrasound
equipment; home
furnishings
club/distributor.
OFFICE BUILDINGS
- -----------------
Northern California
Village Green, Lafayette 99% 1 100% 2 100% 2 100% 2 100% 2 Environmental
consultant; real
estate investment
trust.
Carneros Commons Phase I, N/A N/A N/A 0% 0 30% 1 E-commerce
Napa payment
processing
service.
Canyon Park, San Ramon 100% 2 100% 2 100% 2 100% 2 100% 2 Geotechnical lab
and research;
healthcare
provider.
Crow Canyon Centre, San Ramon N/A N/A 50% 1 100% 2 100% 2 Healthcare
provider; real
estate mortgage
and interior
designer.
Monterey Commerce Center 1,
Monterey* 87% 4 82% 4 79% 3 88% 3 92% 3 Technology -
software;
technology -
digital audio
discs; financing/
loan servicing.
3380 Cypress Drive, Petaluma N/A 100% 1 100% 1 100% 1 100% 1 Manufacturer of
hearing devices.
Southern California
Laguna Hills Square, Laguna 96% 4 93% 4 95% 4 100% 2 100% 2 Medical facility;
optometry and eye
surgery.
Carroll Tech III, San Diego 100% 1 100% 1 100% 1 100% 1 100% 1 On-line game
developer.
Scripps Wateridge, San Diego 100% 2 100% 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 100% 1 100% 1 100% 1 Manufacturer of
video games.
Colorado
Oracle Building, Denver 100% 2 100% 2 100% 2 100% 2 100% 2 Computer software
company; banking.
Texaco Building, Denver N/A 100% 1 100% 1 100% 1 100% 1 Oil company.
WaterPark @ Briarwood Bldg. 1,
Englewood N/A N/A N/A 62% 1 100% 2 Corporate travel
agency; resort
time share
company.
Belleview Corp. Plaza II Office,
Denver N/A N/A N/A N/A 20% 1 Healthcare
company.
WaterPark @ Briarwood Bldg. 2,
Englewood N/A N/A N/A 70% 2 100% 2 Data processing
solutions for the
finance industry;
distributor of
electrical
components and
computer
products.
WaterPark @ Briarwood Bldg. 3,
Englewood N/A N/A N/A N/A 22% 1 Insurance
provider.
WaterPark @ Briarwood Bldg. 4,
Englewood N/A N/A N/A N/A 100% 1 County
government.
Bedford Center @ Rampart,
Englewood N/A N/A N/A 97% 3 96% 3 Office equipment
sales and
leasing;
insurance
company;
corporate travel
agency.
Arizona
Executive Center at Southbank,
Phoenix 98% 3 98% 3 98% 3 92% 3 100% 3 Travel agency;
call center for
medical records;
telemarketing
call center.
Phoenix Airport Center #1,
Phoenix 100% 5 100% 5 100% 3 100% 5 88% 3 Banking services;
security services
and sales office;
electronic
marketing and
sales.
Cabrillo Executive Center,
Phoenix N/A 97% 2 100% 2 94% 3 96% 3 Insurance
company; provider
of email systems
and software for
businesses; home
builder.
Mountain Pointe Office Park,
Phoenix N/A N/A 0% 0 100% 1 100% 1 Civil
engineering.
1355 S. Clearview Avenue,
Mesa N/A N/A 100% 1 100% 1 100% 1 Debt collection
services.
Greater Seattle Area
Orillia Office Park, Renton 100% 1 100% 1 100% 1 100% 1 100% 1 Manufacturer of
aircraft.
Adobe Systems Bldg. 1, Seattle N/A 100% 1 100% 1 100% 1 100% 1 Computer software
design and
engineering.
Adobe Systems Bldg. II, Seattle N/A 77% 1 100% 2 100% 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 38% 1 100% 2 100% 2 Computer software
research and
development;
cellular phone
manufacturer.
The Federal Way Building,
Federal Way N/A N/A 100% 3 100% 2 100% 2 Property/casualty
insurance
company; gasoline
company.
Federal Way Building II,
Federal Way N/A N/A 100% 4 100% 3 88% 3 Producer of
semiconductor/
computer
technology
components;
financial advisor
and lender; and
insurance
company.
Nevada
U. S. Bank Centre, Reno 94% 1 99% 1 100% 2 90% 2 80% 2 Insurance
services; mining.
* Presented as held for sale in the accompanying balance
sheet as of December 31, 2001.
Lease Expirations - Real Estate Portfolio
The following table presents lease expirations for each
of the ten years and thereafter beginning January 1, 2002.
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
------- ---------- ----------- ------------
2002 92 729,607 11.3%
2003 85 924,329 14.3
2004 106 1,659,100 25.6
2005 84 1,354,188 20.9
2006 46 642,244 9.9
2007 13 505,084 7.8
2008 6 39,109 0.6
2009 4 124,480 1.9
2010 6 365,875 5.7
2011 and thereafter 2 130,200 2.0
--- --------- ------
Total 444 6,474,216 100.0%
--- --------- ------
--- --------- ------
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 2001.
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 BUILDINGS
Northern California
Building #3 at Contra Costa $19,099 1 21,840 21,840 $8.28 Feb. 05 None
Diablo Ind. Park, Concord $1.01/100
Building #8 at Contra Costa $28,564 1 31,800 31,800 $11.61 Dec. 05 1-5 yr.
Diablo Ind. Park, Concord $1.01/100
Building #18 at Mason $21,203 2 28,836 7,225 $7.68 May 03 None
Industrial Park, Concord $1.01/100 4,825 $9.00 Feb. 06 None
Milpitas Town Center, $72,620 4 102,620 23,924 $18.00 Apr. 04 1-1 yr.
Milpitas $1.10/100 1-5 yr.
24,426 $11.28 Apr. 04 1-1 yr.
1-2 yr.
30,840 $15.00 Jul. 03 1-5 yr.
23,430 $14.16 Jan. 05 None
598 Gibraltar Drive, $48,446 1 45,090 45,090 $19.97 Apr. 05 None
Milpitas $1.10/100
Auburn Court, $48,994 4 68,030 16,095 $15.60 Jul. 04 None
Fremont $1.04/100 12,060 $14.40 Apr. 03 None
15,755 $15.00 Mar. 03 None
18,160 $22.05 Jul. 05 None
47650 Westinghouse Drive, $16,546 1 24,030 24,030 $10.80 Sep. 04 None
Fremont $1.04/100
410 Allerton, $27,222 1 46,050 46,050 $9.60 Apr. 06 None
South San Francisco $1.02/100
400 Grandview, $83,462 4 107,004 21,841 $8.19 Dec. 03 None
South San Francisco $1.02/100 43,642 $6.72 Mar. 06 None
18,789 $9.17 May 04 None
18,864 $6.84 Jan. 03 None
342 Allerton, $55,487 4 69,312 19,751 $11.40 Mar. 03 None
South San Francisco $1.02/100 9,720 $9.85 Mar. 05 None
30,953 $15.60 Feb. 06 None
8,888 $10.53 Aug. 02 None
301 East Grand, $34,540 3 57,846 26,240 $8.77 Jun. 03 None
South San Francisco $1.02/100 17,206 $5.29 Dec. 03 None
14,400 $9.00 Jan. 05 1-5 yr.
Fourier Avenue, $108,302 1 104,400 104,400 $10.67 Apr. 04 None
Fremont $1.04/100
Lundy Avenue, $53,410 2 60,428 49,342 $15.60 Apr. 06 1-5 yr.
San Jose $1.09/100 11,086 $15.60 Jul. 04 1-5 yr.
115 Mason Circle, $19,780 5 35,000 5,833 $7.05 Apr. 05 None
Concord $1.01/100 5,832 $8.40 Jul. 04 None
8,154 $7.92 Aug. 02 None
7,296 $7.00 Nov. 02 1-3 yr.
7,885 $7.66 Apr. 03 None
47600 Westinghouse Drive, $17,194 1 24,030 24,030 $11.64 Oct. 03 1-3 yr.
Fremont $1.04/100
860-870 Napa Valley Corporate $84,946 2 67,775 17,551 $13.20 Feb. 03 None
Way, Napa $1.03/100 7,558 $11.02 MTM None
47633 Westinghouse Drive, $54,631 1 50,088 50,088 $12.55 Oct. 03 1-3 yr.
Fremont $1.04/100
47513 Westinghouse Drive, $104,348 2 65,385 35,132 $16.56 Feb. 05 1-5 yr.
Fremont $1.04/100 30,253 $15.60 Feb. 04 1-5 yr.
Bordeaux Centre, $161,673 5 150,000 22,075 $8.10 Nov. 07 2-5 yr.
Napa $1.03/100 16,076 $7.55 Nov. 07 1-5 yr.
51,790 $6.11 Jan. 04 1-5 yr.
18,434 $6.19 Dec. 04 1-5 yr.
16,180 $8.90 May 05 1-5 yr.
O'Toole Business Park, $119,894 1 122,320 14,005 $22.20 Apr. 03 None
San Jose $1.09/100
6500 Kaiser Drive, $170,711 1 78,611 78,611 $10.20 Sep. 04 2-5 yr.
Fremont $1.04/100
Bedford Fremont Business $147,291 1 146,509 71,532 $16.92 Jul. 03 1-3 yr.
Center, Fremont $1.04/100
Spinnaker Court, $151,274 3 98,500 53,380 $22.80 Mar. 04 None
Fremont $1.04/100 24,350 $10.51 Mar. 05 None
20,770 $28.35 Nov. 05 1-5 yr.
2277 Pine View Way, $107,348 1 120,480 120,480 $7.61 Mar. 07 2-5 yr.
Petaluma $1.07/100
The Mondavi Building, $103,711 1 120,157 120,157 $5.42 Sep. 12 1-5 yr.
Napa $1.03/100
Monterey Commerce $23,780 1 28,020 28,020 $15.60 Dec. 05 1-5 yr.
Center 2, Monterey $1.00/100
Monterey Commerce $23,465 4 24,240 3,817 $16.20 Jul. 04 None
Center 3, Monterey $1.00/100 3,050 $14.76 Nov. 03 1-3 yr.
4,448 $15.60 Oct. 05 1-5 yr.
8,350 $17.40 Oct. 05 1-5 yr.
Parkpoint Business Center, $74,844 3 67,869 8,767 $16.20 Dec. 01 None
Santa Rosa $1.09/100 7,894 $16.07 Jan. 02 None
17,505 $16.20 Mar. 03 1-5 yr.
2180 S. McDowell Blvd., $40,999 2 43,197 29,709 $8.53 Mar. 05 None
Petaluma $1.07/100 13,488 $9.12 Feb. 06 1-5 yr.
2190 S. McDowell Blvd., $31,132 2 32,719 17,131 $9.62 Mar. 04 1-5 yr.
Petaluma $1.07/100 15,588 $8.59 Apr. 06 2-5 yr.
Carneros Commons Phase II, $29,815 1 36,885 23,107 $16.14 Oct. 08 2-5 yr.
Napa $1.03/100
Southern California
Dupont Industrial Center, $204,034 1 451,192 183,244 $2.88 Jan. 07 2-5 yr.
Ontario $1.02/100
3002 Dow Business Center, $190,479 0 192,125 N/A N/A N/A N/A
Tustin $1.01/100
Carroll Tech I, $22,644 1 21,936 21,936 $9.84 Nov. 05 2-3 yr.
San Diego $1.11/100
Vista 1, $25,603 1 42,508 42,508 $6.71 Oct. 10 1-10 yr.
Vista $1.03/100
Vista 2, $35,168 1 47,550 47,550 $6.86 Sep. 02 None
Vista $1.03/100
Signal Systems Building, $104,106 1 109,780 109,780 $11.08 Aug. 06 2-5 yr.
San Diego $1.02/100
Carroll Tech II, $36,950 1 37,586 37,586 $14.40 Dec. 01 None
San Diego $1.11/100
2230 Oak Ridge Way, $34,282 1 44,063 44,063 $7.08 Aug. 04 2-5 yr.
Vista $1.01/100
6960 Flanders Drive, $39,913 1 33,144 33,144 $10.80 Jun. 03 None
San Diego $1.11/100
Canyon Vista Center, $71,409 3 63,746 17,591 $7.92 Dec. 04 1-5 yr.
San Diego $1.11/100 18,643 $11.88 Jan. 06 1-3 yr.
27,512 $11.08 May 02 1-5 yr.
6325 Lusk Blvd., $63,286 1 49,942 49,942 $14.59 Jun. 04 1-5 yr.
San Diego $1.11/100
Jurupa Business Center, $18,884 0 41,726 N/A N/A N/A N/A
Ontario $1.02/100
Arizona
Westech Business Center, $137,791 0 143,940 N/A N/A N/A N/A
Phoenix $12.83/100
Westech II, $116,192 3 80,878 14,615 $9.24 Oct. 04 None
Phoenix $12.83/100 11,819 $9.78 Nov. 02 1-2 yr.
11,739 $8.76 Nov. 02 1-2 yr.
2601 W. Broadway, $60,411 1 44,244 44,244 $7.72 Jan. 07 2-5 yr.
Tempe $12.36/100
Phoenix Airport Center #2, $60,044 1 35,768 35,768 $10.50 Aug. 06 1-5 yr.
Phoenix $12.83/100
Phoenix Airport Center #3, $60,207 1 55,122 55,122 $9.00 Jul. 03 1-2 yr.
Phoenix $12.83/100
Phoenix Airport Center #4, $36,684 1 30,504 30,504 $8.36 Jun. 05 1-5 yr.
Phoenix $12.83/100
Phoenix Airport Center #5, $104,337 1 60,000 60,000 $9.56 Sep. 02 1-5 yr.
Phoenix $12.83/100
Butterfield Business Center, $125,720 3 95,746 50,000 $6.30 Aug. 04 2-5 yr.
Tucson $17.57/100 14,982 $2.86 Aug. 04 1-5 yr.
26,026 $8.53 Jun. 04 1-2 yr.
Butterfield Tech Center II, $42,656 4 33,082 7,383 $7.73 Mar. 06 2-5 yr.
Tucson $17.57/100 11,064 $6.72 Sep. 02 1-2 yr.
7,259 $6.68 Dec. 02 1-2 yr.
7,376 $7.32 Nov. 04 None
Greystone Business Park, $96,827 3 60,738 6,520 $11.20 Nov. 04 2-3 yr.
Tempe $12.36/100 34,471 $11.64 Mar. 07 1-3 yr.
19,747 $11.88 Sep. 05 2-5 yr.
Cimarron Business Park, $145,117 1 94,800 13,800 $11.13 Mar. 04 None
Scottsdale $11.68/100
Rio Salado Corporate Centre, $76,646 0 80,322 N/A N/A N/A N/A
Phoenix $12.36/100
Phoenix Tech Center, $36,738 1 39,280 39,280 $9.90 Feb. 05 2-5 yr.
Phoenix $12.79/100
The Adams Brothers Building, $97,050 1 71,345 71,345 $5.02 Jan. 04 2-5 yr.
Phoenix $17.10/100
Bedford Realty Partners, L.P., $187,872 2 101,835 32,729 $9.60 MTM None
Phoenix $17.10/100 30,409 $7.56 Jun. 05 None
Greater Seattle Area
Highlands Campus Building B, $74,292 4 69,821 14,970 $12.65 Aug. 04 1-5 yr.
Bothell $1.28/100 20,831 $12.30 Jan. 05 1-5 yr.
9,412 $11.95 Jul. 08 1-5 yr.
9,201 $16.00 Sep. 05 None
Highlands Campus Building C, $42,927 3 57,478 7,008 $12.36 Jul. 07 1-5 yr.
Bothell $1.28/100 27,251 $15.00 Dec. 07 None
8,780 $13.32 Oct. 08 1-5 yr.
OFFICE BUILDINGS
Northern California
Village Green, $27,465 2 16,795 2,119 $31.17 Oct. 05 None
Lafayette $1.11/100 11,062 $25.59 Mar. 05 None
Carneros Commons Phase I, $32,300 1 40,290 8,900 $14.40 Mar. 06 None
Napa $1.03/100
Canyon Park, $63,625 2 57,667 48,265 $21.69 Feb. 05 2-5 yr.
San Ramon $1.05/100 9,402 $23.08 Jan. 03 None
Crow Canyon Centre, $84,052 2 39,108 19,615 $25.80 Dec. 06 2-5 yr.
San Ramon $1.05/100 16,478 $26.16 Jan. 05 1-5 yr.
Monterey Commerce Center 1, $64,323 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 Drive, $56,751 1 35,100 35,100 $13.56 May 07 1-5 yr.
Petaluma $1.09/100
Southern California
Laguna Hills Square, $67,285 5 51,734 8,474 $29.67 Nov. 10 2-5 yr.
Laguna $1.04/100 7,368 $26.91 Sep. 05 1-5 yr.
6,391 $27.27 Sep. 05 2-5 yr.
9,229 $21.84 Jun. 02 2-3 yr.
5,981 $29.17 Oct. 10 None
Carroll Tech III, $24,824 1 29,307 29,307 $10.38 Mar. 09 1-5 yr.
San Diego $1.11/100
Scripps Wateridge, $200,630 2 123,853 49,295 $13.85 Jul. 06 1-5 yr.
San Diego $1.11/100 74,558 $14.18 Aug. 05 2-3 yr.
Carroll Tech IV, $59,555 1 43,415 43,415 $12.81 Mar. 09 None
San Diego $1.11/100
Colorado
Oracle Building, $280,947 2 90,712 10,043 $18.00 Oct. 11 4-5 yr.
Denver $8.58/100 77,090 $25.00 Sep. 03 None
Texaco Building, $576,540 1 237,055 237,055 $20.06 Jan. 05 2-5 yr.
Denver $7.52/100
Waterpark @ Briarwood Bldg. 1, $83,083 2 29,405 18,295 $13.23 Aug. 05 1-5 yr.
Englewood $11.97/100 11,110 $13.25 Feb. 06 None
Belleview Corp. Plaza II - $108,034 1 81,508 15,644 $17.75 Sep. 06 1-5 yr.
Office, Denver $8.58/100
Waterpark @ Briarwood Bldg. 2, $208,502 3 73,781 14,911 $12.70 Feb. 06 None
Englewood $11.97/100 36,077 $13.14 Oct. 05 None
21,232 $14.14 Oct. 05 2-5 yr.
WaterPark @ Briarwood Bldg. 3, $14,807 1 73,781 16,301 $14.00 Jan. 07 1-5 yr.
Englewood $11.97/100
WaterPark @ Briarwood Bldg. 4, $5,900 1 29,400 29,400 $14.00 Feb. 06 1-5 yr.
Englewood $11.97/100
Bedford Center @ Rampart $674,517 3 165,191 36,857 $13.26 Mar. 04 2-2 yr.
Englewood $10.55/100 41,717 $12.50 Dec. 04 2-2 yr.
55,550 $13.00 Oct. 05 2-3 yr.
Arizona
Executive Center at Southbank, $295,537 4 140,157 38,106 $10.33 Jan. 02 1-5 yr.
Phoenix $17.10/100 17,910 $8.96 Sep. 03 2-5 yr.
30,518 $12.19 Jun. 04 1-5 yr.
21,626 $10.00 Jul. 02 2-5 yr.
Phoenix Airport Center #1, $57,525 3 32,460 19,443 $12.87 Nov. 05 2-5 yr.
Phoenix $12.83/100 4,527 $20.00 Dec. 01 1-5 yr.
4,449 $19.05 Dec. 02 None
Cabrillo Executive Center, $149,141 3 60,321 12,400 $18.23 Aug. 08 None
Phoenix $13.30/100 21,056 $17.50 Dec. 01 None
6,034 $18.79 Oct. 02 1-5 yr.
Mountain Pointe Office Park, $94,314 1 54,584 54,584 $19.20 Oct. 10 1-5 yr.
Phoenix $12.83/100
1355 S. Clearview Avenue, $76,586 1 57,193 57,193 $12.72 Apr. 05 2-5 yr.
Mesa $10.95/100
Greater Seattle Area
Orillia Office Park, $334,984 1 334,255 334,255 $10.50 Feb. 04 None
Renton $1.20/100
Adobe Systems Bldg. 1, $275,351 1 161,117 161,117 $15.53 Jul. 10 2-5 yr.
Seattle $1.14/100
Adobe Systems Bldg. 2, $223,300 2 136,111 93,211 $15.53 Jul. 10 2-5 yr.
Seattle $1.14/100 19,867 $24.17 Nov. 03 None
Highlands Campus Building A $122,975 2 74,559 39,824 $14.56 May 05 2-3 yr.
Bothell $1.28/100 13,498 $15.50 Dec. 04 1-5 yr.
The Federal Way Building, $108,300 2 65,000 32,871 $13.10 Apr. 06 2-3 yr.
Federal Way $1.30/100 26,420 $14.22 Oct. 04 1-5 yr.
Federal Way Building II, $198,686 3 115,032 16,230 $15.00 Jun. 05 1-5 yr.
Federal Way $1.30/100 50,000 $13.44 Aug. 09 2-5 yr.
12,083 $14.99 Apr. 06 None
Nevada
U.S. Bank Centre, $142,094 2 104,324 36,363 $20.40 Oct. 04 None
Reno $3.52/100 13,064 $21.36 Jun. 04 None
Average Base Rent
The following table sets forth the average rent at the end of each year for
the last five years for each property owned as of December 31, 2001 (in
dollars):
Average Base Rent ($/Sq Ft/Yr) At End of Year
1997 1998 1999 2000 2001
------ ------ ------ ------ ------
INDUSTRIAL BUILDINGS:
Northern California
Building #3 at Contra Costa Diablo $6.84 $6.84 $7.80 $8.04 $8.28
Building #8 at Contra Costa Diablo 6.00 6.00 6.72 11.61 11.61
Building #18 at Mason Industrial Park 6.88 6.93 7.22 7.54 8.49
Milpitas Town Center 8.90 10.69 12.74 14.36 14.62
598 Gibraltar Drive 9.48 10.44 10.44 19.20 19.97
Auburn Court 7.80 10.62 11.25 16.13 16.86
47650 Westinghouse Drive 9.00 9.60 10.20 10.80 10.80
410 Allerton 5.16 6.60 7.20 7.80 9.60
400 Grandview 7.03 7.50 7.95 8.27 7.72
342 Allerton 7.57 7.73 9.13 10.40 12.95
301 East Grand 5.58 6.30 6.90 7.42 7.79
Fourier Avenue 8.99 8.99 8.99 8.99 10.67
Lundy Avenue 7.09 7.36 14.40 14.51 15.60
115 Mason Circle 6.22 6.59 6.78 7.21 7.60
47600 Westinghouse Drive 10.20 10.56 10.92 11.28 11.64
860-870 Napa Valley Corporate Way 8.86 9.48 9.90 11.06 11.72
47633 Westinghouse Drive 11.60 11.83 12.06 12.31 12.55
47513 Westinghouse Drive N/A 14.32 14.92 15.52 16.12
Bordeaux Centre N/A 7.33 6.57 7.06 7.26
O'Toole Business Park 10.31 13.81 14.38 17.16 22.09
6500 Kaiser Drive 9.00 9.60 9.60 10.20 10.20
Bedford Fremont Business Center 11.93 14.63 16.39 17.97 20.23
Spinnaker Court 8.01 8.25 8.25 14.72 20.93
2277 Pine View Way 6.91 6.91 7.25 7.25 7.61
The Mondavi Building 4.92 4.92 5.17 5.17 5.42
Monterey Commerce Center 2 14.16 14.64 15.12 15.60 15.60
Monterey Commerce Center 3 14.70 15.22 15.32 15.59 16.35
Parkpoint Business Center N/A 15.19 15.68 16.50 17.03
2180 S. McDowell Blvd. N/A 8.37 11.20 8.28 8.71
2190 S. McDowell Blvd. N/A 8.19 8.39 8.89 9.13
Carneros Commons Phase II* N/A N/A N/A N/A 16.14
Southern California
Dupont Industrial Center 3.40 3.44 3.67 3.82 3.88
3002 Dow Business Center 8.32 8.86 9.52 10.20 10.92
Carroll Tech I 11.93 3.17 9.11 9.47 9.84
Vista 1 0.00 0.00 0.00 3.11 6.71
Vista 2 6.61 6.88 7.15 7.44 6.86
Signal Systems Building 8.11 10.20 10.42 10.79 11.08
Carroll Tech II 11.52 12.00 13.79 14.40 14.40
2230 Oak Ridge Way N/A 6.49 6.63 6.83 7.08
6960 Flanders Drive N/A 9.60 9.98 10.38 10.80
Canyon Vista Center N/A N/A 8.86 10.05 10.44
6325 Lusk Blvd. N/A N/A 12.48 12.98 14.59
Jurupa Business Center * N/A N/A N/A N/A -
Arizona
Westech Business Center 9.44 9.99 9.97 10.37 10.66
Westech II N/A 8.86 8.87 9.63 9.78
2601 W. Broadway 7.14 7.14 7.14 7.43 7.72
Phoenix Airport Center #2 7.20 7.20 7.80 7.80 10.50
Phoenix Airport Center #3 6.36 6.36 7.02 7.02 9.18
Phoenix Airport Center #4 7.20 7.80 7.80 8.36 8.36
Phoenix Airport Center #5 7.21 8.68 8.68 9.56 9.56
Butterfield Business Center 7.08 7.11 6.38 6.45 6.35
Butterfield Tech Center II N/A N/A 6.67 6.85 7.07
Greystone Business Park N/A N/A 10.56 10.85 11.67
Cimarron Business Park N/A 8.94 10.09 10.29 10.53
Rio Salado Corporate Centre N/A N/A N/A 0.00 0.00
Phoenix Tech Center N/A N/A N/A 9.90 9.90
The Adams Brothers Building N/A N/A 4.56 4.69 5.02
Bedford Realty Partners, L.P. N/A N/A 7.21 8.00 8.26
Greater Seattle Area
Highlands Campus Building B N/A N/A N/A 12.34 13.02
Highlands Campus Building C N/A N/A N/A 14.46 14.23
OFFICE BUILDINGS:
- -----------------
Northern California
Village Green $23.24 $23.70 $24.45 $26.69 $27.58
Carneros Commons Phase I N/A N/A N/A 0.00 15.35
Canyon Park 15.92 16.44 16.44 20.92 21.92
Crow Canyon Centre N/A N/A 25.20 25.43 26.66
Monterey Commerce Center 1 20.12 19.78 19.69 20.36 20.68
3880 Cypress Drive N/A 13.08 13.08 13.56 13.56
Southern California
Laguna Hills Square 23.90 24.79 25.17 24.44 25.51
Carroll Tech III 8.52 8.52 9.60 9.98 10.38
Scripps Wateridge 11.41 12.53 13.16 13.40 14.05
Carroll Tech IV N/A N/A 15.00 12.44 12.81
Colorado
Oracle Building 23.37 23.34 23.34 23.34 24.22
Texaco Building N/A 18.05 18.05 20.06 20.06
WaterPark @ Briarwood Bldg. 1 N/A N/A N/A 12.90 13.24
Belleview Corp. Plaza II Office * N/A N/A N/A N/A 17.75
WaterPark @ Briarwood Bldg. 2 N/A N/A N/A 13.18 13.39
WaterPark @ Briarwood Bldg. 3 * N/A N/A N/A N/A 14.00
WaterPark @ Briarwood Bldg. 4 N/A N/A N/A N/A 14.00
Bedford Center @ Rampart N/A N/A N/A 12.73 13.09
Arizona
Executive Center at Southbank 9.23 9.46 9.64 9.89 10.78
Phoenix Airport Center #1 13.81 13.69 13.97 9.97 14.97
Cabrillo Executive Center N/A 16.64 17.03 17.24 18.00
Mountain Pointe Office Park N/A N/A N/A 19.20 19.20
1355 S. Clearview Avenue N/A N/A 12.72 12.72 12.72
Greater Seattle Area
Orillia Office Park 9.35 9.35 9.35 10.50 10.50
Adobe Systems Bldg. 1 N/A 15.53 15.53 15.53 15.53
Adobe Systems Bldg. 2 N/A 22.04 16.71 16.74 17.39
Highlands Campus Building A N/A N/A 12.51 15.06 15.25
The Federal Way Building N/A N/A 12.65 13.77 13.77
Federal Way Building II N/A N/A 14.20 14.31 14.24
Nevada
U.S. Bank Centre 18.59 18.76 19.03 22.48 21.07
* Shell construction completed during 2001; property in lease-up phase.
Tax Information
The following table sets forth tax information of the Company's real
estate investments at December 31, 2001, as follows: (i) Federal tax
basis, (ii) method of depreciation, and (iii) life claimed, with
respect to each property or component thereof for purposes of
depreciation (dollars in thousands):
Federal Depreciation Life
Depreciable assets Tax Basis Method In Years
INDUSTRIAL BUILDINGS
Northern California $ 5,171 MACRS - 200% 5.00
2,841 MACRS - 150% 15.00
3,783 Straight Line 31.50
100,123 Straight Line 39.00
-------
111,918
Southern California 1,562 MACRS - 200% 5.00
871 MACRS - 150% 15.00
43,130 Straight Line 39.00
-------
45,563
Arizona 2,186 MACRS - 200% 5.00
1,210 MACRS - 150% 15.00
48,211 Straight Line 39.00
-------
51,607
Greater Seattle Area 10,345 Straight Line 39.00
-------
Total depreciable assets for
industrial buildings 219,433
-------
OFFICE BUILDINGS
- -----------------
Northern California 2,547 MACRS - 200% 5.00
1,485 MACRS - 150% 15.00
22,038 Straight Line 39.00
-------
26,070
Southern California 2,563 MACRS - 200% 5.00
1,390 MACRS - 150% 15.00
18,085 Straight Line 39.00
-------
22,038
Arizona 2,721 MACRS - 200% 5.00
1,564 MACRS - 150% 15.00
19,093 Straight Line 39.00
-------
23,378
Greater Seattle Area 11,770 MACRS - 200% 5.00
6,274 MACRS - 150% 15.00
79,960 Straight Line 39.00
-------
98,004
Nevada 1,258 MACRS - 200% 5.00
674 MACRS - 150% 15.00
8,924 Straight Line 39.00
-------
10,856
Colorado 6,702 MACRS - 200% 5.00
3,584 MACRS - 150% 15.00
69,440 Straight Line 39.00
-------
79,726
-------
Total depreciable assets for
office buildings 260,072
-------
Grand total $479,505
-------
-------
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 March 15,
2002, the Company had 937 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 2000 and 2001.
Dividend
High Low Per Share
------------------------------------
2000
First Quarter $17.63 $15.63 $.42
Second Quarter 19.44 15.63 .42
Third Quarter 21.06 18.56 .45
Fourth Quarter 20.75 18.00 .45
2001
First Quarter 21.00 18.30 .45
Second Quarter 20.96 18.00 .45
Third Quarter 22.20 18.50 .48
Fourth Quarter 23.24 19.60 .48
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)
2001 2000 1999 1998 1997
Operating Data:
Rental income $ 99,949 $ 97,518 $ 90,527 $ 73,451 $ 46,377
Gain on sales of real
estate investments 5,938 38,171 7,743 - 11,533
Net income 36,723 68,087 39,855 31,496 31,291
Per common share -
assuming dilution:
Income before
extraordinary item $ 2.16 $ 3.69 $ 1.87 $ 1.38 $ 1.94
Net income $ 2.16 $ 3.69 $ 1.86 $ 1.38 $ 1.94
Balance Sheet Data:
Real estate investments $607,654 $ 611,444 $ 651,038 $ 581,458 $ 423,086
Bank loan payable 80,925 77,320 137,156 147,443 8,216
Mortgage loans payable 242,066 224,205 206,880 80,116 60,323
Common and other
stockholders' equity 280,969 299,515 300,180 347,589 346,426
Other Data:
Net cash provided by
operating activities $ 47,580 $ 45,825 $ 45,540 $ 38,949 $ 25,041
Net cash provided (used)
by investing activities (6,707) 70,005 (72,317) (168,018) (180,358)
Net cash provided (used)
by financing activities (38,521) (114,254) 27,075 128,994 155,350
Funds From Operations(1) 47,110 43,864 45,554 42,312 25,582
Dividends declared
per share $ 1.86 $ 1.74 $ 1.56 $ 1.32 $ 1.13
(1) Management considers Funds From Operations to be one measure of the
performance of an equity REIT. Funds From Operations is used by
financial analysts in evaluating REITs and can be one measure of a
REIT's ability to make cash distributions. Presentation of this
information provides the reader with an additional measure to compare
the performance of REITs. Funds From Operations generally is defined
by 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. Funds
From Operations was computed by the Company in accordance with this
definition. It does not represent cash generated by operating
activities in accordance with accounting principles generally accepted
in the United States of America; 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.
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.
Critical Accounting Policies and Estimates
In response to the SEC's Release Numbers 33-8040, "Cautionary Advice
Regarding Disclosure About Critical Accounting Policies," and 33-8056,
"Commission Statement about Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Company has
identified the following critical accounting policies that affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements. The preparation of the Company's
financial statements in conformity with accounting principles generally
accepted in the United States of America requires management of the
Company to make estimates and judgments that affect the reported amounts
of assets and liabilities, revenues and expenses, and related disclosures
of contingent assets and liabilities. On an on-going basis, the Company
evaluates its estimates, including those related to asset impairment,
deferred assets, rental income recognition and allowance for doubtful
accounts. We state these accounting policies in the notes to the
consolidated financial statements and at relevant sections in this
discussion and analysis. These estimates are based on the information
that currently is available and on various other assumptions that are
believed to be reasonable under the circumstances. Actual results could
vary from those estimates and those estimates could be different under
different assumptions or conditions.
Real estate investments are recorded at cost less accumulated
depreciation. The cost of real estate includes the purchase price or
development cost of the properties and other related acquisition costs.
Development costs include interest and real estate taxes incurred during
the construction period and development fees paid to Bedford
Acquisitions, Inc. (BAI). See " Related Party Transactions" for a
description of BAI. Expenditures for maintenance and repairs that do not
add to the value or prolong the useful life of the property are expensed.
Expenditures for asset replacements or significant improvements that
extend the life or increase the property's value are capitalized. Real
estate properties are depreciated using the straight-line method over
estimated useful lives. When circumstances such as adverse market
conditions indicate an impairment of a property, the Company will
recognize a loss to the extent that the carrying value exceeds the fair
value of the property. Real estate investments that are considered held
for sale are carried at the lower of carrying amount or fair value less
costs to sell and such properties are no longer depreciated.
Costs incurred for debt financing and property leasing are capitalized
as deferred costs. Deferred loan costs include amounts paid to lenders
and others to obtain financing and amounts paid to BAI. Such costs are
amortized over the term of the related loan. Amortization of deferred
financing costs is included in interest expense in the Company's income
statement. Deferred leasing costs include leasing commissions that are
amortized using the straight-line method over the term of the related
lease. Deferred leasing costs are included with the basis when a
property is sold and therefore reduce the gain on sale. Unamortized
financing and leasing costs are charged to expense in the event of debt
prepayment or early termination of the lease.
Base rental income is recognized on a straight-line basis over the terms
of the respective lease agreements. Differences between rental income
recognized and amounts contractually due under the lease agreements are
credited or charged, as applicable, to rent receivable. The amount of
straight-line rent receivable is charged against income upon early
termination of a lease or as a reduction of gain on sale of the property.
The Company maintains an allowance for doubtful accounts for estimated
losses resulting from the inability of tenants to make required payments,
which results in a reduction to income. Management determines the
adequacy of this allowance by continually evaluating individual tenant
receivables considering the tenant's financial condition, security
deposits, letters of credit, lease guarantees and current economic
conditions.
Results of Operations
The Company's operations consist of developing, owning and operating
industrial and suburban office properties located primarily in the
western United States.
Variances 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:
2001 2000 1999
Number of Square Number of Square Number of Square
Properties Feet Properties Feet Properties Feet
------------------ ------------------- -------------------
Acquisitions
- ------------
Industrial - - - - 5 334,000
Office - - 1 165,000 4 280,000
------------------ ------------------- -------------------
- - 1 165,000 9 614,000
------------------ ------------------- -------------------
------------------ ------------------- -------------------
Development
- -----------
Industrial 1 37,000 3 160,000 2 235,000
Office 4 185,000 2 103,000 3 154,000
------------------ ------------------- -------------------
5 222,000 5 263,000 5 389,000
------------------ ------------------- -------------------
------------------ ------------------- -------------------
Sales
- -----
Industrial 3 290,000 15 917,000 3 448,000
Office 1 52,000 5 314,000 1 114,000
------------------ ------------------- -------------------
4 342,000 20 1,231,000 4 562,000
------------------ ------------------- -------------------
------------------ ------------------- -------------------
Comparison of 2001 to 2000
Income from Property Operations
- --------------------------------
Income from property operations (defined as rental income less rental
expenses) increased $463,000 or 1% in 2001 compared with 2000. This is
due to an increase in rental income of $2,431,000, partially offset by
an increase in rental expenses (which include operating expenses, real
estate taxes, and depreciation and amortization) of $1,968,000.
The increase in rental income and expenses is primarily attributable to
the property acquired in 2000 and properties developed during 2001 and
2000. These acquisition and development activities increased rental
income and rental expenses in 2001 by $5,191,000 and $3,230,000,
respectively, as compared to 2000. These increases were partially offset
by the sale of fifteen industrial properties and five office properties
in 2000, and the sale of three industrial properties and one office
property in 2001, which resulted in a reduction in rental income and
rental expenses of $9,392,000 and $3,175,000, respectively, as compared
to 2000. The remaining increase in rental income of $6,632,000 is
primarily due to an increase in rental rates and expense recovery
income. The remaining increase of $1,913,000 in rental expenses is
mainly due to increases in real estate taxes, and depreciation and
amortization expense.
Expenses
- ---------
General and administrative expenses decreased $146,000 or 3% in 2001
compared to 2000, primarily as a result of $120,000 of tax service fees
accrued in 2000 for a cost segregation study performed by the Company's
outside accountants. Interest expense, which includes amortization of
loan fees, decreased $1,705,000 or 7% in 2001 compared with 2000. The
decrease is attributable to lower interest rates on the Company's
variable rate debt and a lower weighted average outstanding debt balance
in 2001 as compared to 2000, partially offset by increased amortization
of loan fees in 2001. The amortization of loan fees was $2,156,000 and
$1,658,000 for 2001 and 2000, respectively. The increase in amortization
of loan fees is due to costs associated with the renewal of the Company's
$150 million revolving credit facility and new mortgage financing.
Other (Expense) Income
- -----------------------
During 2001, the Company recorded $526,000 in other expense. This sum
represents $400,000 for litigation accruals and $126,000 of pre-
development costs incurred for a project in Denver that was subsequently
abandoned due to deterioration in market conditions. 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.
Gain on Sales of Real Estate Investments, Net
- ----------------------------------------------
In the fourth quarter 2001, the Company sold two industrial properties
in Denver, Colorado, an industrial property in Tempe, Arizona, and an
office property in Tucson, Arizona for net sale prices totaling
$19,282,000, which resulted in an aggregate gain of approximately
$5,938,000.
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.
Dividends
- ----------
Common stock dividends to stockholders and distributions to Operating
Partnership (OP) Unitholders declared for the first and second quarters
of 2001 were $0.45 per share or OP Unit, and $0.48 per share or OP Unit
for the third and fourth quarters. Consistent with the Company's policy,
dividends and distributions were paid in the quarter following the
quarter in which they were declared.
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, partially 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.
Expenses
- ---------
General and administrative expenses increased $648,000 or 18% in 2000
compared to 1999, primarily as a result of increased costs in 2000
associated with stock compensation benefits and $120,000 of tax service
fees accrued for a cost segregation study performed by the Company's
outside accountants. 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, the repurchase of shares since November
1998, and higher amortization of loan fees in 2000. The amortization of
loan fees was $1,658,000 and $1,495,000 for 2000 and 1999, respectively.
Other (Expense) 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. The Company did not incur any amounts for
other expense or income during the year 1999.
Gain on Sales of Real Estate Investments, Net
- ----------------------------------------------
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 to stockholders and distributions to OP
Unitholders declared for the first and second quarters of 2000 were $0.42
per share or OP Unit, and $0.45 per share or OP Unit for the third and
fourth quarters. Consistent with the Company's policy, dividends and
distributions were paid in the quarter following the quarter in which
they were declared.
Liquidity and Capital Resources
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 Company's capital expenditures were approximately $5,200,000 in 2001
and $8,900,000 in 2000. These capital expenditures consist primarily of
building improvements, tenant improvements, and lease commissions. The
Company expects to have capital expenditures of approximately $9,900,000
for 2002.
The Company's cash and cash equivalents increased to $5,512,000 at
December 31, 2001, from $3,160,000 at December 31, 2000. This increase
is due to $47,580,000 of cash provided from operations, partially offset
by $38,521,000 and $6,707,000 used by financing activities and investing
activities, respectively.
Net cash of $47,580,000 provided by operating activities consisted
primarily of $51,829,000 of net income adjusted for non-cash items,
offset by $4,249,000 used in working capital and other activities. Net
cash used in working capital and other activities resulted from
expenditures incurred by the Company in acquiring other assets and a
decrease in accounts payable and accrued expenses, partially offset by
an increase in other liabilities.
Net cash of $6,707,000 used for investing activities consisted of cash
used for investments in real estate of $25,989,000, offset by net
proceeds from sales of real estate investments of $19,282,000. Cash used
for investments in real estate of $25,989,000 consists of $20,607,000 in
developments costs, and $5,382,000 of investments in existing properties.
Net cash used by financing activities of $38,521,000 consisted of
repayments of bank borrowings and mortgage loans of $61,552,000, payment
of dividends and distributions of $31,767,000, the repurchase of
1,394,018 shares of stock for $27,346,000, and the redemption of 5,932
shares of OP Units for $131,000, offset by net proceeds from bank
borrowings and mortgage loans of $79,979,000 and net proceeds from stock
options exercised by employees and directors of $2,296,000.
The Company's ability to continue to finance its operations is subject
to several uncertainties. For example, the Company's 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 Company's ability to sell real estate investments is partially
dependent upon the ability of purchasers to obtain financing at
reasonable commercial rates.
In May 2001, the Company renewed its revolving credit facility with a
bank group led by Bank of America. The facility, which matures on June
1, 2004, consists of a $150 million secured line with an accordion
feature which allows the Company at its option to expand the facility to
$175 million, if needed. Interest on the facility is at a floating rate
equal to either the lender's published "reference rate" or LIBOR plus a
margin ranging from 1.30% to 1.55% depending on the Company's leverage
level. As of December 31, 2001, the facility had an outstanding balance
of $80,925,000 and an effective interest rate of 4.99%.
In August 2001, the Company obtained $18 million of mortgage financing
from Washington Mutual Bank. The loan has a 10-year term and bears
interest at a floating rate of a trailing one-year treasury rate plus
2.60% (an effective rate of 7.92% as of December 31, 2001). The trailing
one-year treasury rate, which is calculated by averaging the previous
twelve months' rates, is adjusted every six months with a minimum and
maximum 1% change over the previous six month rate. Proceeds from the
loan were used to pay down a portion of the outstanding balance of the
$150 million line of credit.
In November 2001, the Company obtained $21,819,000 of new first mortgage
financing from Union Bank of California. The financing, a renewal of an
existing mortgage with the same lender, consists of a three-year loan,
bearing interest at a floating rate of LIBOR plus 1.60% (an effective
rate of 4.02% as of December 31, 2001). The old loan, which had an
outstanding balance of approximately $14 million and a maturity date of
January 2, 2002, carried a fixed interest of 7.50%. The $21,819,000
mortgage is collaterized by the same property pool as the expiring loan,
namely nine properties located in California. Proceeds of the new
mortgage loan were used to pay off the expiring mortgage and to pay down
a portion of the outstanding balance of the Company's credit facility.
The Company was in compliance with the covenants and requirements of its
various debt financings during the year ended December 31, 2001. 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.
Contractual Obligations and Commercial Commitments
The following summarizes the Company's contractual obligations and other
commitments at December 31, 2001, and the effect such obligations could
have on its liquidity and cash flow in future periods (in thousands):
Amount of Commitment Expiring by Period
-----------------------------------------------
Less
than 1-3 4-5 Over 5
1 year Years Years Years Total
-----------------------------------------------
Bank Loan Payable $ - $ 80,925 $ - $ - $ 80,925
Mortgage Loans Payable 5,048 48,501 103,822 84,695 242,066
Construction Contract Commitments 1,584 - - - 1,584
Standby Letters of Credit 2,096 - - - 2,096
-----------------------------------------------
Total $8,728 $129,426 $103,822 $84,695 $326,671
-----------------------------------------------
-----------------------------------------------
Related Party Transactions
The Company's activities relating to the acquisition of new properties,
sales of Company owned real estate, development of real property, and
financing arrangements are currently performed by Bedford Acquisitions,
Inc., (BAI), a corporation wholly-owned by Peter Bedford, the Company's
Chairman of the Board and Chief Executive Officer. The Company uses the
services of BAI for its acquisition, disposition, financing and
development activities because the Company incurs expenses related only
to those transactions which are successfully completed rather than
incurring expenses related to unsuccessful efforts and associated
overhead costs. These services have been provided pursuant to written
contracts (renewable annually since January 1, 1995), which provide that
BAI is obligated to provide services to the Company with respect to the
Company's acquisition, disposition, financing and development activities,
and that BAI is responsible for the payment of expenses incurred in
connection therewith. BAI must submit to the Company a cost estimate for
the Company's approval relating to each activity, setting forth the
estimated timing and amount of all projected BAI costs relating to such
activities. Pursuant to the contract, Mr. Bedford is obligated to pay
BAI's expenses described above if BAI fails to make any such payments in
a timely fashion, provided that Mr. Bedford is not obligated to pay any
such amounts exceeding $1 million or following a termination of BAI's
obligations based on the expiration or termination of the term of the
contract.
This arrangement provides that BAI earns a success fee in an amount equal
to 1 1/2% of the purchase price of property acquisitions, 1 1/2% of the
sale price of dispositions, up to 1 1/2% of the amount of any loans (less
third-party commissions), and 7% of the development costs. The total
amount of such fees payable to BAI by the Company is limited to the
lesser of: (i) the aggregate amount of such fees earned, or (ii) the
aggregate amount of approved expenses incurred by BAI through the time
of such acquisition, disposition, financing or development. The current
agreement with BAI has a one-year term expiring December 31, 2002, which
is automatically extended for an additional term of one year unless
either party gives notice of its interest to terminate the agreement by
October 31, 2002.
For the years ended December 31, 2001, 2000, and 1999, the Company paid
BAI an aggregate amount of approximately $2,816,000, $2,431,000 and
$2,783,000, respectively, for acquisition, disposition, financing, and
development activities performed pursuant to the foregoing arrangements.
As of December 31, 2001 and 2000, the Company had an accrued liability
of $1,945,000 and $866,000, respectively, for fees earned by BAI in
excess of amounts paid to BAI by the Company under the agreement. The
Company believes that since the fees charged under the foregoing
arrangements (i) are comparable to those charged by other real estate
service entities or other third party service providers under similar
arrangements and (ii) are charged only for services on successful
acquisitions, dispositions, financings and developed properties, such
fees are properly includable as costs of acquisitions or dispositions or
as capitalized costs of financings and developed properties. If the
Company were to discontinue this arrangement it would first look to other
service providers to meet most if not all of these services. There is
no assurance that the same level of quality and cost effectiveness would
be achieved. Additionally, the Company would likely incur additional
internal costs to administer such services.
If acceptable service providers were not available for all or a part of
these services, the Company would evaluate its needs under circumstances
existing at that time and consider additions to its staff to meet such
requirements. If such services were performed internally, pre-
acquisition costs associated with operating properties and costs
associated with any unsuccessful efforts related to new borrowings would
be expensed. If service levels comparable to those required in 2001,
2000, and 1999 were performed internally at the same expense levels
incurred by BAI, the Company estimates that $744,000, $323,000, and
$1,310,000 could have been expensed in those periods rather than
capitalized and amortized against future periods in the form of
depreciation and amortization. Had such amounts been expensed in those
periods, diluted earnings per share would have been $0.04, $0.02 and
$0.06 less than corresponding amounts actually reported in 2001, 2000,
and 1999, respectively.
At December 31, 2001 and 2000, the Company did not have any other
relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special
purpose entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow
or limited purposes. As such, the Company is not materially exposed to
any financing, liquidity, market or credit risk that could arise if the
Company had engaged in such relationships.
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 different from past performance
or trends. These factors include the following:
Economic Environment
Both the national economy and the economies of the western states in
which the Company owns, manages and develops properties have been and
continue to be in a recession. The early indicators of how this affects
the real estate industry in general, and the Company in particular, are
slightly reduced occupancy rates, flattening of growth in market rental
rates, and reduced activity levels in the flow of prospective tenants for
space currently available for lease.
The Company's property types and locations provide some degree of risk
diversification but are not immune to a prolonged down cycle in the real
estate markets in which the Company operates. Although the Company
believes it is well positioned to meet the challenges ahead, it is
possible that further reductions in occupancy rates and the absence of
rental rate growth, or even reductions in market rental rates, will
result in reduction of rental revenues, operating income, cash flows, and
the market value of the Company's shares. Prolonged recession could also
affect the Company's ability to obtain financing at acceptable rates of
interest and to access funds from the disposition of properties at
acceptable disposition prices.
These conditions and those that follow and many other 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.
Interest Rate Fluctuations
At the present time, borrowings under the Company's credit facility, the
$4.6 million and $21.8 million mortgage loans from Union Bank, the $30.9
million mortgage loans from Security Life of Denver Insurance Company,
and the $18.0 million mortgage loan from Washington Mutual bear interest
at floating rates. The floating interest rate on the $30.9 million
mortgage loans has been fixed for a period of one year with interest swap
agreements which expire on July 1, 2002. The LIBOR rate on the $21.8
million mortgage loan has been fixed for a period of one year. Its
effective interest rate of 4.02% expires on December 20, 2002. 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 2002 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, 2001 was $11,848,000 and $47,110,000, respectively.
During the same periods in 2000, FFO was $10,533,000 and $43,864,000,
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. FFO does not
represent cash generated by operating activities in accordance with
accounting principles generally accepted in the United States of America;
it is not necessarily indicative of cash available to fund cash needs and
should not be considered as an alternative to net income (loss) as an
indicator of the Company's operating performance or as an alternative to
cash flow as a measure of liquidity. Further, FFO as disclosed by other
REITs may not be comparable to the Company's presentation.
Three Months Ended Twelve Months Ended
December 31, December 31,
2001 2000 2001 2000
---- ---- ---- ----
Funds From Operations
(in thousands, except share amounts):
Net income $13,251 $9,490 $36,723 $68,087
Add:
Depreciation and amortization 4,501 3,752 16,183 13,812
Minority interest 34 35 142 136
(Gain) on sales of real
estate investments, net (5,938) (2,744) (5,938) (38,171)
------- ------- ------- --------
Funds From Operations $11,848 $10,533 $47,110 $43,864
------- ------- ------- --------
------- ------- ------- --------
Weighted average number of
shares - diluted 16,531,537 17,666,761 17,045,493 18,501,905
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
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. While the Company has entered into interest swap
agreements to minimize its exposure to interest rate fluctuations, 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
2002 2003 2004 2005 2006 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
Variable rate LIBOR
debt $ 1,333 $ 1,840 $102,950 $28,842 $ 541 $15,551 $151,057 $151,057
Weighted average
interest rate 5.19% 4.82% 4.80% 3.95% 7.92% 7.92% 4.97% 4.97%
Fixed rate debt $ 3,715 $21,278 $ 3,358 $27,710 $46,729 $69,144 $171,934 $181,813
Weighted average
interest rate 7.11% 7.07% 7.36% 7.19% 7.67% 7.17% 7.30% 6.00%
As the table incorporates only those exposures that exist as of December
31, 2001, 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.
On June 18, 2001, the Company entered into interest swap agreements with
United California Bank. The swap agreements allow the Company to hedge
its exposure to variable interest rates on two mortgages with remaining
principal balances totaling $26,425,000 by effectively paying a fixed
rate of interest over the term of the swap agreement. Interest rate pay
differentials that arise under these swap agreements are recognized in
interest expense over the term of the contracts. These interest rate
swap agreements were considered to be fully effective in hedging the
variable rate risk associated with the two mortgages.
The following summarizes the principal value and fair value of the
Company's interest swap contracts. The principal value at December 31,
2001 provides an indication of the extent of the Company's involvement
in these contracts but does not represent exposure to credit, interest
rate or market risks (dollars in thousands):
Principal Fixed Contract Cumulative Approximate Liability
Amount (1) Rate Maturity Cash Paid, Net at December 31, 2001 (2)
- ---------- ----- -------- ----------- ----------------------------
$22,878 5.55% July 1, 2002 $128 $268
3,547 5.55% July 1, 2002 29 42
------ --- ---
$26,425 $157 $310
------ --- ---
------ --- ---
(1) The principal amount is included in the table of
qualitative and quantitative disclosure about market risk as
variable rate LIBOR debt and fixed rate debt, as applicable.
(2) Represents the approximate amount which the Company would
have paid as of December 31, 2001 if the swap contracts
were terminated.
To determine the fair values of derivative instruments in accordance with
SFAS 133, the Company uses the discounted cash flow method, which
requires the use of assumptions about market conditions and risks
existing at the balance sheet date. Considerable judgment is required
in interpreting market data to develop estimates of market value.
Accordingly, estimated fair value is a general approximation of value,
and such value may or may not actually be realized.
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 16, 2002.
PART IV
- -------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
- ----------------------------------------------------------------------
8-K
- ----
A. 1. Financial Statements
Page
----
Independent Auditors' Report. F1
Consolidated Balance Sheets as of
December 31, 2001 and 2000. F2
Consolidated Statements of Income for the years
ended December 31, 2001, 2000 and 1999. F3
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 2001, 2000
and 1999. F4
Consolidated Statements of Cash Flows for the years
ended December 31, 2001, 2000 and 1999. F5
Notes to Consolidated Financial Statements. F6
2. Financial Statement Schedule
Page
----
Schedule III - Real Estate and Accumulated Depreciation F24
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) Articles of Amendment of Charter of Bedford Property
Investors, Inc. is incorporated herein by reference to
Exhibit 4.2 of the Company's Amendment No. 1 to its
Registration Statement on Form S-2/A (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 are
incorporated herein by reference to Exhibit 3.2 to the
Company's Form 10-K for the year ended December 31,
2000.
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., is incorporated
herein by reference to Exhibit 10.6 (a) to the
Company's Form 10-K for the year ended December 31,
2000.
10.6(b) Amendment to BPIA Agreement dated as of January 1, 1997
is incorporated herein by reference to Exhibit 10.6(b)
to the Company's Form 10-K for the year ended December
31, 2000.
10.6(c) Second Amendment to BPIA Agreement dated as of January
1, 1999 is incorporated herein by reference to Exhibit
10.6(c) to the Company's Form 10-K for the year ended
December 31, 2000.
10.6(d) Third Amendment to BPIA Agreement dated as of December
10, 2000 is incorporated herein by reference to Exhibit
10.6(d) to the Company's Form 10-K for the year ended
December 31, 2000.
10.6(e) Fourth Amendment to BPIA Agreement dated as of December
10, 2000 is incorporated herein by reference to Exhibit
10.6(e) to the Company's Form 10-K for the year ended
December 31, 2000.
10.6(f)* Fifth Amendment to BPIA Agreement dated as of November
10, 2001.
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.
10.18 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.
10.34 Form of Retention Agreement is incorporated herein by
reference to Exhibit 10.34 to the Company's Form 10-K
for the year ended December 31, 2000.
10.35 Fifth Amended and Restated Credit Agreement among
Bedford Property Investors, Inc., The Banks Party
Hereto, Bank of America, NA, as Administrative Agent
for The Banks, Union Bank of California, NA, as Co-
Agent, and Banc of America Securities LLC, as Sole Lead
Arranger and Sole Book Manager, dated May 18, 2001 is
incorporated herein by reference to Exhibit 10.35 to
the Company's Form 10-Q for the quarter ended June 30,
2001.
10.36 Promissory Note, dated as of July 23, 2001, between
Bedford Property Investors, Inc. as Borrower and
Washington Mutual Bank as Lender is incorporated herein
by reference to Exhibit 10.36 to the Company's Form 10-
Q for the quarter ended June 30, 2001.
10.37 Interest Rate Protection Agreement, dated as of June
18, 2001, between Bedford Property Investors, Inc. and
United California Bank, formerly Sanwa Bank California
is incorporated herein by reference to Exhibit 10.37 to
the Company's Form 10-Q for the quarter ended June 30,
2001.
10.38 Interest Rate Protection Agreement, dated as of June
18, 2001, between Bedford Property Investors, Inc. and
United California Bank, formerly Sanwa Bank California,
is incorporated herein by reference to Exhibit 10.38 to
the Company's Form 10-Q for the quarter ended June 30,
2001.
10.39 Master Agreement, dated as of May 15, 2001, between
Bedford Property Investors, Inc. and United California
Bank, formerly Sanwa Bank California, is incorporated
herein by reference to Exhibit 10.39 to the Company's
Form 10-Q for the quarter ended June 30, 2001.
10.40* Amended and Restated Promissory Note, dated as of
November 19, 2001, between Bedford Property Investors,
Inc. as borrower and Union Bank of California, N.A. as
lender.
12* Ratio of Earnings to Fixed Charges.
23.1* Consent of KPMG LLP, independent auditors.
* 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 audited the consolidated 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, 2001
and 2000, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the related consolidated
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 11, 2002
BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2000
(in thousands, except share and per share amounts)
2001 2000
- ----------------------------------------------------------------------
Assets:
Real estate investments:
Industrial buildings $303,563 $305,857
Office buildings 328,619 310,882
Operating properties held for sale 11,157 5,226
Properties under development - 13,702
Land held for development 13,469 11,721
- ----------------------------------------------------------------------
656,808 647,388
Less accumulated depreciation 49,154 35,944
- ----------------------------------------------------------------------
607,654 611,444
Cash and cash equivalents 5,512 3,160
Other assets 22,728 19,562
- ----------------------------------------------------------------------
$635,894 $634,166
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Bank loan payable $ 80,925 $ 77,320
Mortgage loans payable 242,066 224,205
Accounts payable and accrued expenses 11,653 15,665
Dividends and distributions payable 7,962 8,005
Other liabilities 11,184 8,227
- ----------------------------------------------------------------------
Total liabilities 353,790 333,422
- ----------------------------------------------------------------------
Minority interest in consolidated partnership 1,135 1,229
- ----------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $0.02 per share;
authorized 50,000,000 shares;
issued and outstanding 16,515,200
shares in 2001 and 17,709,738 shares in 2000 330 354
Additional paid-in capital 292,731 316,084
Accumulated dividends in
excess of net income (11,782) (16,923)
Accumulated other comprehensive loss (310) -
- ----------------------------------------------------------------------
Total stockholders' equity 280,969 299,515
- ----------------------------------------------------------------------
$635,894 $634,166
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
(in thousands, except share and per share amounts)
2001 2000 1999
- ------------------------------------------------------------------------------------------------
Property operations:
Rental income $99,949 $97,518 $90,527
Rental expenses:
Operating expenses 16,122 16,814 14,550
Real estate taxes 9,209 8,920 8,074
Depreciation and amortization 16,183 13,812 13,016
- ------------------------------------------------------------------------------------------------
Income from property operations 58,435 57,972 54,887
General and administrative expenses (4,063) (4,209) (3,561)
Interest income 202 500 182
Interest expense (23,121) (24,826) (18,970)
Other (expense) income (526) 615 -
- ------------------------------------------------------------------------------------------------
Income before gain on sales of real
estate investments and minority interest 30,927 30,052 32,538
Gain on sales of real estate investments, net 5,938 38,171 7,743
Minority interest (142) (136) (128)
- ------------------------------------------------------------------------------------------------
Income before extraordinary item 36,723 68,087 40,153
Extraordinary item-loss on early extinguishment of debt - - (298)
- ------------------------------------------------------------------------------------------------
Net income $36,723 $68,087 $39,855
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Earnings per share - basic:
Income before extraordinary item $ 2.19 $ 3.73 $ 1.88
Extraordinary item-loss on early extinguishment of debt - - (0.01)
- ------------------------------------------------------------------------------------------------
Net income per share - basic $ 2.19 $ 3.73 $ 1.87
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Weighted average number of shares - basic 16,747,498 18,236,512 21,267,088
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Earnings per share - diluted:
Income before extraordinary item $ 2.16 $ 3.69 $ 1.87
Extraordinary item-loss on early extinguishment of debt - - (0.01)
- ------------------------------------------------------------------------------------------------
Net income per share - diluted $ 2.16 $ 3.69 $ 1.86
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Weighted average number of shares - diluted 17,045,493 18,501,905 21,477,013
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(in thousands, except per share amounts)
Accumulated Accumulated Total
Additional dividends other stock-
Common paid-in in excess of comprehensive holders'
stock capital net income loss equity
- ------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 453 $407,760 $(60,624) $ - $347,589
Issuance of common stock 6 1,001 - - 1,007
Repurchase and retirement of common
stock (67) (56,518) - - (56,585)
Amortization of deferred compensation - 977 - - 977
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 3,221 - - 3,229
Repurchase and retirement of common
stock (46) (41,892) - - (41,938)
Amortization of deferred compensation - 1,535 - - 1,535
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
Issuance of common stock 4 2,254 - - 2,258
Repurchase and retirement of common
stock (28) (27,318) - - (27,346)
Amortization of deferred compensation - 1,711 - - 1,711
Dividends to common stockholders
($1.86 per share) - - (31,582) - (31,582)
- ------------------------------------------------------------------------------------------------
Subtototal 330 292,731 (48,505) - 244,556
- ------------------------------------------------------------------------------------------------
Net income - - 36,723 - 36,723
Other comprehensive loss - - - (310) (310)
- ------------------------------------------------------------------------------------------------
Comprehensive income (loss) - - 36,723 (310) 36,413
- ------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $ 330 $292,731 $(11,782) $(310) $280,969
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(in thousands)
2001 2000 1999
- ------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 36,723 $ 68,087 $ 39,855
Adjustments to reconcile net income to net cash provided
by operating activities:
Minority interest 142 136 128
Depreciation and amortization 18,686 15,767 14,212
Stock compensation amortization 1,711 1,535 -
Uncollectible accounts expense 505 42 247
Gain on sales of real estate investments, net (5,938) (38,171) (7,743)
Change in other assets (3,393) (6,857) (4,683)
Change in accounts payable and accrued expenses (3,503) 4,931 1,534
Change in other liabilities 2,647 355 1,990
- ------------------------------------------------------------------------------------------------
Net cash provided by operating activities 47,580 45,825 45,540
- ------------------------------------------------------------------------------------------------
Investing Activities:
Investments in real estate (25,989) (60,576) (96,558)
Proceeds from sales of real estate investments, net 19,282 130,581 24,241
- ------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities (6,707) 70,005 (72,317)
- ------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from bank loan payable 55,162 79,624 141,972
Repayments of bank loan payable (53,659) (139,778) (152,657)
Proceeds from mortgage loans payable, net of loan costs 24,817 30,153 134,208
Repayments of mortgage loans payable (7,893) (13,566) (8,995)
Issuance of common stock 2,296 3,229 2,004
Repurchase and retirement of common stock (27,346) (41,938) (56,585)
Redemption of partnership units (131) - (160)
Payment of dividends and distributions (31,767) (31,978) (32,712)
- ------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (38,521) (114,254) 27,075
- ------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 2,352 1,576 298
Cash and cash equivalents at beginning of year 3,160 1,584 1,286
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 5,512 $ 3,160 $ 1,584
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
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 $ 21,149 $ 23,372 $ 16,624
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
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.
Critical Accounting Policies and Use of Estimates
- --------------------------------------------------
In response to the SEC's Release Number 33-8040, "Cautionary Advice
Regarding Disclosure About Critical Accounting Policies," the Company
identifies the following critical accounting areas that affect its
more significant judgments and estimates used in the preparation of
its consolidated financial statements. The related accounting
policies are included in this and other notes to the consolidated
financial statements and, as appropriate, in Management's Discussion
and Analysis of Financial Condition and Results of Operations.
The preparation of the Company's 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. On an on-going basis, the
Company evaluates its estimates, including those related to asset
impairment, deferred assets, rental income recognition and allowance
for doubtful accounts. These estimates are based on the information
that currently is available and on various other assumptions that are
believed to be reasonable under the circumstances. Actual results
could vary from those estimates and those estimates could be different
under different assumptions or conditions.
Principles of Consolidation
- ----------------------------
The consolidated financial statements include the accounts of the
Company and Bedford Realty Partners, L.P. All significant
inter-entity balances have been eliminated in consolidation.
Real Estate Investments
- ------------------------
Real estate investments are recorded at cost less accumulated
depreciation. The cost of real estate includes the purchase price or
development cost of the properties and other related acquisition costs
including amounts paid to BAI (see Note 5). Development costs include
interest and real estate taxes incurred during the construction period
and development fees paid to BAI (see Note 5). Expenditures for
maintenance and repairs that do not add to the value or prolong the
useful life of the property are expensed. Expenditures for asset
replacements or significant improvements that extend the life or
increase the property's value are capitalized. Real estate investment
costs are depreciated using the straight-line method over estimated
useful lives as follows: building improvements - 45 years; tenant
improvements - term of related lease. The depreciable cost for
buildings in development is based on the percentage of leased space
until the building becomes fully leased or one year after shell
completion. When circumstances such as adverse market conditions
indicate an impairment of a property, the Company will recognize a
loss to the extent that the carrying value exceeds the fair value of
the property. As of December 31, 2001 and 2000, none of the Company's
real estate assets was considered impaired. Real estate investments
that are considered held for sale are carried at the lower of carrying
amount or fair value less costs to sell and such properties are no
longer depreciated.
Rental Income Recognition
- --------------------------
Base rental income is recognized on a straight-line basis over the
terms of the respective lease agreements. Differences between rental
income recognized and amounts contractually due under the lease
agreements are credited or charged, as applicable, to rent receivable.
The excess of straight-line rental income over contractual rental
income increased revenue by $1,055,000, $2,597,000, and $2,797,000 for
2001, 2000, and 1999, respectively. Straight-line rent receivable is
included with the basis of a property and therefore reduces gain when
the property is sold. Rental payments received before they are
recognized as income are recorded as prepaid income. Most of the
Company's lease agreements provide for recovery of some or all of the
property operating expenses and real estate taxes. Property operating
expense reimbursements, real estate tax reimbursements, and other
recoverable costs are recognized in the period during which the
related expenses are incurred. The Company maintains an allowance for
doubtful accounts for estimated losses resulting from the inability of
tenants to make required payments, which results in a reduction to
rental income. Management determines the adequacy of this allowance
by continually evaluating individual tenant receivables considering
the tenant's financial condition, security deposits, letters of
credit, lease guarantees, and current economic conditions.
Deferred Financing and Leasing Costs
- -------------------------------------
Costs incurred for debt financing and property leasing are capitalized
as deferred costs. Deferred loan costs include amounts paid to
lenders to obtain financing and financing fees paid to BAI (see Note
5). Such costs are amortized on a straight-line basis, which
approximates the interest method, over the term of the related loan.
Amortization of deferred financing costs is included in interest
expense in the Company's income statement. Deferred leasing costs
include leasing commissions that are amortized using the straight-line
method over the term of the related lease. Unamortized deferred
leasing costs are included with the basis when a property is sold and
therefore reduce the gain on sale. Unamortized financing and leasing
costs are charged to expense in the event of prepayment of the debt or
early termination of the lease.
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") that is distributed
to its stockholders, provided that at least 90% of Taxable Income is
distributed and other requirements are met. The Company believes it
is in compliance with the Code.
As of December 31, 2001, 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, there may
be little or no value realized from such carryforwards.
For federal income tax purposes, dividend distributions made for 2001
were classified 80% as ordinary, 3% as unrecaptured section 1250 gain,
and 17% capital gain; dividend distributions made for 2000 were
classified 2% as ordinary, 19% as unrecaptured section 1250 gain, and
79% as capital gain; dividend distributions made for 1999 were
classified 97% as ordinary and 3% as capital gain. The determination
of the tax treatment for dividend distributions is based on the
Company's earnings and profits. Income reported for financial
reporting purposes will differ from earnings and profits for federal
income tax purposes primarily due to differences in the estimated
lives used to calculate depreciation.
Derivative Instruments and Hedging Activities
- ----------------------------------------------
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities," as amended. SFAS 133, as
amended, establishes accounting and reporting standards for derivative
financial instruments. Specifically, SFAS 133 requires an entity to
recognize all derivatives as either assets or liabilities in the
statement of financial position and to measure those instruments at
fair value. Additionally, the fair value adjustments will affect
either other comprehensive income or net income depending on whether
the derivative instrument qualifies as a hedge for accounting purposes
and, if so, the nature of the hedging activity. The adoption of SFAS
133 did not have a material impact on the Company's financial
statements (see Note 9).
The Company believes that its hedging derivative instruments are
effective in reducing the interest rate risk exposure that they are
designated to hedge. This effectiveness is essential for qualifying
for hedge accounting. Instruments that meet the hedging criteria are
formally designated as hedges at the inception of the derivative
contract and changes in the fair value of the instrument are included
in other comprehensive income until the instrument matures. When the
terms of an underlying transaction are modified, or when the
underlying hedged item ceases to exist, all changes in the fair value
of the instrument are included in net income each period until the
instrument matures. Any derivative instrument used for risk
management that does not meet the hedging criteria is marked-to-market
with changes in value included in net income for each period.
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.
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.
Cash and Cash Equivalents
- --------------------------
The Company considers all demand deposits, money market accounts and
temporary cash investments 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.
Reclassifications
- ------------------
Certain prior year accounts have been reclassified to conform to the
current year presentation.
Recent Accounting Pronouncements
- ---------------------------------
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which addresses financial accounting and reporting
for acquired goodwill and other intangible assets and supersedes APB
Opinion No. 17, "Intangible Assets." The Company will adopt SFAS No.
142 effective January 1, 2002. The Company has determined that the
adoption of SFAS No. 142 will not have a material impact on the
Company's financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." SFAS No. 144 applies to all
long-lived assets (including discontinued operations). SFAS No. 144
requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value less cost to sell.
The Company will adopt SFAS No. 144 effective January 1, 2002. The
Company has determined that the adoption of SFAS No. 144 will not have
a material impact on the Company's financial statements.
Note 2 - Real Estate Investments
- ---------------------------------
As of December 31, 2001, 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 58 $303,563 46%
Office buildings 29 328,619 50%
Operating properties held for sale 3 11,157 2%
Land held for development 11 13,469 2%
--------------------------------
Total 101 $656,808 100%
--------------------------------
--------------------------------
Note 2 - Real Estate Investments (continued)
- ---------------------------------------------
The following table sets forth the Company's real estate investments
as of December 31, 2001 (in thousands):
Less
Development Accumulated
Land Building In-Progress Depreciation Total
------------------------------------------------------------
Industrial buildings
- --------------------
Northern California $ 43,485 $108,811 $ - $14,814 $137,482
Arizona 18,750 53,593 - 5,887 66,456
Southern California 19,197 45,518 - 5,459 59,256
Greater Seattle Area 3,409 10,800 - 1,329 12,880
------------------------------------------------------------
Total industrial buildings 84,841 218,722 - 27,489 276,074
------------------------------------------------------------
Office buildings
- ----------------
Northern California 5,665 20,486 - 1,771 24,380
Arizona 10,622 25,601 - 2,151 34,072
Southern California 9,361 22,035 - 2,369 29,027
Colorado 13,935 90,312 - 5,030 99,217
Greater Seattle Area 16,811 100,837 - 8,408 109,240
Nevada 2,102 10,852 - 1,203 11,751
------------------------------------------------------------
Total office buildings 58,496 270,123 - 20,932 307,687
------------------------------------------------------------
Operating properties held for sale
- ----------------------------------
Northern California 1,831 9,326 - 733 10,424
------------------------------------------------------------
Total operating properties held
for sale 1,831 9,326 - 733 10,424
------------------------------------------------------------
Land held for development
- -------------------------
Northern California 5,717 - - - 5,717
Arizona 645 - - - 645
Southern California 3,168 - - - 3,168
Colorado 3,939 - - - 3,939
------------------------------------------------------------
Total land held for development 13,469 - - - 13,469
------------------------------------------------------------
Total as of December 31, 2001 $158,637 $498,171 $ - $49,154 $607,654
------------------------------------------------------------
------------------------------------------------------------
Total as of December 31, 2000 $160,997 $476,999 $9,392 $35,944 $611,444
------------------------------------------------------------
------------------------------------------------------------
</table>
Company personnel directly manage all but one of the Company's
properties from regional offices in Lafayette, California; Tustin,
California; Phoenix, Arizona; Denver, Colorado; and Seattle,
Washington. The Company has
retained an outside manager to assist in some of the management
functions for the U.S. Bank Centre in Reno, Nevada. All financial
record-keeping is centralized at the Company's corporate office in
Lafayette, California.
Income from property operations for operating properties held for sale
as of December 31, 2001 was $1,110,000, $855,000, and $915,000 for the
year ended December 31, 2001, 2000, and 1999, respectively.
During 2001, 2000, and 1999, the Company capitalized interest costs
relating to properties under development totaling $1,303,000,
$1,964,000, and $2,148,000, 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 approximately 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, 2001, the Company has redeemed
36,437 OP Units for cash.
Effective January 15, 2002, the Company exercised its option to redeem
the remaining outstanding 72,060 OP Units of the limited partners of
Bedford Realty Partners, L.P. The OP Units were redeemed by either
(i) issuing Company common stock at the rate of one share of common
stock for each OP Unit, or (ii) paying cash to the limited partner
based on the closing trading price of its common stock, whichever the
limited partner preferred. Effective January 15, 2002, the operating
property, Diablo Business Center, a nine building service center flex
complex which was held in the Bedford Realty Partners' partnership, is
wholly-owned by the Company.
Note 4 - Leases
- ----------------
Minimum future lease payments to be received as of December 31, 2001
are as follows (in thousands):
<table>
<s>
<c> <c>
2002 $ 79,800
2003 73,784
2004 56,049
2005 35,048
2006 20,116
Thereafter 38,561
-------
$303,358
-------
-------
</table>
The total minimum future lease payments shown above do not include
tenants' obligations for reimbursement of operating expenses or taxes
as provided by the terms of certain leases.
Note 5 - Related Party Transactions
- ------------------------------------
The Company's activities relating to the acquisition of new
properties, sales of Company owned real estate, development of real
property, and financing arrangements are currently performed by
Bedford Acquisitions, Inc., (BAI), a corporation wholly owned by Peter
Bedford, the Company's Chairman of the Board and Chief Executive
Officer. The Company uses the services of BAI for its acquisition,
disposition, financing and development activities because the Company
incurs expenses related only to those transactions which are
successfully completed rather than incurring expenses related to
unsuccessful efforts and associated overhead costs.
This arrangement provides that BAI earns a success fee in an amount
equal to 1 1/2% of the purchase price of property acquisitions, 1 1/2%
of the sale price of dispositions, up to 1 1/2% of the amount of any
loans (less third-party commissions), and 7% of the development costs.
The total amount of such fees payable to BAI by the Company is limited
to the lesser of: (i) the aggregate amount of such fees earned, or
(ii) the aggregate amount of approved expenses incurred by BAI through
the time of such acquisition, disposition, financing or development.
The current agreement with BAI has a one-year term expiring December
31, 2002, which is automatically extended for an additional term of
one year unless either party gives notice of its interest to terminate
the agreement by October 31, 2002.
For the years ended December 31, 2001, 2000, and 1999, the Company
paid BAI an aggregate amount of approximately $2,816,000, $2,431,000
and $2,783,000, respectively, for acquisition, disposition, financing,
and development activities performed pursuant to the foregoing
arrangements. As of December 31, 2001 and 2000, the Company had an
accrued liability of $1,945,000 and $866,000, respectively, for fees
earned by BAI in excess of amounts paid to BAI by the Company under
the agreement.
At December 31, 2001 and 2000, the Company did not have any other
relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special
purpose entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually
narrow or limited purposes. As such, the Company is not materially
exposed to any financing, liquidity, market or credit risk that could
arise if the Company had engaged in such relationships.
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, incentive stock
options, and grants of restricted stock.
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.
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. From the beginning of the program through December
31, 2001, options for 205,750 shares of Common Stock were exercised in
exchange for notes payable to the Company. The unpaid balance of the
notes was $1,230,000 and $2,150,000 at December 31, 2001 and 2000,
respectively, and is included in the accompanying consolidated balance
sheets 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. From
1997 through December 31, 2001, the Company has granted 510,382 shares
of restricted stock net of forfeitures. Deferred compensation
associated with unvested restricted stock was $4,612,000 and
$4,003,000 as of December 31, 2001 and 2000, respectively, and is
included in the accompanying consolidated balance sheets as a
reduction of additional paid-in capital.
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.
The Company records deferred compensation when it makes restricted
stock awards or compensatory stock option grants to employees or
directors. In the case of grants to employees, the amount of deferred
compensation initially recorded is the difference, if any, between the
exercise price (zero in the case of restricted stock awards) and fair
market value of the common stock on the date of grant. Such deferred
compensation is fixed and remains unchanged for subsequent increases
or decreases in the market value of the Company's common stock. In
the case of options granted to non-employees, the amount of deferred
compensation recorded is the fair value of the stock options on the
grant date as determined using a Black-Scholes valuation model. The
Company records deferred compensation as a reduction to stockholders'
equity and an offsetting increase to additional paid-in capital, which
are all netted for financial statement purposes as additional paid-in
capital. The Company then amortizes deferred compensation into stock
based compensation expense over the performance period, which
typically coincides with the vesting period of the stock-based award
of 5 years. Had compensation costs for the stock options granted to
employees 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 as follows (in thousands, except per share
amounts):
<table>
<s>
<c> <c> <c>
2001 2000 1999
-----------------------------
Net income:
As reported $36,723 $68,087 $39,855
Pro forma 36,537 67,865 39,496
Earnings per share - basic:
As reported $ 2.19 $ 3.73 $ 1.87
Pro forma 2.18 3.72 1.86
Earnings per share - diluted:
As reported $ 2.16 $ 3.69 $ 1.86
Pro forma 2.15 3.68 1.84
</table>
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 2001, 2000 and 1999,
respectively: dividend yield of 9.0%, 9.2%, and 9.4%; expected
volatility of 17.9%, 18.2% and 18.4%; risk-free interest rates of
4.9%, 5.1% and 6.8%. The expected life for the director's options is
ten years for 2001 and 2000, and five years for 1999. 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,
2001, 2000 and 1999 and changes during the years ended on those dates
is presented below:
<table>
<s>
<c> <c> <c> <c> <c> <c>
2001 2000 1999
----------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------------------------------------------------
Employee Plan
- --------------
Outstanding at beginning
of year 475,250 $18.46 736,625 $17.72 1,117,250 $18.10
Granted 123,000 18.87 127,000 17.94 - -
Exercised (69,000) 17.32 (138,375) 13.26 (63,500) 13.66
Forfeited and cancelled - - (250,000) 18.89 (317,125) 19.15
----------------------------------------------------------------------
Outstanding at end of
year 529,250 $18.67 475,250 $18.46 736,625 $17.72
----------------------------------------------------------------------
----------------------------------------------------------------------
Options exercisable 248,250 141,250 330,875
----------------------------------------------------------------------
----------------------------------------------------------------------
Weighted average fair
value of options
granted during the year $ 1.30 $ 1.04 -
----------------------------------------------------------------------
----------------------------------------------------------------------
Directors' Plan
- ----------------
Outstanding at beginning
of year 240,000 $17.79 345,000 $16.33 310,000 $15.79
Granted 50,000 18.87 50,000 17.94 70,000 17.72
Exercised (10,000) 14.22 (145,000) 14.24 (25,000) 12.97
Expired - - (10,000) 17.72 (10,000) 17.72
----------------------------------------------------------------------
Outstanding at end
of year 280,000 $18.11 240,000 $17.79 345,000 $16.33
----------------------------------------------------------------------
----------------------------------------------------------------------
Options exercisable 280,000 240,000 345,000
----------------------------------------------------------------------
----------------------------------------------------------------------
Weighted average fair value
of options granted during
the year $ 1.30 $ 1.04 $ 1.24
----------------------------------------------------------------------
----------------------------------------------------------------------
</table>
The following table summarizes information about stock
options outstanding on December 31, 2001:
<table>
<s>
<c> <c> <c> <c> <c>
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
- --------------
$17.63 to 17.94 226,250 7.0 $17.79 137,000 $17.69
18.87 to 19.56 273,000 7.8 19.25 81,250 19.56
20.06 30,000 5.9 20.06 30,000 20.06
-------- ----- ------- -------- -------
$17.63 to 20.06 529,250 7.3 $18.67 248,250 $18.59
-------- ----- ------- -------- -------
-------- ----- ------- -------- -------
Directors' Plan
- ----------------
$14.22 30,000 4.8 $14.22 30,000 $14.22
17.72 50,000 7.8 17.72 50,000 17.72
17.94 50,000 8.8 17.94 50,000 17.94
18.82 50,000 5.8 18.82 50,000 18.82
18.87 50,000 9.8 18.87 50,000 18.87
19.56 50,000 6.8 19.56 50,000 19.56
-------- ----- ------- -------- -------
$14.22 to 19.56 280,000 7.5 $18.11 280,000 $18.11
-------- ----- ------- -------- -------
-------- ----- ------- -------- -------
</table>
Note 7 - Bank Loan Payable
- ---------------------------
In May 2001, the Company renewed its revolving credit facility with a
bank group led by Bank of America. The facility, which matures on
June 1, 2004, consists of a $150 million secured line with an
accordion feature which allows the Company at its option to expand the
facility to $175 million, if needed. Interest on the facility is at a
floating rate equal to either the lender's published "reference rate"
or LIBOR plus a margin ranging from 1.30% to 1.55% depending on the
Company's leverage level. As of December 31, 2001, the facility had
an outstanding balance of $80,925,000, with an interest rate of LIBOR
plus 1.55%. It is secured by 31 properties and interests in such
properties, which collectively accounted for approximately 33% of the
Company's annualized base rent and approximately 34% of the Company's
total real estate assets as of December 31, 2001.
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 during the
year ended December 31, 2001.
The daily weighted average amount owed to the bank was $92,183,000 and
$116,683,000 for the twelve months ended December 31, 2001 and 2000,
respectively. The weighted average annual interest rates in each of
these periods was 6.13% and 7.75%, respectively. The effective
interest rate at December 31, 2001 was 4.99%.
Note 8 - Mortgage Loans Payable
- --------------------------------
In August 2001, the Company obtained $18 million of mortgage financing
from Washington Mutual Bank. The loan has a 10-year term and bears
interest at a floating rate of a trailing one-year treasury rate plus
2.60% (an effective rate of 7.92% as of December 31, 2001). The
trailing one-year treasury rate, which is calculated by averaging the
previous 12 months' rates, is adjusted every six months with a minimum
and maximum 1% change over the previous six month rate. Proceeds from
the loan were used to pay down a portion of the outstanding balance of
the $150 million line of credit.
In November 2001, the Company obtained $21,819,000 of new first
mortgage financing from Union Bank of California. The financing, a
renewal of an existing mortgage with the same lender, consists of a
three-year loan, bearing interest at a floating rate of LIBOR plus
1.60% (an effective rate of 4.02% as of December 31, 2001). The old
loan, which had an outstanding balance of approximately $14 million
and a maturity date of January 2, 2002, carried a fixed interest of
7.50%. The $21,819,000 mortgage is collaterized by the same property
pool as the expiring loan, namely nine properties located in
California. Proceeds of the new mortgage loan were used to pay off
the expiring mortgage and to pay down a portion of the outstanding
balance of the Company's credit facility.
Mortgage loans payable at December 31, 2001 and 2000 consist of the
following (dollars in thousands):
<table>
<s>
<c> <c> <c> <c>
Maturity Date Interest Rate as of 12-31-01 2001 2000
-------------- ----------------------------- ------ ------
January 1, 2002 N/A $ - $ 14,321
March 15, 2003 7.02% 18,550 18,916
November 19, 2004 current rate of 4.02%(1) 21,774 -
January 1, 2005 current rate of 6.00%(2) 4,481 4,553
June 1, 2005 7.17% 26,275 26,727
August 1, 2005 current rate of 5.55%(3) 3,547 7,444
August 1, 2005 current rate of 5.55%(3) 22,878 23,316
July 31, 2006 8.90% 8,143 8,336
July 31, 2006 6.91% 19,526 19,920
December 1, 2006 7.95% 21,541 21,858
June 1, 2007 7.17% 35,736 36,353
June 1, 2009 7.17% 41,740 42,461
August 1, 2011 current rate of 7.918%(4) 17,875 -
-------- --------
Total $242,066 $224,205
-------- --------
-------- --------
</table>
(1) Floating rate based on LIBOR plus 1.60%.
(2) Floating rate based on 3 month LIBOR plus 2.50% (adjusted
quarterly).
(3) Floating rate based on fixed rate on interest swap agreements.
See Note 9.
(4) Floating rate based on a 12-month average of U.S. Treasury
Security Yields plus 2.60% (adjusted semi-annually).
The mortgage loans are collaterized by 49 properties and interests in
such properties, which collectively accounted for approximately 62%
of the Company's annualized base rents and approximately 56% of the
Company's total real estate assets as of December 31, 2001. The
Company was in compliance with the covenants and requirements of its
various mortgages during the year ended December 31, 2001.
The following table presents scheduled principal payments on mortgage
loans as of December 31, 2001 (in thousands):
<table>
<s> <c>
Twelve month period ending December 31, 2002 $ 5,048
Twelve month period ending December 31, 2003 23,118
Twelve month period ending December 31, 2004 25,383
Twelve month period ending December 31, 2005 56,552
Twelve month period ending December 31, 2006 47,270
Total thereafter 84,695
-------
$ 242,066
-------
-------
</table>
Note 9 - Derivative Instruments and Hedging Activities
- --------------------------------------------------------
In the normal course of business, the Company is exposed to the effect
of interest rate changes. The Company limits these risks by following
established risk management policies and procedures including the use
of derivatives. For interest rate exposures, interest rate swaps are
used primarily to hedge the cash flow risk of variable rate borrowing
obligations.
The Company does not use derivatives for trading or speculative
purposes. Further, the Company has a policy of only entering into
contracts with major financial institutions. When viewed in
conjunction with the underlying and
offsetting exposure that the derivatives are designed to hedge, the
Company has not sustained a material loss from those instruments, nor
does it anticipate any material adverse effect on its net income or
financial position in the future from the use of derivatives.
Interest rate swaps that convert variable payments to fixed payments
are cash flow hedges. Hedging relationships that are fully effective
have no effect on net income or FFO. The unrealized gains and losses
in the fair value of these interest rate swaps are reported on the
balance sheet, as a component of other assets or other liabilities as
appropriate, with a corresponding adjustment to accumulated other
comprehensive income (loss).
On June 18, 2001, the Company entered into interest swap agreements
with United California Bank. The swap agreements allow the Company to
hedge its exposure to variable interest rates on two mortgages with
remaining principal balances totaling $26,425,000 by effectively
paying a fixed rate of interest over the term of the swap agreement.
Interest rate pay differentials that arise under these swap agreements
are recognized in interest expense over the term of the contracts.
These interest rate swap agreements were considered to be fully
effective in hedging the variable rate risk associated with the two
mortgages.
The following summarizes the principal value and fair value of the
Company's interest swap contracts. The principal value at December
31, 2001 provides an indication of the extent of the Company's
involvement in these contracts but does not represent exposure to
credit, interest rate or market risks (dollars in thousands):
<table>
<s>
<c> <c> <c> <c> <c>
Approximate
Principal Fixed Contract Cumulative Liability at
Amount Rate Maturity Cash Paid, Net December 31, 2001 (1)
--------- ----- -------- -------------- ---------------------
$22,878 5.55% July 1, 2002 $128 $268
3,547 5.55% July 1, 2002 29 42
------ --- ---
$26,425 $157 $310
------ --- ---
------ --- ---
</table>
(1) Represents the approximate amount which the Company would have
paid as of December 31, 2001 if the swap contracts were
terminated.
To determine the fair values of derivative instruments in accordance
with SFAS 133, the Company uses the discounted cash flow method, which
requires the use of assumptions about market conditions and risks
existing at the balance sheet date. Considerable judgment is required
in interpreting market data to develop estimates of market value.
Accordingly, estimated fair value is a general approximation of value,
and such value may or may not actually be realized.
At December 31, 2001, $310,000 is included in other liabilities and
accumulated other comprehensive loss, a stockholders' equity account,
reflecting the estimated market value of the swap contract obligations
at that date.
Note 10 - 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, then to 8 million shares in
September 2000 and later to 10 million shares in January 2002. Since
November 1998, the Company has repurchased and retired 7.1 million
shares at an average price of $17.90 per share. This represents 31%
of the shares outstanding at November 30, 1998 when the Company began
implementing its share repurchase program.
Note 11 - Segment Disclosure
- -----------------------------
The Company has five 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) and Colorado. During the year ended December 31, 2000,
the Midwest portfolio (greater Kansas City, Kansas/Missouri, and
greater Dallas, Texas) and the properties located in Austin, Texas
were sold; therefore, the Midwest segment and the properties located
in Austin are not reported for the year ended December 31, 2001.
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.
<table>
<s>
<c> <c> <c> <c> <c> <c> <c>
For the year ended December 31, 2001 (dollars in thousands)
-------------------------------------------------------------------------------
Northern Southern Corporate
California Southwest California Northwest Colorado & Other Consolidated
---------- --------- ---------- --------- --------- ---------- -------------
Rental income $ 35,416 $ 16,759 $ 14,231 $ 18,658 $ 14,885 $ - $ 99,949
Operating expenses and
real estate taxes 7,433 4,648 2,726 5,339 5,185 - 25,331
Depreciation and
amortization 5,105 2,990 1,953 3,787 2,348 - 16,183
-------------------------------------------------------------------------------
Income from property
operations $ 22,878 $ 9,121 $ 9,552 $ 9,532 $ 7,352 $ - $ 58,435
Percent of income from
property operations 39% 16% 16% 16% 13% 0% 100%
General and administra-
tive expenses - - - - - (4,063) (4,063)
Interest income(1) 26 4 - 13 - 159 202
Interest expense - - - - - (23,121) (23,121)
Other expense - - - - - (526) (526)
-------------------------------------------------------------------------------
Income (loss) before
gain on sales and
minority interest 22,904 9,125 9,552 9,545 7,352 (27,551) 30,927
Gain on sales of real
estate investments - 2,169 - - 3,769 - 5,938
Minority interest - - - - - (142) (142)
-------------------------------------------------------------------------------
Net income (loss) $ 22,904 $ 11,294 $ 9,552 $ 9,545 $ 11,121 $(27,693) $ 36,723
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Real estate
investments $208,274 $109,210 $ 99,281 $131,857 $108,186 $ - $656,808
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Additions (dispositions)
of real estate
investments $ 7,533 $ (7,795) $ 3,080 $ 1,008 $ 5,594 $ - $ 9,420
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Total assets $218,660 $105,137 $110,160 $116,369 $ 79,170 $ 6,398 $635,894
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</table>
(1) The interest income in Northern California,
Southwest, and Northwest segments represents
interest earned from tenant notes receivable.
<table>
<s>
<c> <c> <c> <c> <c> <c> <c> <c>
For the year ended December 31, 2000 (dollars in thousands)
--------------------------------------------------------------------------------
Northern Southern Corporate Con-
California Southwest California Northwest Midwest Colorado & Other solidated
---------- --------- ---------- --------- -------- --------- --------- ---------
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%
General and administra-
tive expenses - - - - - - (4,209) (4,209)
Interest income(1) 26 4 - 1 1 - 468 500
Interest expense - - - - - - (24,826) (24,826)
Other income - 615 - - - - - 615
--------------------------------------------------------------------------------
Income (loss) before
gain (loss) on sales
and minority interest 21,235 11,265 9,219 9,681 2,477 4,742 (28,567) 30,052
Gain (loss) on sales
of real estate
investments, net 26,174 2,756 (6) 5,431 3,816 - - 38,171
Minority interest - - - - - - (136) (136)
--------------------------------------------------------------------------------
Net income (loss) $ 47,409 $ 14,021 $ 9,213 $ 15,112 $ 6,293 $ 4,742 $(28,703) $ 68,087
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Real estate investments $200,741 $117,005 $ 96,201 $130,849 $ - $102,592 $ - $647,388
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(Dispositions) additions
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
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</table>
(1) The interest income in Northern California, Southwest, Northwest, and
Midwest segments represents interest earned from tenant notes receivable.
<table>
<s>
<c> <c> <c> <c> <c> <c> <c> <c>
For the year ended December 31, 1999 (dollars in thousands)
--------------------------------------------------------------------------------
Northern Southern Corporate Con-
California Southwest California Northwest Midwest Colorado & Other solidated
---------- --------- ---------- --------- -------- --------- --------- ---------
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%
General and administra-
tive expenses - - - - - - (3,561) (3,561)
Interest income(1) 24 3 - 4 - - 151 182
Interest expense - - - - - - (18,970) (18,970)
--------------------------------------------------------------------------------
Income (loss) before
gain (loss) on sales
and minority interest 21,107 9,368 8,133 9,079 2,980 4,527 (22,656) 32,538
Gain (loss) on sales of
real estate
investments, net 7,756 - 45 - (58) - - 7,743
Minority interest - - - - - - (128) (128)
--------------------------------------------------------------------------------
Income (loss) 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 (loss) $ 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
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(Dispositions) additions
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
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</table>
(1) The interest income in Northern California, Southwest,
and Northwest segments represents interest earned from
tenant notes receivable.
Note 12 - Fair Value of Financial Instruments
- ----------------------------------------------
The carrying values of cash and cash equivalents, 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 $171,934,000 fixed rate debt at December 31, 2001
is approximately $181,813,000 based on the terms of existing debt
compared to those available in the marketplace. At December 31, 2000,
the fixed rate debt of $188,892,000 had an approximate market value of
$189,452,000. The carrying value of variable rate debt approximates
fair value, as the interest rates and other terms are comparable to
current market terms.
Note 13 - Earnings per Share
- -----------------------------
Following is a reconciliation of earnings per share:
(in thousands, except share and per share amounts)
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Basic:
- ------
Income before extraordinary item $ 36,723 $ 68,087 $ 40,153
Extraordinary item - loss on early
extinguishment of debt - - (298)
-----------------------------------------
Net income $ 36,723 $ 68,087 $ 39,855
-----------------------------------------
-----------------------------------------
Weighted average number of shares - basic 16,747,498 18,236,512 21,267,088
-----------------------------------------
-----------------------------------------
Earnings per share:
Income before extraordinary item $ 2.19 $ 3.73 $ 1.88
Extraordinary item - loss on early
extinguishment of debt - - (0.01)
-----------------------------------------
Earnings per share $ 2.19 $ 3.73 $ 1.87
-----------------------------------------
-----------------------------------------
Diluted:
Income before extraordinary item $ 36,723 $ 68,087 $ 40,153
Add: Minority interest 142 136 128
Extraordinary item - loss on early
extinguishment of debt - - (298)
-----------------------------------------
Net income for diluted earnings per share $ 36,865 $ 68,223 $ 39,983
-----------------------------------------
-----------------------------------------
Weighted average number of shares 16,747,498 18,236,512 21,267,088
Weighted average shares
of dilutive stock options using average
period stock price under the treasury
stock method 75,229 52,958 62,196
Weighted average shares issuable upon the
conversion of operating partnership units 77,423 77,992 82,402
Weighted average shares of non-vested
restricted stock using average period stock
price under the treasury stock method 145,343 134,443 65,327
-----------------------------------------
Weighted average number of shares -
diluted 17,045,493 18,501,905 21,477,013
-----------------------------------------
-----------------------------------------
Earnings per share:
Income before extraordinary item $ 2.16 $ 3.69 $ 1.87
Extraordinary item - loss on early
extinguishment of debt - - (0.01)
-----------------------------------------
Earnings per share $ 2.16 $ 3.69 $ 1.86
-----------------------------------------
-----------------------------------------
Since their effect would have been antidilutive, 280,000 and 817,000
of the Company's stock options have been excluded from diluted
earnings per share for the years ended December 31, 2000 and 1999,
respectively.
Note 14 - Quarterly Financial Data-Unaudited
- ---------------------------------------------
The following is a summary of quarterly results of operations for 2001
and 2000 (in thousands, except per share amounts):
2001 Quarters Ended 3/31 6/30 9/30 12/31
- ------------------------------------------------------------------------------------------------
Rental income $24,390 $25,033 $25,211 $25,315
Income from property operations 14,498 14,557 14,852 14,528
Income before gain on sales of real estate
investments and minority interest 7,634 7,814 8,132 7,347
Net income 7,599 7,779 8,094 13,251
Earnings per share - basic $ 0.44 $ 0.46 $ 0.49 $ 0.82
Earnings per share - diluted $ 0.43 $ 0.45 $ 0.48 $ 0.80
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Note 15 - Commitments and Contingencies
- ----------------------------------------
As of December 31, 2001, the Company has contractual construction
commitments relating to its properties under development of
approximately $17 million of which $15 million has been paid. The
Company had outstanding undrawn letters of credit against its Credit
Facility of approximately $2.1 million at December 31, 2001.
From time to time, the Company is subject to legal claims in the
ordinary course of business. The 2001 consolidated financial
statements include an accrual of $400,000 for one such matter. The
Company is not aware of any other legal proceedings or claims that it
believes will have, individually or in the aggregate, a material
adverse effect on its business, prospects, financial condition,
operating results or cash flows.
BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(in thousands of dollars)
Initial Cost to Cost
Company Capital-
Build- ized Subse- Accum- Depre-
ings & quent to Gross Amount ulated Date Date ciable
Improve- Acqui- Carried at Close of Period Depre- Con- Ac- Life
Description Land ment sition Land Building Total ciation structed quired (Years)
- -----------------------------------------------------------------------------------------------------------------------
Industrial buildings:
- ----------------------
Northern California
Building #3 at Contra Costa
Diablo Industrial Park,
Concord* $ 495 $ 1,159 $ 61 $ 495 $ 1,220 $ 1,715 $ 310 1983 12/90 45
Building #8 at Contra Costa
Diablo Industrial Park,
Concord* 877 1,548 205 877 1,753 2,630 524 1981 12/90 45
Building #18 at Mason
Industrial Park,
Concord* 610 1,265 141 610 1,406 2,016 352 1984 12/90 45
Milpitas Town Center,
Milpitas* 1,400 4,421 149 1,400 4,570 5,970 763 1983 8/94 45
598 Gibraltar Drive,
Milpitas* 535 2,522 - 535 2,522 3,057 1,088 1996 5/96 45
Auburn Court, Fremont* 1,391 2,473 395 1,415 2,844 4,259 451 1983 12/95 45
47650 Westinghouse Drive,
Fremont* 267 893 60 271 949 1,220 127 1982 12/95 45
410 Allerton, South
San Francisco* 1,333 889 39 1,356 905 2,261 122 1970 12/95 45
400 Grandview, South
San Francisco* 3,246 3,517 1,681 3,300 5,144 8,444 576 1976 12/95 45
342 Allerton, South
San Francisco* 2,516 1,542 447 2,557 1,948 4,505 282 1969 12/95 45
301 East Grand, South
San Francisco* 2,036 959 200 2,070 1,125 3,195 163 1974 12/95 45
Fourier Avenue, Fremont* 2,120 7,018 - 2,120 7,018 9,138 871 1982 5/96 45
Lundy Avenue, San Jose* 2,055 2,184 268 2,055 2,452 4,507 306 1982 7/96 45
115 Mason Circle, Concord* 697 854 93 697 947 1,644 141 1971 9/96 45
47600 Westinghouse Drive,
Fremont* 356 1,067 43 356 1,110 1,466 131 1982 9/96 45
860-870 Napa Valley Corporate
Way, Napa* 933 3,515 729 933 4,244 5,177 593 1984 9/96 45
47633 Westinghouse Drive,
Fremont* 1,051 3,239 251 1,051 3,490 4,541 401 1983 10/96 45
47513 Westinghouse Drive,
Fremont* 1,624 - 4,089 1,625 4,088 5,713 947 1998 10/96 45
Bordeaux Centre, Napa* 1,151 - 6,708 1,151 6,708 7,859 1,300 1998 12/96 45
O'Toole Business Park,
San Jose* 3,933 5,748 606 3,934 6,353 10,287 765 1984 12/96 45
6500 Kaiser Drive, Fremont* 1,556 6,411 28 1,556 6,439 7,995 715 1990 1/97 45
Bedford Fremont Business
Center, Fremont* 3,598 9,004 255 3,598 9,259 12,857 1,067 1990 3/97 45
Spinnaker Court, Fremont* 2,548 5,989 387 2,549 6,375 8,924 664 1986 5/97 45
2277 Pine View Way, Petaluma* 1,861 7,074 4 1,862 7,077 8,939 721 1989 6/97 45
Mondavi Building, Napa* 1,315 5,214 - 1,315 5,214 6,529 492 1985 9/97 45
Parkpoint Business Center,
Santa Rosa* 1,975 4,474 572 1,976 5,045 7,021 469 1981 2/98 45
2180 S. McDowell Blvd.,
Petaluma* 773 3,006 141 774 3,146 3,920 267 1990 7/98 45
2190 S. McDowell Blvd.,
Petaluma* 587 2,283 - 587 2,283 2,870 178 1996 7/98 45
Carneros Commons Phase II,
Napa 461 - 3,175 461 3,175 3,636 31 2001 12/96 45
Arizona
Westech Business Center,
Phoenix* 3,531 4,422 714 3,531 5,136 8,667 906 1985 4/96 45
Westech II, Phoenix* 1,033 - 3,954 1,033 3,954 4,987 1,087 1998 7/96 45
2601 W. Broadway, Tempe* 1,127 2,348 102 1,127 2,450 3,577 239 1977 7/97 45
Building #2 at Phoenix
Airport Center, Phoenix* 723 3,278 30 723 3,308 4,031 323 1990 7/97 45
Building #3 at Phoenix
Airport Center, Phoenix* 682 3,163 25 682 3,188 3,870 311 1990 7/97 45
Building #4 at Phoenix
Airport Center, Phoenix* 517 1,732 18 517 1,750 2,267 170 1990 7/97 45
Building #5 at Phoenix
Airport Center, Phoenix* 1,507 3,860 33 1,507 3,893 5,400 379 1990 7/97 45
Butterfield Business Center,
Tucson* 909 4,230 128 909 4,358 5,267 404 1986 11/97 45
Butterfield Tech Center II,
Tucson* 102 - 1,811 102 1,811 1,913 337 1999 11/97 45
Greystone Business Park,
Tempe* 1,232 - 4,578 1,232 4,578 5,810 523 1999 12/97 45
Cimarron Business Park,
Scottsdale* 1,776 4,471 272 1,778 4,741 6,519 427 1979-85 3/98 45
Rio Salado Corporate Center,
Tempe 1,723 2,882 1,709 1,723 4,591 6,314 147 1982-84 7/98 45
Phoenix Tech Center, Phoenix* 1,322 945 883 1,323 1,827 3,150 244 1985 8/98 45
The Adams Brothers Building,
Phoenix* 1,572 1,613 49 1,572 1,662 3,234 95 1988-95 6/99 45
Bedford Realty Partners, L.P.,
Phoenix* 992 6,241 106 992 6,347 7,339 294 1986 12/99 45
Southern California
Dupont Industrial Center,
Ontario* 3,588 6,162 275 3,588 6,437 10,025 1,202 1989 5/94 45
3002 Dow Business Center,
Tustin* 4,209 7,291 1,375 4,305 8,570 12,875 1,589 1987-89 12/95 45
Carroll Tech I, San Diego* 511 1,372 187 511 1,559 2,070 234 1984 10/96 45
Vista I, Vista 646 2,135 64 646 2,199 2,845 250 1990 10/96 45
Vista II, Vista 566 1,832 - 566 1,832 2,398 210 1990 10/96 45
Signal Systems Building,
San Diego* 2,228 7,264 - 2,228 7,264 9,492 807 1990 12/96 45
Carroll Tech II, San Diego* 1,022 2,129 - 1,022 2,129 3,151 248 1984 10/96 45
2230 Oak Ridge Way, Vista* 684 2,191 - 684 2,191 2,875 216 1997 10/97 45
6960 Flanders Drive,
San Diego* 864 2,591 (2) 865 2,588 3,453 202 1989 6/98 45
Canyon Vista Center,
San Diego* 1,664 4,645 227 1,664 4,872 6,536 306 1986 4/99 45
6325 Lusk Blvd., San Diego* 2,229 3,484 9 2,229 3,493 5,722 194 1991 7/99 45
Jurupa Business Center
Phase I, Ontario 889 - 2,384 889 2,384 3,273 - 2001 12/00 45
Greater Seattle Area
Highlands Campus Building B,
Bothell* 1,762 - 5,858 1,762 5,858 7,620 912 1999 6/98 45
Highlands Campus Building C,
Bothell* 1,646 - 4,943 1,646 4,943 6,589 417 2000 6/98 45
Office buildings:
- ------------------
Northern California
Village Green, Lafayette* 547 1,245 646 743 1,695 2,438 317 1983 7/94 45
Carneros Commons Phase I,
Napa 500 - 3,006 500 3,006 3,506 52 2000 12/96 45
Canyon Park, San Ramon* 1,933 3,098 3,670 1,933 6,768 8,701 567 1971-72 12/97 45
Crow Canyon Centre,
San Ramon* 778 - 5,257 778 5,257 6,035 543 1999 12/97 45
3380 Cypress Drive, Petaluma- 1,709 3,760 1 1,710 3,760 5,470 292 1989 7/98 45
Arizona
Executive Center at Southbank,
Phoenix* 4,943 7,134 186 4,943 7,320 12,263 795 1989 3/97 45
Building #1 at Phoenix Airport
Center, Phoenix* 944 1,541 132 944 1,673 2,617 157 1990 7/97 45
Phoenix Airport Center
Parking, Phoenix* 1,369 81 - 1,369 81 1,450 8 1990 7/97 45
Cabrillo Executive Center,
Phoenix* 480 5,614 515 481 6,128 6,609 547 1983 2/98 45
Mountain Pointe Office Park,
Phoenix* 837 - 4,945 837 4,945 5,782 332 1999 2/98 45
1355 S. Clearview Avenue,
Mesa* 2,049 5,450 3 2,049 5,453 7,502 313 1998 6/99 45
Southern California
Laguna Hills Square, Laguna* 2,436 3,655 1,138 2,436 4,793 7,229 748 1983 3/96 45
Building #3 at Carroll Tech
Center, San Diego* 716 1,400 59 716 1,459 2,175 172 1984 10/96 45
Scripps Wateridge, San Diego* 4,160 12,472 11 4,160 12,483 16,643 1,248 1990 6/97 45
Building #4 at Carroll Tech
Center, San Diego* 2,050 3,224 76 2,050 3,300 5,350 201 1986 3/99 45
Colorado
Oracle Building, Denver* 1,860 13,249 106 1,860 13,355 15,215 1,248 1996 10/97 45
Texaco Building, Denver* 3,699 31,631 1,647 3,700 33,277 36,977 2,577 1981 5/98 45
WaterPark @ Briarwood
Building 1, Englewood 286 - 2,700 286 2,700 2,986 229 2000 4/99 45
Belleview Corporate Plaza
II Office, Denver 2,560 - 9,139 2560 9,139 11,699 36 2001 10/98 45
WaterPark @ Briarwood
Building 2, Englewood 716 - 5,811 716 5,811 6,527 314 2000 4/99 45
WaterPark @ Briarwood
Building 3, Englewood 716 - 5,265 716 5,265 5,981 6 2001 4/99 45
WaterPark @ Briarwood
Building 4, Englewood 285 - 3,093 285 3,093 3,378 186 2001 4/99 45
Bedford Center at Rampart,
Englewood* 3,811 18,031 (359) 3,811 17,672 21,483 434 1998 11/00 45
Greater Seattle Area
Orillia Office Park,
Renton* 10,021 22,975 - 10,021 22,975 32,996 2,298 1986 7/97 45
Adobe Systems Bldg. 1,
Seattle* - 22,403 3,923 - 26,326 26,326 2,047 1998 3/98 45
Adobe Systems Bldg. 2,
Seattle* - 18,931 3,353 - 22,284 22,284 1,761 1998 3/98 45
Highlands Campus,
Building A, Bothell* 2,066 - 7,783 2,066 7,783 9,849 1,182 1999 6/98 45
The Federal Way Building,
Federal Way* 2,208 7,009 29 2,208 7,038 9,246 401 1999 6/99 45
Federal Way II,
Federal Way* 2,500 14,307 140 2,515 14,432 16,947 718 1999 9/99 45
Nevada
U.S. Bank Centre, Reno* 2,102 10,264 588 2,102 10,852 12,954 1,202 1989 5/97 45
Operating properties held
- --------------------------
for sale:
- ----------
Building #1 at Monterey
Commerce Center, Monterey-* 616 5,302 242 616 5,544 6,160 454 1990 12/97 45
Building #2 at Monterey
Commerce Center, Monterey* 611 1,833 1 611 1,834 2,445 132 1990 12/97 45
Building #3 at Monterey
Commerce Center, Monterey* 604 1,812 136 604 1,948 2,552 147 1990 12/97 45
Land held for development:
- --------------------------
Scripps Land, San Diego, CA 622 - 88 710 - 710 - N/A 6/97 45
Mondavi Land, Napa Lot 12G,
Northern CA 1,150 - 22 1,172 - 1,172 - N/A 3/98 45
West Tempe Lots 30 and 31,
Tempe, AZ 551 - 94 645 - 645 - N/A 7/98 45
210 Lafayette Circle,
Northern CA 511 - 8 519 - 519 - N/A 11/98 45
Belleview Corporate Plaza
III, IV, Denver, CO 2,094 - 17 2,111 - 2,111 - N/A 10/99 45
Belleview Corporate Plaza,
V, Denver, CO 1,561 - 267 1,828 - 1,828 - N/A 10/98 45
Napa Lots 9B & 8D, Napa, CA 2,161 - 32 2,193 - 2,193 - N/A 11/00 45
Jurupa Business Center
Phase II, Ontario, CA 889 - 72 961 - 961 - N/A 12/00 45
Jurupa Business Center
Phase III, Ontario, CA 558 - 5 563 - 563 - N/A 12/00 45
Jurupa Business Center
Phase IV, Ontario, CA 928 - 6 934 - 934 - N/A 12/00 45
Napa Lot 10C, Napa, CA 1,833 - - 1,833 - 1,833 - N/A 10/01 45
-----------------------------------------------------------------
$157,526 $384,970 $114,312 $158,637 $498,171 $656,808 $49,154
-----------------------------------------------------------------
-----------------------------------------------------------------
(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, 2001, 2000, and 1999 is presented below in
accordance with accounting principles generally accepted in the United
States of America:
Investment Accumulated Depreciation
---------------------------- ------------------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
BALANCE AT BEGINNING OF YEAR $647,388 $679,733 $599,981 $35,944 $28,695 $18,523
Add (deduct):
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) - - - -
Acquisition of Napa Lot 10C 1,833 - - - - -
Sale of Bryant Street Quad (K) (3,752) - - (269) - -
Sale of Bryant Street Annex (K) (1,480) - - (130) - -
Sale of Expressway Corporate Center (K) (4,867) - - (306) - -
Sale of Troika Building (L) (4,017) - - (262) - -
Capitalized costs 21,703 34,996 31,901 - - -
Depreciation - - - 14,177 12,577 11,516
------------------------------ ---------------------------
BALANCE AT END OF YEAR $656,808 $647,388 $679,733 $49,154 $35,944 $28,695
------------------------------ ---------------------------
------------------------------ ---------------------------
AGGREGATE COST FOR FEDERAL
INCOME TAX PURPOSES $479,505 $467,618 $509,328
------------------------------
------------------------------
(B) The property was sold in March 1999. (H) The property was sold in August 2000.
(C) The properties were sold in June 1999. (I) The properties were sold in September 2000.
(D) The property was sold in August 1999. (J) The properties were sold in October 2000.
(E) The property was sold in December 1999. (K) The properties were sold in October 2001.
(F) The properties were sold in March 2000. (L) The property was sold in November 2001.
(G) The property was sold in June 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 27, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacity and on the date indicated.
/s/ Peter B. Bedford March 27, 2002
- ---------------------------------------
Peter B. Bedford, Chairman of the Board
and Chief Executive Officer
/s/ Anthony Downs March 27, 2002
- ---------------------------------------
Anthony Downs, Director
/s/ Anthony M. Frank March 27, 2002
- ---------------------------------------
Anthony M. Frank, Director
/s/ Martin I. Zankel March 27, 2002
- ---------------------------------------
Martin I. Zankel, Director
/s/ Thomas H. Nolan, Jr. March 27, 2002
- ---------------------------------------
Thomas H. Nolan, Jr., Director
/s/ Hanh Kihara March 27, 2002
- ---------------------------------------
Hanh Kihara
Senior Vice President and
Chief Financial Officer
/s/ Krista K. Rowland March 27, 2002
- ---------------------------------------
Krista K. Rowland, Vice President and
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,
-----------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Net income $36,723 $68,087 $39,855 $31,496 $31,291
Fixed charges - interest and amortization
of loan fees 23,121 24,826 18,970 11,164 7,918
Fixed charges - interest capitalized 1,303 1,964 2,148 2,177 627
------ ------ ------ ------ ------
Net income including fixed charges 61,147 94,877 60,973 44,837 39,836
Preferred dividends and limited partner
distributions 142 136 128 117 3,608
------ ------ ------ ------ ------
Net income including fixed charges,
preferred dividends and limited
partner distributions $61,289 $95,013 $61,101 $44,954 $43,444
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of earnings to fixed charges,
including preferred dividends and
limited partner distributions 2.49 3.53 2.88 3.34 3.57
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of earnings to fixed charges,
excluding preferred dividends and
limited partner distributions 2.51 3.54 2.89 3.36 4.66
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Exhibit 23.1
CONSENT OF KPMG LLP, INDEPENDENT AUDITORS
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 11, 2002, relating to the consolidated balance
sheets of Bedford Property Investors, Inc. and subsidiaries as of
December 31, 2001 and 2000, 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, 2001, and the related
consolidated financial statement schedule as of December 31, 2001,
which report appears in the December 31, 2001 annual report on Form
10-K of Bedford Property Investors, Inc.
KPMG LLP
San Francisco, California
March 27, 2002