Maryland
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95-2635431
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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10050 Bandley Drive
Cupertino, California
(Address of principal executive offices)
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95014
(Zip Code)
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Large accelerated filer o
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Accelerated filer x
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller
reporting company)
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Page
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Item 1.
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Condensed Consolidated Financial Statements:
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Condensed Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010
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2
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Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010 (unaudited)
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3
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Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (unaudited)
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4
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Notes to Condensed Consolidated Financial Statements (unaudited)
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5
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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12
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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21
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Item 4.
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Controls and Procedures
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21
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Item 1.
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Legal Proceedings
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22
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Item 1A.
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Risk Factors
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22
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Item 6.
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Exhibits
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22
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Signatures
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23
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Exhibit 31.1
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Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
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Exhibit 31.2
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Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
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Exhibit 31.3
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Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
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Exhibit 32
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Certification of CEO and CFO Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002
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Exhibit 101
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XBRL (eXtensive Business Reporting Language). The following financial materials from Mission West Properties, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2011, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.
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June 30, 2011
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December 31, 2010
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|||||||
(unaudited)
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||||||||
ASSETS
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||||||||
Investments in real estate:
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||||||||
Land
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$ | 322,076 | $ | 322,076 | ||||
Buildings and improvements
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791,963 | 790,424 | ||||||
Real estate related intangible assets
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1,121 | 3,240 | ||||||
Total investments in properties
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1,115,160 | 1,115,740 | ||||||
Accumulated depreciation and amortization
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(233,578 | ) | (224,027 | ) | ||||
Assets held for sale, net of accumulated depreciation
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3,267 | 3,267 | ||||||
Net investments in properties
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884,849 | 894,980 | ||||||
Investment in unconsolidated joint venture
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3,698 | 3,830 | ||||||
Net investments in real estate
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888,547 | 898,810 | ||||||
Cash and cash equivalents
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- | 3,988 | ||||||
Restricted cash
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- | 6,892 | ||||||
Deferred rent
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17,566 | 17,941 | ||||||
Other assets, net
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41,866 | 40,653 | ||||||
Total assets
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$ | 947,979 | $ | 968,284 | ||||
LIABILITIES AND EQUITY
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||||||||
Liabilities:
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||||||||
Mortgage notes payable
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$ | 338,566 | $ | 345,770 | ||||
Mortgage note payable (related parties)
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7,436 | 7,721 | ||||||
Interest payable
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1,614 | 1,659 | ||||||
Security deposits
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4,385 | 4,605 | ||||||
Prepaid rent
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4,402 | 6,526 | ||||||
Dividends and distributions payable
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13,687 | 15,793 | ||||||
Accounts payable and accrued expenses
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18,492 | 16,239 | ||||||
Total liabilities
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388,582 | 398,313 | ||||||
Commitments and contingencies (Note 8)
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||||||||
Equity:
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||||||||
Stockholders’ equity attributable to Mission West Properties, Inc.:
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||||||||
Preferred stock, $.001 par value, 20,000,000 shares authorized,
none issued and outstanding
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- | - | ||||||
Common stock, $.001 par value, 200,000,000 shares authorized,
22,584,770 and 22,135,770 shares issued and outstanding
at June 30, 2011 and December 31, 2010
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22 | 22 | ||||||
Additional paid-in capital
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175,863 | 172,568 | ||||||
Distributions in excess of accumulated earnings
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(32,086 | ) | (30,520 | ) | ||||
Total stockholders’ equity attributable to Mission West Properties, Inc.
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143,799 | 142,070 | ||||||
Noncontrolling interests in operating partnerships
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415,598 | 427,901 | ||||||
Total equity
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559,397 | 569,971 | ||||||
Total liabilities and equity
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$ | 947,979 | $ | 968,284 |
Three months ended June 30,
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Six months ended June 30,
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|||||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
Operating revenues:
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||||||||||||||||
Rental income
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$ | 20,295 | $ | 20,659 | $ | 42,072 | $ | 41,462 | ||||||||
Tenant reimbursements
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4,045 | 4,028 | 8,690 | 8,453 | ||||||||||||
Other income
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462 | 1,204 | 1,562 | 1,862 | ||||||||||||
Total operating revenues
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24,802 | 25,891 | 52,324 | 51,777 | ||||||||||||
Operating expenses:
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||||||||||||||||
Property operating and maintenance
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2,595 | 3,061 | 5,250 | 5,972 | ||||||||||||
Real estate taxes
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3,150 | 3,388 | 6,354 | 6,571 | ||||||||||||
General and administrative
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522 | 563 | 1,043 | 1,081 | ||||||||||||
Depreciation and amortization
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5,844 | 5,976 | 11,671 | 11,816 | ||||||||||||
Total operating expenses
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12,111 | 12,988 | 24,318 | 25,440 | ||||||||||||
Operating income
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12,691 | 12,903 | 28,006 | 26,337 | ||||||||||||
Other income (expenses):
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||||||||||||||||
Equity in earnings of unconsolidated joint venture
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27 | 147 | 18 | 224 | ||||||||||||
Interest income
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57 | - | 126 | 50 | ||||||||||||
Realized and unrealized gain from investment
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- | 2,215 | - | 4,067 | ||||||||||||
Interest expense
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(5,246 | ) | (4,778 | ) | (10,525 | ) | (9,627 | ) | ||||||||
Interest expense – related parties
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(144 | ) | (327 | ) | (291 | ) | (624 | ) | ||||||||
Income from continuing operations
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7,385 | 10,160 | 17,334 | 20,427 | ||||||||||||
Discontinued operations:
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||||||||||||||||
Loss from discontinued operations
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(15 | ) | (119 | ) | (29 | ) | (242 | ) | ||||||||
Net income
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7,370 | 10,041 | 17,305 | 20,185 | ||||||||||||
Net income attributable to noncontrolling interests
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(5,491 | ) | (7,581 | ) | (13,027 | ) | (15,267 | ) | ||||||||
Net income available to common stockholders
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$ | 1,879 | $ | 2,460 | $ | 4,278 | $ | 4,918 | ||||||||
Net income per common share to common stockholders:
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||||||||||||||||
Basic
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$ | 0.08 | $ | 0.11 | $ | 0.19 | $ | 0.22 | ||||||||
Diluted
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$ | 0.08 | $ | 0.11 | $ | 0.19 | $ | 0.22 | ||||||||
Weighted average shares of common stock outstanding (basic)
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22,495,605 | 21,957,654 | 22,392,427 | 21,919,632 | ||||||||||||
Weighted average shares of common stock outstanding (diluted)
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22,756,006 | 22,123,527 | 22,583,358 | 22,090,313 |
Six months ended June 30,
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||||||||
2011
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2010
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|||||||
Cash flows from operating activities:
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||||||||
Net income
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$ | 17,305 | $ | 20,185 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
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||||||||
Depreciation and amortization
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11,671 | 11,978 | ||||||
Realized and unrealized gain from restricted investment in marketable securities
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- | (4,067 | ) | |||||
Equity in earnings of unconsolidated joint venture
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(18 | ) | (224 | ) | ||||
Distributions from unconsolidated joint venture
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150 | 150 | ||||||
Lease termination fee related to restricted cash
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10,865 | 10,381 | ||||||
Stock-based compensation expense
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29 | 57 | ||||||
Other
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- | 10 | ||||||
Changes in operating assets and liabilities, net of liabilities assumed:
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||||||||
Proceeds from sale of investment in marketable securities
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- | 16,211 | ||||||
Deferred rent
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375 | 228 | ||||||
Other assets
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(1,214 | ) | (2,067 | ) | ||||
Interest payable
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(45 | ) | (95 | ) | ||||
Security deposits
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(220 | ) | 22 | |||||
Prepaid rent
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(2,124 | ) | (679 | ) | ||||
Accounts payable and accrued expenses
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2,253 | 817 | ||||||
Net cash provided by operating activities
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39,027 | 52,907 | ||||||
Cash flows from investing activities:
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||||||||
Improvements to real estate assets
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(1,539 | ) | - | |||||
Decrease in restricted cash
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6,803 | 100 | ||||||
Purchase of real estate
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- | (3,852 | ) | |||||
Net cash provided by (used in) investing activities
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5,264 | (3,752 | ) | |||||
Cash flows from financing activities:
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||||||||
Principal payments on mortgage notes payable
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(7,204 | ) | (6,310 | ) | ||||
Principal payments on mortgage note payable (related parties)
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(285 | ) | (265 | ) | ||||
Proceeds from note payable (related parties)
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- | 41,446 | ||||||
Payments on note payable (related parties)
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- | (23,000 | ) | |||||
Payments on note payable
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(10,776 | ) | (10,381 | ) | ||||
Net repayments on revolving line of credit
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- | (14,466 | ) | |||||
Net proceeds from exercise of stock options
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- | 67 | ||||||
Distributions paid to noncontrolling interests
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(23,785 | ) | (25,180 | ) | ||||
Dividends paid to common stockholders
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(6,229 | ) | (6,587 | ) | ||||
Net cash used in financing activities
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(48,279 | ) | (44,676 | ) | ||||
Net (decrease) increase in cash and cash equivalents
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(3,988 | ) | 4,479 | |||||
Cash and cash equivalents, beginning of period
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3,988 | 986 | ||||||
Cash and cash equivalents, end of period
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- | $ | 5,465 | |||||
Supplemental information:
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||||||||
Cash paid for interest
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$ | 10,677 | $ | 10,114 | ||||
Supplemental schedule of non-cash investing and financing activities:
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||||||||
Issuance of common stock upon conversion of O.P. units
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$ | 3,266 | $ | 546 |
1.
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Organization and Formation of the Company
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2.
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Basis of Presentation
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Weighted Average
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||||||||
Options
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Option Price
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|||||||
Outstanding
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Per Share
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|||||||
Balance, December 31, 2010
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3,417,641 | $ | 8.79 | |||||
Options granted
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- | - | ||||||
Options exercised
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- | - | ||||||
Options expired
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(590,000 | ) | $ | 10.00 | ||||
Balance, June 30, 2011
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2,827,641 | $ | 8.54 |
Equity
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||||||||||||||||||||
Common Stock
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Additional Paid-in Capital
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Distributions in Excess of Accumulated Earnings
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Noncontrolling Interests
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Total
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||||||||||||||||
(dollars in thousands)
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||||||||||||||||||||
Balance, December 31, 2010
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$ | 22 | $ | 172,568 | $ | (30,520 | ) | $ | 427,901 | $ | 569,971 | |||||||||
Net income
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- | - | 4,278 | 13,027 | 17,305 | |||||||||||||||
Amortization of previously granted share awards
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- | 29 | - | - | 29 | |||||||||||||||
Conversions of operating partnership units
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- | 3,266 | - | (3,266 | ) | - | ||||||||||||||
Dividends and distributions
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- | - | (5,844 | ) | (22,064 | ) | (27,908 | ) | ||||||||||||
Balance, June 30, 2011
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$ | 22 | $ | 175,863 | $ | (32,086 | ) | $ | 415,598 | $ | 559,397 |
3.
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Variable Interest Entity
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1.
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The equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support by any parties, including the equity holders.
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2.
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The equity investors lack one or more of the following essential characteristics of a controlling financial interest:
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a.
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The direct or indirect ability to make decisions about the entity’s activities through voting or similar rights.
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b.
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The obligation to absorb the expected loss of the entity.
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c.
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The right to receive the expected residual returns of the entity.
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3.
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The equity investors have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest.
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·
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No equity was contributed by the partners in the formation of M&M Real Estate.
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·
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At present, the assigned leases are the only properties under management by M&M Real Estate.
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·
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M&M Real Estate does not have an operating history that demonstrates its ability to finance its activities without additional subordinated financial support.
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·
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All revenues, other than interest income, are generated by M&M Real Estate from the Company in the form of fees or commissions.
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4.
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Restricted Cash
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5.
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Stock Transactions
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6.
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Net Income Per Share
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Three Months Ended June 30,
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Six Months Ended June 30,
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||||||
2011
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2010
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2011
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2010
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||||
Weighted average shares outstanding (basic)
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22,495,605
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21,957,654
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22,392,427
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21,919,632
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|||
Incremental shares from assumed option exercise
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260,401
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165,873
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190,931
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170,681
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|||
Weighted average shares outstanding (diluted)
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22,756,006
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22,123,527
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22,583,358
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22,090,313
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7.
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Related Party Transactions
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8.
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Commitments and Contingencies
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9.
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Real Estate Asset Held for Sale/Discontinued Operations
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Three Months Ended June 30,
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Six Months Ended June 30,
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|||||||||||||||
2011
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2010
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2011
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2010
|
|||||||||||||
(dollars in thousands)
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(dollars in thousands)
|
|||||||||||||||
(unaudited)
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(unaudited)
|
|||||||||||||||
Operating revenues:
|
||||||||||||||||
Rental income
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- | $ | 11 | - | $ | 22 | ||||||||||
Tenant reimbursements
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- | 15 | - | 29 | ||||||||||||
Total operating revenues
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- | 26 | - | 51 | ||||||||||||
Operating expenses:
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||||||||||||||||
Property operating, maintenance and real estate taxes
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$ | 15 | 64 | $ | 29 | 131 | ||||||||||
Depreciation and amortization
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- | 81 | - | 162 | ||||||||||||
Total operating expenses
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15 | 145 | 29 | 293 | ||||||||||||
Loss from operations of property held for sale
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$ | (15 | ) | $ | (119 | ) | $ | (29 | ) | $ | (242 | ) |
10.
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Subsequent Events
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·
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the current turmoil in the credit markets could limit the demands for R&D space and affect the overall availability and cost of credit,
|
·
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economic conditions generally and the real estate market specifically,
|
·
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the occupancy rates of the properties,
|
·
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rental rates on new and renewed leases,
|
·
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legislative or regulatory provisions (including changes to laws governing the taxation of REITs),
|
·
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availability of capital,
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·
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interest rates,
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·
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competition,
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·
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supply of and demand for R&D, office and industrial properties in our current and proposed market areas,
|
·
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tenant defaults and bankruptcies,
|
·
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lease term expirations and renewals,
|
·
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changes in general accounting principles, policies and guidelines applicable to REITs, and
|
·
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ability to timely refinance maturing debt obligations and the terms of any such refinancing.
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·
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capitalizing on opportunistic acquisitions from third parties of high-quality R&D/office properties that provide attractive initial yields and significant potential for growth in cash-flow;
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·
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focusing on general purpose, single-tenant Silicon Valley R&D/office properties for information technology companies in order to maintain low operating costs, reduce tenant turnover and capitalize on our relationships with these companies and our extensive knowledge of their real estate needs; and
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·
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maintaining prudent financial management principles that emphasize current cash flow while building long-term value, the acquisition of pre-leased properties to reduce development and leasing risks and the maintenance of sufficient liquidity to acquire and finance properties on desirable terms.
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Six Months
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||||||||||||||||||||||||||||
Remaining
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Year Ending December 31,
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|||||||||||||||||||||||||||
2011
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2012
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2013
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2014
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2015
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Thereafter
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Total
|
||||||||||||||||||||||
(dollars in thousands)
|
||||||||||||||||||||||||||||
Principal payments (1)
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$ | 7,697 | $ | 16,080 | $ | 82,485 | $ | 12,183 | $ | 12,893 | $ | 214,664 | $ | 346,002 | ||||||||||||||
Interest payments-fixed rate debt (2)
|
9,910 | 19,133 | 15,056 | 13,527 | 12,817 | 81,659 | 152,102 | |||||||||||||||||||||
Operating lease obligations (3)
|
60 | 30 | - | - | - | - | 90 | |||||||||||||||||||||
Total
|
$ | 17,667 | $ | 35,243 | $ | 97,541 | $ | 25,710 | $ | 25,710 | $ | 296,323 | $ | 498,194 |
(1)
|
As of June 30, 2011, 100% of our debt was contractually fixed and 0% of our debt bore interest at variable rates. Our debt obligations are set forth in detail in the table below.
|
(2)
|
The information in the table above reflects our projected interest rate obligations for the fixed-rate payments based on the contractual interest rates, interest payment dates and scheduled maturity dates.
|
(3)
|
Our operating lease obligations relate to a lease of our corporate office facility from a related party.
|
Debt Description
|
Collateral Properties
|
Balance
|
Maturity Date
|
Interest Rate
|
|||||||
(dollars in thousands)
|
|||||||||||
Line of Credit:
|
|||||||||||
Heritage Bank of Commerce
|
1600 Memorex Drive, Santa Clara, CA
1688 Richard Drive, Santa Clara, CA
1700 Richard Drive, Santa Clara, CA
|
- |
Sept 2011
|
(1) | |||||||
Mortgage Note Payable (related parties) (2) :
|
5300 & 5350 Hellyer Avenue, San Jose, CA
|
$ | 7,436 |
Jun 2013
|
7.65 | % | |||||
Mortgage Notes Payable (2):
|
|||||||||||
Hartford Life Insurance Company
Hartford Life and Accident Insurance Company
Hartford Life and Annuity Insurance Company
(collectively known as the “Hartford Loan I”) (3)
|
5981 Optical Court, San Jose, CA
5500 Hellyer Avenue, San Jose, CA
5550 Hellyer Avenue, San Jose, CA
4050 Starboard Drive, Fremont, CA
45738 Northport Loop, Fremont, CA
233 South Hillview Drive, Milpitas, CA
10300 Bubb Road, Cupertino, CA
1230 E. Arques, Sunnyvale, CA
1250-1280 E. Arques, Sunnyvale, CA
1212 Bordeaux Lane, Sunnyvale, CA
2904 Orchard Parkway, San Jose, CA
3236 Scott Blvd, Santa Clara, CA
6311 San Ignacio Avenue, San Jose, CA
6321-6325 San Ignacio Avenue, San Jose, CA
6331 San Ignacio Avenue, San Jose, CA
6341-6351 San Ignacio Avenue, San Jose, CA
3540-3580 Bassett Street, Santa Clara, CA
|
106,575 |
Oct 2018
|
6.21 | % | ||||||
Hartford Life Insurance Company
Hartford Life and Accident Insurance Company
(collectively known as the “Hartford Loan II”) (4)
|
5830-5870 Hellyer Avenue, San Jose, CA
5750 Hellyer Avenue, San Jose, CA
255 Caspian Drive, Sunnyvale, CA
5970 Optical Court, San Jose, CA
3301 Olcott Street, Santa Clara, CA
|
39,210 |
Sept 2030
|
6.05 | % | ||||||
Northwestern Mutual Life Insurance Company (5)
|
1750 Automation Parkway, San Jose, CA
1756 Automation Parkway, San Jose, CA
1762 Automation Parkway, San Jose, CA
6320 San Ignacio Avenue, San Jose, CA
6540-6541 Via Del Oro, San Jose, CA
6385-6387 San Ignacio Avenue, San Jose, CA
20605-20705 Valley Green Drive, Cupertino, CA
2001 Walsh Avenue, Santa Clara, CA
2220 Central Expressway, Santa Clara, CA
2300 Central Expressway, Santa Clara, CA
2330 Central Expressway, Santa Clara, CA
|
71,221 |
Feb 2013
|
5.64 | % | ||||||
Allianz Life Insurance Company (Allianz Loan I) (6)
|
5900 Optical Court, San Jose, CA
|
20,758 |
Aug 2025
|
5.56 | % | ||||||
Allianz Life Insurance Company (Allianz Loan II) (6)
|
5325-5345 Hellyer Avenue, San Jose, CA
1768 Automation Parkway, San Jose, CA
2880 Scott Boulevard, Santa Clara, CA
2890 Scott Boulevard, Santa Clara, CA
2800 Scott Boulevard, Santa Clara, CA
10450-10460 Bubb Road, Cupertino, CA
6800-6810 Santa Teresa Blvd., San Jose, CA
6850 Santa Teresa Blvd., San Jose, CA
4750 Patrick Henry Drive, Santa Clara, CA
|
100,802 |
Aug 2025
|
5.22 | % | ||||||
338,566 | |||||||||||
TOTAL
|
$ | 346,002 |
(1)
|
The interest rate on the revolving line of credit is the greater of LIBOR plus 1.75% or 4.00% per annum. The interest rate for the HBC line of credit at June 30, 2011, was 4.00%. Costs and fees incurred with obtaining this loan aggregated approximately $49, which were deferred and amortized over the loan period. The HBC line of credit contains certain financial loan and reporting covenants as defined in the loan agreement, including minimum tangible net worth and debt service coverage ratio. As of June 30, 2011, we were in compliance with these loan covenants.
|
(2)
|
Mortgage notes payable and mortgage note payable (related parties) generally require monthly installments of principal and interest ranging from approximately $96 to $840 over various terms extending through the year 2030. The weighted average interest rate of the mortgage notes payable and mortgage note payable (related parties) was 5.78% at June 30, 2011.
|
(3)
|
The Hartford loan I is payable in monthly installments of approximately $838, which includes principal (based upon a 20-year amortization) and interest. Costs and fees incurred with obtaining this loan aggregated approximately $1,058, which were deferred and amortized over the loan period. The Hartford loan I contains certain customary covenants as defined in the loan agreement. As of June 30, 2011, we were in compliance with these loan covenants.
|
(4)
|
The Hartford loan II is payable in monthly installments of approximately $288, which includes principal (based upon a 20-year amortization) and interest. Costs and fees incurred with obtaining this loan aggregated approximately $457, which were deferred and amortized over the loan period. The Hartford loan II contains certain customary covenants as defined in the loan agreement. As of June 30, 2011, we were in compliance with these loan covenants.
|
(5)
|
The Northwestern loan is payable in monthly installments of approximately $696, which includes principal (based upon a 20-year amortization) and interest. Costs and fees incurred with obtaining this loan aggregated approximately $675, which were deferred and amortized over the loan period. The Northwestern loan contains certain customary covenants as defined in the loan agreement. As of June 30, 2011, we were in compliance with these loan covenants.
|
(6)
|
The Allianz loans are payable in monthly aggregate installments of approximately $1,017, which includes principal (based upon a 20-year amortization) and interest. Costs and fees incurred with obtaining these loans aggregated approximately $1,089, which were deferred and amortized over the loan periods. The Allianz loans contain certain customary covenants as defined in the loan agreements. As of June 30, 2011, we were in compliance with these loan covenants.
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(dollars in thousands)
|
(dollars in thousands)
|
|||||||||||||||
Net income
|
$ | 7,370 | $ | 10,041 | $ | 17,305 | $ | 20,185 | ||||||||
Add:
|
||||||||||||||||
Depreciation and amortization (1)
|
6,444 | 6,616 | 12,855 | 13,082 | ||||||||||||
Less:
|
||||||||||||||||
Noncontrolling interests in joint ventures
|
(106 | ) | (98 | ) | (210 | ) | (201 | ) | ||||||||
FFO
|
$ | 13,708 | $ | 16,559 | $ | 29,950 | $ | 33,066 |
(1)
|
Includes our portion of depreciation and amortization of real estate and leasing commissions from our unconsolidated joint venture totaling approximately $60 for the three months ended June 30, 2011 and 2010 and $119 for the six months ended June 30, 2011 and 2010. Also includes our amortization of leasing commissions of approximately $541 and $500 for the three months ended June 30, 2011 and 2010, respectively, and $1,066 and $985 for the six months ended June 30, 2011 and 2010, respectively. Amortization of leasing commissions is included in the property operating and maintenance line item in the condensed consolidated statements of operations.
|
·
|
the amount of cash available for dividends and distributions;
|
·
|
our ability to refinance maturing debt obligations;
|
·
|
our financial condition;
|
·
|
whether to reinvest funds rather than to distribute such funds;
|
·
|
our committed and projected capital expenditures;
|
·
|
the amount of cash required for new property acquisitions, including acquisitions under existing agreements with the Berg Group;
|
·
|
the amount of our annual debt service requirements;
|
·
|
prospects of tenant renewals and re-leases of properties subject to expiring leases;
|
·
|
cash required for re-leasing activities;
|
·
|
the annual dividend and distribution requirements under the REIT provisions of the federal income tax laws; and
|
·
|
such other factors as the board of directors deems relevant.
|
Six Months Remaining
|
Year Ending December 31,
|
|||||||||||||||||||||||||||||||
2011
|
2012
|
2013
|
2014
|
2015
|
Thereafter
|
Total
|
Fair Value
|
|||||||||||||||||||||||||
(dollars in thousands)
|
||||||||||||||||||||||||||||||||
Fixed Rate Debt:
|
||||||||||||||||||||||||||||||||
Secured notes payable
|
$ | 7,697 | $ | 16,080 | $ | 82,485 | $ | 12,183 | $ | 12,893 | $ | 214,664 | $ | 346,002 | $ | 345,876 | ||||||||||||||||
Weighted average interest rate
|
5.78 | % | 5.78 | % | 5.78 | % | 5.78 | % | 5.78 | % | 5.78 | % |
31.1
|
Section 1350 Certificate of CEO
|
|
31.2
|
Section 1350 Certificate of President & COO
|
|
31.3
|
Section 1350 Certificate of Principal Financial Officer
|
|
32
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
101
|
XBRL (eXtensive Business Reporting Language). The following financial materials from Mission West Properties, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2011, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements. *
|
|
*
|
As provided in Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
|
Mission West Properties, Inc.
|
|||
(Registrant)
|
Date: August 9, 2011
|
By:
|
/s/ Carl E. Berg
|
|
Carl E. Berg
|
|||
Chief Executive Officer
|
Date: August 9, 2011
|
By:
|
/s/ Wayne N. Pham
|
|
Wayne N. Pham
|
|||
Vice President of Finance
|
|||
(Principal Accounting Officer and Duly Authorized Officer)
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
By: /s/ Carl E. Berg
|
|
Carl E. Berg
|
|
Chairman & Chief Executive Officer
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
By: /s/ Raymond V. Marino
|
|
Raymond V. Marino
|
|
President & Chief Operating Officer
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
By: /s/ Wayne N. Pham
|
|
Wayne N. Pham
|
|
Vice President of Finance
|
By: /s/ Carl E. Berg
|
|
Carl E. Berg
|
|
Chairman of the Board and Chief Executive Officer
|
|
August 9, 2011
|
By: /s/ Raymond V. Marino
|
|
Raymond V. Marino
|
|
President and Chief Operating Officer
|
|
August 9, 2011
|
By: /s/ Wayne N. Pham
|
|
Wayne N. Pham
|
|
Vice President of Finance
|
|
August 9, 2011
|
CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $)
|
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Preferred stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 20,000,000 | 20,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 200,000,000 | 200,000,000 |
Common stock, shares issued | 22,584,770 | 22,135,770 |
Common stock, shares outstanding | 22,584,770 | 22,135,770 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (USD $)
In Thousands, except Share data |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Rental income | $ 20,295 | $ 20,659 | $ 42,072 | $ 41,462 |
Tenant reimbursements | 4,045 | 4,028 | 8,690 | 8,453 |
Other income | 462 | 1,204 | 1,562 | 1,862 |
Total operating revenues | 24,802 | 25,891 | 52,324 | 51,777 |
Property operating and maintenance | 2,595 | 3,061 | 5,250 | 5,972 |
Real estate taxes | 3,150 | 3,388 | 6,354 | 6,571 |
General and administrative | 522 | 563 | 1,043 | 1,081 |
Depreciation and amortization | 5,844 | 5,976 | 11,671 | 11,816 |
Total operating expenses | 12,111 | 12,988 | 24,318 | 25,440 |
Operating income | 12,691 | 12,903 | 28,006 | 26,337 |
Equity in earnings of unconsolidated joint venture | 27 | 147 | 18 | 224 |
Interest income | 57 | Â | 126 | 50 |
Realized and unrealized gain from investment | Â | 2,215 | Â | 4,067 |
Interest expense | (5,246) | (4,778) | (10,525) | (9,627) |
Interest expense – related parties | (144) | (327) | (291) | (624) |
Income from continuing operations | 7,385 | 10,160 | 17,334 | 20,427 |
Loss from discontinued operations | (15) | (119) | (29) | (242) |
Net income | 7,370 | 10,041 | 17,305 | 20,185 |
Net income attributable to noncontrolling interests | (5,491) | (7,581) | (13,027) | (15,267) |
Net income available to common stockholders | $ 1,879 | $ 2,460 | $ 4,278 | $ 4,918 |
Net income per common share to common stockholders: | Â | Â | Â | Â |
Basic (in Dollars per share) | $ 0.08 | $ 0.11 | $ 0.19 | $ 0.22 |
Diluted (in Dollars per share) | $ 0.08 | $ 0.11 | $ 0.19 | $ 0.22 |
Weighted average shares of common stock outstanding (basic) (in Shares) | 22,495,605 | 21,957,654 | 22,392,427 | 21,919,632 |
Weighted average shares of common stock outstanding (diluted) (in Shares) | 22,756,006 | 22,123,527 | 22,583,358 | 22,090,313 |
Document And Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Aug. 09, 2011
|
|
Document and Entity Information [Abstract] | Â | Â |
Entity Registrant Name | MISSION WEST PROPERTIES INC | Â |
Document Type | 10-Q | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Common Stock, Shares Outstanding | Â | 22,584,770 |
Amendment Flag | false | Â |
Entity Central Index Key | 0001067419 | Â |
Entity Current Reporting Status | Yes | Â |
Entity Voluntary Filers | No | Â |
Entity Filer Category | Accelerated Filer | Â |
Entity Well-known Seasoned Issuer | No | Â |
Document Period End Date | Jun. 30, 2011 | |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
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Note 7 - Related Party Transactions
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Related Party Transactions Disclosure [Text Block] |
7.
Related
Party Transactions
As
of June 30, 2011, the Berg Group owned 75,769,684 O.P. units.
The Berg Group’s combined ownership of O.P. units and
shares of common stock as of June 30, 2011, represented
approximately 74% of the total equity interests, assuming
conversion of all O.P. units outstanding into the
Company’s common stock.
As
of June 30, 2011, debt in the amount of approximately $7,436
was due the Berg Group under a mortgage note established May
15, 2000 in connection with the acquisition of a 50% interest
in Hellyer Avenue Limited Partnership, the obligor under the
mortgage note. The mortgage note bears interest at 7.65% and
principal payments are amortized over 20 years. Interest
expense incurred in connection with the mortgage note was
approximately $144 and $155 for the three months ended June
30, 2011 and 2010, respectively, and $291 and $312 for the
six months ended June 30, 2011 and 2010, respectively.
On
September 17, 2009, the Superior Court of the County of Santa
Clara of the State of California issued a final decision and
entry of judgment in favor of Republic Properties Corporation
in the case of Mission West
Properties, L.P. v. Republic Properties Corporation.
The court’s decision held that Republic Properties
Corporation is entitled to retain its partnership interest in
the Hellyer Avenue Limited Partnership and all prior unpaid
distributions must be paid to Republic Properties Corporation
by Mission West Properties L.P., one of the Company’s
controlled operating partnerships. Because Republic
Properties Corporation’s interest in the Hellyer Avenue
Limited Partnership was transferred to Berg & Berg
Enterprises, Inc. after the interest was forfeited under the
terms of the partnership agreement and past distributions
from profits on account of that interest were paid to Berg
& Berg Enterprises, Inc., the Company accrued
approximately $1,021 in interest receivable in 2009 due from
Berg & Berg Enterprises, Inc. with respect to those
payments and the balance is still outstanding at June 30,
2011. The interest income accrual was calculated at an
interest rate of LIBOR plus 1.25%. See Note 8 to Condensed
Consolidated Financial Statements below for details.
During
the first six months of 2011 and 2010, Carl E. Berg or
entities controlled by him held financial interests in
several companies that lease space from the operating
partnerships, which include companies where Mr. Berg has a
greater than 10% ownership interest. These related tenants
contributed approximately $409 and $273 in rental income for
the three months ended June 30, 2011 and 2010, respectively,
and $666 and $546 for the six months ended June 30, 2011 and
2010, respectively.
Under
the Company’s charter, bylaws and agreements with the
Berg Group, the individual members of the Berg Group are
prohibited from acquiring or holding shares of the
Company’s common stock if such acquisition would result
in their beneficial ownership percentage of the
Company’s common stock causing the Company to violate
any REIT qualification requirement. Currently their share
ownership is below a level at which rent from related tenants
would be excluded in determining compliance with REIT
qualification tests.
The
Berg Group has a commitment to pay approximately $7,500
toward the construction of an approximately 75,000
to 90,000 square foot building in connection with the
Company’s 2001 acquisition of 245 Caspian in Sunnyvale
which is comprised of approximately three acres of unimproved
land. The Company has recorded this portion of the purchase
price paid to the Berg Group in “Other assets” on
its condensed consolidated balance sheets. The Berg Group
plans to satisfy this commitment to construct a building when
requested by the Company following the approval of the
Independent Directors Committee. Currently there is no tenant
or prospective tenant demand for a building at this site that
would justify the construction of a new building to which
this commitment could be applied.
The
Company currently leases office space owned by Berg &
Berg Enterprises for the Company’s headquarters. Rental
amounts and overhead reimbursements paid to Berg & Berg
Enterprises were $30 for the three months ended June 30, 2011
and 2010, and $60 for the six months ended June 30, 2011 and
2010.
|
Note 3 - Variable Interest Entity
|
6 Months Ended | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
||||||||||||||||||
Variable Interest Entity [Text Block] |
3.
Variable
Interest Entity
Under
the VIE provisions of the Consolidation
Topic of the FASB ASC 810, a VIE must be consolidated
by a company if it is subject to a majority of the
entity’s expected losses or is entitled to receive a
majority of the entity’s expected residual returns or
both. In addition, the Consolidation
Topic of the FASB ASC 810 requires disclosures about
variable interest entities that a company is not required to
consolidate, but in which it has a significant variable
interest.
Under
the Consolidation
Topic of the FASB ASC 810, for an entity to qualify as
a VIE one or more of the following three characteristics must
exist:
1.
The
equity investment at risk is not sufficient to permit the
entity to finance its activities without additional
subordinated financial support by any parties, including
the equity holders.
2.
The
equity investors lack one or more of the following
essential characteristics of a controlling financial
interest:
3.
The
equity investors have voting rights that are not
proportionate to their economic interests, and the
activities of the entity involve or are conducted on behalf
of an investor with a disproportionately small voting
interest.
In
August 2007, one of the Company’s tenants, Ciena,
entered into an assignment of lease agreement with an
unrelated party, M&M Real Estate Control &
Restructuring, LLC (“M&M Real Estate”), in
connection with leases for approximately 445,000 rentable
square feet located in San Jose, California. As a result of
the Assignment, M&M Real Estate assumed all of
Ciena’s remaining obligations under these leases and
received a payment from Ciena of $53,000, of which $7,000 was
reserved for tenant improvements. At the same time, the
Company entered into a consent for assignment of lease with
both parties and a mutual release agreement with Ciena,
pursuant to which all of Ciena’s obligations under
these leases were effectively transferred to M&M Real
Estate. M&M Real Estate is obligated to continue to
perform all of the obligations under the assumed Ciena leases
and has the right to sublease any or all of the 445,000
rentable square feet vacated by Ciena for the remainder of
the current lease term, which will expire on December 31,
2011. Under the terms of the assignment of lease agreement,
the Company received monthly rent payments of approximately
$789 from July 2007 through June 2008, received $818 from
July 2008 through June 2009, received $849 from July 2009
through June 2010, received $881 from July 2010 through
June 2011 and is receiving $915 from July 2011 through
December 2011. Based upon the provisions of the Consolidation
Topic of the FASB ASC 810, the Company determined that
M&M Real Estate is a VIE. The Company further determined
that it is the primary beneficiary of this VIE, and therefore
has consolidated this entity for financial reporting
purposes. Upon consolidation, the Company recognized a lease
termination fee of $46,000 in August 2007.
Factors
considered by the Company in determining whether M&M Real
Estate should be considered a VIE for financial reporting
purposes included the following:
The
Company remains at risk with respect to the assigned leases
because if M&M Real Estate’s operating expenses
exceed its interest income, fees and commissions, there would
be insufficient funds to meet the assigned lease obligation
without additional financial support from equity holders or
other parties. The Company, which had released the original
tenants from its obligations under the leases, would have to
absorb the majority of any loss, making it the primary
beneficiary of M&M Real Estate’s activities.
|
Note 9 - Real Estate Asset Held for Sale/Discontinued Operations
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate Disclosure [Text Block] |
9.
Real
Estate Asset Held for Sale/Discontinued Operations
The
real estate sales provisions of the Property, Plant,
and Equipment Topic of the FASB ASC 360 addresses
financial accounting and reporting for the impairment and
disposal of long lived assets. In general, income or loss
attributable to the operations and sale of property and the
operations related to property held for sale is classified as
discontinued operations in the condensed consolidated
statements of operations. Prior period condensed consolidated
statements of operations presented in this report have been
reclassified to reflect the income or loss related to
properties that were under contract to be sold and presented
as discontinued operations in 2011. All periods presented in
this report will likely require further reclassification in
future periods if there are properties held for sale or if
property sales occur.
As
of June 30, 2011, there was one vacant property under
contract to be sold or otherwise disposed of which would
qualify as an asset held for sale and presented as
discontinued operations. In the fourth quarter of 2010, the
Company sold one vacant R&D property which qualified as
discontinued operations. Condensed results of operations for
these properties for the three and six months ended June 30,
2011 and 2010, are as follows:
|
Note 10 - Subsequent Events
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Subsequent Events [Text Block] |
10.
Subsequent
Events
On
June 15, 2011, the Company declared dividends for the second
quarter 2011. On July 7, 2011, the Company paid dividends of
$0.13 per share of common stock to all common stockholders of
record as of June 30, 2011. On the same date, the operating
partnerships paid a distribution of $0.13 per O.P. unit to
all O.P. unit holders. Aggregate dividends and distributions
amounted to approximately $13,687.
On
July 1, 2011, the Company acquired an approximately 67,500
rentable square foot R&D building located at 5941 Optical
Court in San Jose, California from the Berg Group. The total
acquisition price for this property was approximately
$10,825. The Company acquired this property by paying $2,000
in cash and issuing an unsecured short-term note payable in
the amount of approximately $8,825 with an interest rate of
3.50%, which is due October 31, 2011.
On
July 18, 2011, the Superior Court of the
State of California for the County of Santa Clara
denied the Company’s appeal in the Mission West
Properties, L.P. v. Republic Properties Corporation
litigation. The Company plans to request that the Superior
Court’s decision be reviewed by the California Supreme
Court, however, there can be no assurances from the Company
that the California Supreme Court will hear the case. The
Company will continue to accrue interest
on the amount of past distributions that would be payable to
RPC by Hellyer LP determined at the legal rate of interest of
10% pending the appeal.
|
Note 8 - Commitments and Contingencies
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Commitments and Contingencies Disclosure [Text Block] |
8.
Commitments
and Contingencies
From
time to time, the Company is engaged in legal proceedings
arising in the ordinary course of business. The Company does
not expect any of such proceedings to have a material adverse
effect on its cash flows, financial condition or results of
operations. The Company is currently involved in the
following legal proceeding, which it believes will not have a
material adverse effect on its operating results, cash flows
or financial condition.
Mission
West Properties, L.P. v. Republic Properties Corporation, et
al. Santa Clara County Superior Court, Case No. CV
796249. In
February 2001, while a related case in Maryland was pending,
the Company filed a suit against Republic Properties
Corporation (“RPC”) in the Superior Court of the
State of California for the County of Santa Clara, Case
No. CV 796249. The case was stayed pending
resolution of the Maryland case, and the Company dismissed
its suit on March 4, 2005. In April 2005, RPC submitted a
motion asking the superior court to reinstate the case, which
the court granted on May 25, 2005. In April 2006, the
Maryland case was dismissed by the highest court in Maryland
for lack of personal jurisdiction. On July 5, 2006, RPC filed
a cross-complaint in the case seeking partnership
distributions. On September 17, 2009, the superior court
issued a final decision and entry of judgment that concluded
RPC is a partner in the Hellyer
Avenue Limited Partnership (“Hellyer LP”)
and is entitled to distribution of profits of the Hellyer LP
in accordance with its percentage interest together with
pre-judgment interest on each distribution from the date it
was due and payable in the total amount of approximately
$6,625, plus pre-judgment interest of 10% through September
3, 2009 of $2,692, for a total of approximately $9,317. The
Company filed an appeal following the court’s issuance
of a final decision and entry of judgment. On October 5,
2009, the Company deposited with the clerk of the Santa Clara
County Superior Court a check in the amount of approximately
$13,975, of which approximately $4,658, or 50% of $9,317, was
a deposit to appeal the court’s final decision. The
additional $4,658 appeal deposit is refundable regardless of
the outcome of the appeal process and such amount is included
in other assets on the Company’s condensed consolidated
balance sheets. Pending the outcome of the appeal, the
Company has accrued in the aggregate approximately $4,400 in
interest on the amount of past distributions that would be
payable to RPC by Hellyer LP based on the judgment determined
at the legal rate of interest of 10%. In addition, the
Company has accrued approximately $1,021 in interest
receivable due from Berg & Berg Enterprises, Inc. because
past distributions with respect to RPC’s interest in
Hellyer LP were paid to Berg & Berg Enterprises, Inc.,
which interest income accrual was calculated at an interest
rate of LIBOR plus 1.25%.
Since
the inception of Hellyer LP, the Company has accounted for
the properties owned by the partnership on a consolidated
basis, with reductions for the noncontrolling interests held
by the noncontrolling partner (first RPC and then Berg &
Berg Enterprises, Inc.). In each period, the Company has
accrued amounts payable by Hellyer LP to the noncontrolling
interest partner, including Berg & Berg Enterprises, Inc.
(“BBE”) prior to payment. BBE's share of earnings
allocated to its 50% noncontrolling interest was
approximately $513 and $483 in the first six months of 2011
and 2010, respectively. As of June 30, 2011, accumulated cash
flow distributions from Hellyer LP totaling approximately
$7,879 were accrued and distributed to BBE. If the Company's
litigation with RPC is ultimately decided in RPC's favor, the
Company anticipates that BBE will be required to return all
distributions paid to BBE and RPC's former interest in
Hellyer LP to RPC. In anticipation of this contingency, since
October 2003, the Company has recorded such distributions as
an account receivable from BBE, which is included in other
assets on the Company's condensed consolidated balance
sheets, with an offsetting account payable to BBE.
The
Independent Directors Committee of the Board of Directors has
exercised the Company’s right to acquire on behalf of
the Company the former RPC interest and related distributions
from Berg & Berg Enterprises, Inc. under the terms of the
Berg Land Holdings Option Agreement between the Company and
the Berg Group if the litigation is ultimately decided in
favor of the Company.
Guarantees
and Indemnities
Under
its articles of incorporation and bylaws, the Company has
agreed to indemnify its officers and directors for certain
events or occurrences arising as a result of the officer or
director’s serving in such capacity. The maximum
potential amount of future payments the Company could be
required to make under these indemnification agreements is
unlimited. The Company believes the estimated fair value of
its obligations under these indemnification agreements is
minimal and has recorded no liabilities for these agreements
as of June 30, 2011.
The
Company also enters into agreements with other companies in
the ordinary course of business, typically lenders, joint
venture partners, contractors, and tenants that contain
indemnification provisions. Under these provisions the
Company typically agrees to indemnify and hold harmless the
indemnified party for losses suffered or incurred by the
indemnified party as a result of certain kinds of activities
or inactions of the Company. These indemnification provisions
generally survive termination of the underlying agreement.
The maximum potential amount of future payments the Company
could be required to make under these indemnification
provisions is unlimited. To date, the Company has not
incurred material costs to defend lawsuits or settle claims
related to these indemnification agreements. As a result, the
Company believes the estimated fair value of these agreements
is minimal. Accordingly, the Company has recorded no
liabilities for these agreements as of June 30, 2011.
Seismic
Activity
The
Company’s properties are located in an active seismic
area of Silicon Valley. Insurance policies currently
maintained by the Company do not cover seismic activity,
although they do cover losses from fires after an
earthquake.
Environmental
Issues
The
environmental investigations that have been conducted on the
Company’s properties have not revealed any
environmental liability that the Company believes would have
a material adverse effect on its financial condition, results
of operations and assets, and the Company is not aware of any
such liability. Nonetheless, it is possible that there are
material environmental liabilities of which the Company is
unaware. In addition, the Company cannot assure that future
laws, ordinances, or regulations will not impose any material
environmental liability, or that the current environmental
condition of the properties has not been, or will not be,
affected by tenants and occupants of the properties, by the
condition of properties in the vicinity of the properties, or
by third parties unrelated to the Company.
|
Note 1 - Organization and Formation of the Company
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Nature of Operations [Text Block] |
1. Organization
and Formation of the Company
Mission
West Properties, Inc. (the “Company”) is a fully
integrated, self-administered and self-managed real estate
company that acquires and manages research and development
(“R&D”)/office properties in the portion of
the San Francisco Bay Area commonly referred to as Silicon
Valley. In July 1998, the Company purchased an approximate
12.11% of four existing limited partnerships (referred to
collectively as the “operating partnerships”) and
obtained control of these partnerships by becoming the sole
general partner in each one effective July 1, 1998, for
financial accounting and reporting purposes. All limited
partnership interests in the operating partnerships were
converted into 59,479,633 operating partnership
(“O.P.”) units, which represented a limited
partnership ownership interest of approximately 87.89% of the
operating partnerships. The operating partnerships are the
vehicles through which the Company holds its real estate
investments, makes real estate acquisitions, and generally
conducts its business.
On
December 30, 1998, the Company was reincorporated under the
laws of the State of Maryland through a merger with and into
Mission West Properties, Inc. Accordingly, shares of the
former company, Mission West Properties, a California
corporation (no par), which were outstanding at December 30,
1998, were converted into shares of common stock, $.001 par
value per share, on a one-for-one basis.
As
of June 30, 2011, the Company owned a controlling general
partnership interest of 25.35%, 21.86%, 16.32% and 12.53% in
Mission West Properties, L.P., Mission West Properties, L.P.
I, Mission West Properties, L.P. II and Mission West
Properties, L.P. III, respectively, which represents a 21.27%
general partnership interest in the operating partnerships,
taken as a whole, on a consolidated weighted average basis.
The ownership interests which the Company does not own in the
operating partnerships are accounted for as noncontrolling
interests.
Through
the operating partnerships, the Company owns interests in 111
R&D/office properties, all of which are located in the
Silicon Valley.
The
Company has elected to be taxed as a Real Estate Investment
Trust (“REIT”) under the Internal Revenue Code of
1986, as amended. Accordingly, no provision has been made for
income taxes for the three and six months ended June 30, 2011
and 2010.
Business
Segment Information
The
Company’s primary business is the ownership and
management of R&D/office real estate with a geographic
concentration in the Silicon Valley of the San Francisco Bay
Area. Accordingly, the Company has concluded it currently has
a single reportable segment for the Segment Reporting
Topic of the Financial Accounting Standards Board Accounting
Standards Codification (“FASB ASC”) 280
purposes.
|
Note 4 - Restricted Cash
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Restricted Cash [Text Block] |
4.
Restricted
Cash
There
was no remaining restricted cash as of June 30, 2011. In
April 2011, approximately $6,824, including interest,
received from a property sale in October 2010 had been held
in a separate cash account at a trust company. The Company
was unable to find a “like kind” property to
complete a 1031 exchange, otherwise known as a tax deferred
exchange, within the required exchange period, so the
balance was transferred to the Company’s checking
account in April 2011 for general corporate
purposes.
|
Note 5 - Stock Transactions
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Shareholders' Equity and Share-based Payments [Text Block] |
5.
Stock
Transactions
During
the six months ended June 30, 2011, three limited partners
exchanged a total of 449,000 O.P. units for 449,000 shares of
the Company’s common stock under the terms of the
Exchange Rights Agreement among the Company and all limited
partners of the operating partnerships resulting in a
reclassification of approximately $3,266 from noncontrolling
interests to stockholders’ equity. Neither the Company
nor the operating partnerships received any proceeds from the
issuance of the common stock in exchange for O.P. units.
Under the limited partnership agreements, each exchange is
treated as the purchase of additional O.P. units of the
general partner interest by the Company in exchange for
stock, and the contribution of additional capital to the
partnership by the Company equal in amount to the value of
the stock issued in exchange for the limited partnership
interests.
|
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