-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PTRzAx6y/6MbwaYOjWIpZ5wCWIU08Bu8p7rU+/yElE0GsMxojM7JTQyalCdf9H5f DM/cN+aN334SVlymcKbVjQ== 0000910079-98-000012.txt : 19980820 0000910079-98-000012.hdr.sgml : 19980820 ACCESSION NUMBER: 0000910079-98-000012 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980819 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEDFORD PROPERTY INVESTORS INC/MD CENTRAL INDEX KEY: 0000910079 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 680306514 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-12222 FILM NUMBER: 98694570 BUSINESS ADDRESS: STREET 1: 270 LAFAYETTE CIRCLE STREET 2: P. O. BOX 1058 CITY: LAFAYETTE STATE: CA ZIP: 94549 BUSINESS PHONE: 510-283-89 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K/A Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1997 Commission file number 1-12222 BEDFORD PROPERTY INVESTORS, INC. (Exact name of Registrant as specified in its charter) MARYLAND 68-0306514 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 270 Lafayette Circle, Lafayette, CA 94549 (Address of principal executive offices) Registrant's telephone number, including area code(510) 283-8910 Securities Registered Pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, par value $0.02 per share New York Stock Exchange Pacific Exchange Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of Registrant as of March 13, 1998 was approximately $425,368,000. The number of shares of Registrant's Common Stock, par value $0.02 per share, outstanding as of March 13, 1998 was 22,583,867. 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 13, 1998, 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. The Company hereby amends Form 10-K for the year ended December 31, 1997 which was filed on March 27, 1998. The amendment consists of restating the earnings per share on the Financial Data Schedules for the years ended December 31, 1996 and 1995 to conform with Financial Accounting Standard No. 128. PART I When used in this annual report, the words "believes," "anticipates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected, including, but not limited to, those set forth in the section entitled "Potential Factors Affecting Future Operating Results" 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. ITEM 1. BUSINESS The Company Bedford Property Investors, Inc. is a self-administered and self-managed equity REIT engaged in the business of owning, managing, acquiring and developing industrial and suburban office properties proximate to metropolitan areas primarily in the Western United States. As of December 31, 1997, the Company owned and operated, either directly or through one of its wholly-owned subsidiaries, 75 properties aggregating approximately 6.2 million rentable square feet and comprised of 55 industrial properties (the "Industrial Properties") and 20 suburban office properties (the "Suburban Office Properties" and, together with the Industrial Properties, the "Properties"). This portfolio of properties includes 4 industrial properties which were developed by the Company in 1997 and 71 existing properties. In addition, the portfolio includes 7 parcels of land held for future development. As of December 31, 1997, the existing Properties were approximately 99% leased by over 440 tenants and the development properties were approximately 44% leased by 14 tenants. The Properties are located in Northern and Southern California, Oregon, Washington, Arizona, Nevada, Utah, Colorado, Texas and Kansas. The Company seeks to grow its asset base through the acquisition of industrial and suburban office properties and portfolios of such properties, as well as through the development of new industrial and suburban office properties. The Company's strategy is to operate in suburban markets that are experiencing, or are expected by the Company to experience, superior economic growth that are subject to limitations on the development of similar properties. The Company believes that employment growth is a reliable indicator of future demand for both industrial and suburban office space. In addition, the Company believes that certain supply-side constraints, such as limited availability of undeveloped land in a market, increase a market's potential for higher average rents over time. The Company is currently targeting selected markets in which the Properties are located as well as selected markets in which the Company has expertise. The Company believes that due to recent economic improvements in these markets, and related improvements in the commercial property markets, an investment in industrial or suburban office properties in these markets provides the potential for attractive returns through increased occupancy levels, rents and real estate values. Business Objectives and Growth Plan Business Objectives The Company's business objective is to increase stockholders' long-term total return through the appreciation in value of the common stock. To achieve this objective, the Company seeks to (i) increase cash flow from our existing Properties, (ii) acquire quality industrial and suburban office properties and/or portfolios of such properties, and (iii) develop new industrial and suburban office properties. 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 through the retention of 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 1997, leases for 946,920 square feet expired with a weighted average base rental rate of $8.25 per square foot. Approximately 76% of this space has been re-leased, and the weighted average base rental rate of the new leases is $9.10 per square foot, an increase of 10.3%. Changes in average rental rate do not reflect changes in expense recovery rates, if any. In addition, past performance is not necessarily indicative of results that will be obtained in the future, and no assurance can be given in that regard. Acquisitions The Company seeks to acquire quality industrial and suburban office properties and/or portfolios of such properties. The Company believes that (i) the experience of its management team, (ii) its conservative capital structure and its existing $175 million credit facility, (iii) its relationships with private and institutional real estate owners, (iv) its strong relationships with real estate brokers, and (v) its integrated asset management program enable it to effectively identify and capitalize on acquisition opportunities. Each acquisition opportunity is reviewed to evaluate whether it meets the following criteria: (i) potential for higher occupancy levels and/or rents as well as for lower turnover and/or operating expenses, (ii) ability to generate returns in excess of the Company's weighted average cost of capital, taking into account the estimated costs associated with tenant turnover (i.e., tenant improvements, leasing commissions and the loss of income due to vacancy), and (iii) availability for purchase at a price at or below estimated replacement cost. The Company has, however, 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, 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, as well as an evaluation of the local market and competitive properties and of relevant economic and demographic information. Mr. Bedford (the Chief Executive Officer) and at least one other member of the Board of Directors typically visit each proposed acquisition property before the purchase is closed. The Company's activities relating to the acquisition of new properties, including the due diligence process, are conducted on an exclusive basis by Bedford Acquisitions, Inc. (BAI), a California corporation wholly- owned by Mr. Bedford. BAI receives a fee in an amount equal to the lesser of (i) 1 1/2% of the gross amount raised in financings or the aggregate purchase price of property acquisitions, or (ii) an amount equal to (a) the aggregate amount of approved expenses funded by BAI through the time of such acquisition or financing minus (b) the aggregate amount of fees previously paid to BAI pursuant to such arrangement. In no event will the aggregate amount of fees paid to BAI exceed the aggregate amount of costs funded by BAI. The agreement with BAI has a term of one year and is renewable at the option of the Company for additional one year terms. The current agreement will expire January 1, 1999. Development The Company seeks to develop properties in markets where (i) strong demand for space has caused or is expected to cause occupancy rates to remain high, and (ii) there is a limited supply of land available for new development. The Company's management team has experience in all phases of the development process, including market analysis, site selection, zoning, design, pre-development leasing, construction and permanent financing and construction management. The Company believes that a general decrease in competition in development activity as well as higher occupancy rates in most of the Company's markets will lead to additional attractive development opportunities. The Company is currently in the process of developing properties in Northern California, Arizona, and Kansas and is considering developing additional properties in Northern California, Southern California, Arizona, Colorado and Washington. The Company's management team has significant development experience in each of these markets. In 1997 the shell construction of 4 properties was completed, representing 365,000 square feet of industrial space. These properties are now in the lease up phase and were 44% leased by year end. Corporate Strategies In pursuing its business objectives and growth plans, the Company intends to: 1. Pursue a Market Driven Strategy. The Company's strategy is to operate in suburban markets which are experiencing, or are expected by the Company to experience, economic growth, and which are, ideally, subject to supply-side constraints. The Company believes that the metropolitan areas in which it operates have multiple suburban "cores" and that the potential for growth in these metropolitan areas is generally greatest in and around these suburban cores. The Company believes 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. The Company believes that 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, including markets in which the Company's Properties are located as well as selected new markets. The Company believes that due to continued economic improvements in these markets, and related improvements in the commercial property markets, an investment in industrial or suburban office properties in these markets provides the potential for attractive returns through increased occupancy levels, rents and real estate values. The Company believes that this geographic focus, combined with management's market experience, contributes to a more thorough understanding of these industrial and suburban office property markets and allows the Company to anticipate trends and therefore to better identify investment opportunities. 3. Acquire and Develop "Service Center/Flex" Industrial Properties. One of the Company's targeted property types is "service center/flex" industrial properties. These properties are generally smaller than other industrial buildings and 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 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 grade level service doors in the back elevation. The Company believes that these properties require more management expertise than other types of industrial properties and that it has developed such expertise. The Company also believes that many potential buyers do not wish or are not well-positioned to undertake such active management. As a result, the Company believes that it often faces fewer competitors for this product and is generally able to acquire these properties at above average yields. 4. Plan for Future Anticipated Expenses Associated with Tenant Turnover. The cash flow of a real estate asset can vary significantly from year to year depending on tenant turnover. When a lease expires and a tenant renews or vacates its space, costs associated with tenant improvements, lease commissions and lost income due to vacancy or construction down- time can significantly reduce property cash flow. Due to the capital intensive nature of suburban office properties, and to a lesser degree, industrial properties, the Company believes that planning and budgeting for future costs associated with tenant turnover is a prudent component of managing the cash flow of the Properties. For its existing portfolio, the Company estimates the future costs for tenant improvements, lease commissions and lost income due to vacancy and construction down-time on a property by property basis. Although these future costs are not accrued for financial reporting purposes, the Company incorporates these estimates in its annual budgets and longer-term forecasts and seeks to maintain cash and/or availability under the Credit Facility adequate to cover these budgeted expenditures. The Company believes that its ability to commit capital to fund tenant improvements and pay lease commissions helps to retain and attract tenants. To the extent that a vacancy in one of the Properties does occur, the Company believes that its policy of budgeting ahead for anticipated tenant improvement costs and leasing commissions enables it to compete effectively for new tenants. 5. 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 and currently manages 68 of its 75 properties from its seven regional property management offices and its corporate headquarters. 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 Kansas City property management activities out of its regional office in Lenexa, Kansas; its Arizona property management activities out of its regional office in Phoenix, Arizona; its Washington property management activities out of its regional office in Seattle, Washington; its Colorado property management activities out of its regional office in Denver, Colorado; and its Texas property management activities out of its regional office in Dallas, Texas. The Company's three Properties in Utah and Oregon are currently managed for the Company by third parties. The Company intends to open additional property management offices in those regions as its portfolios grow to a point where it becomes economically justified. 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 Senior 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, financial record keeping 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 managers. 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 tenants. 6. 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. 7. Maximize its Capital Structure. As of December 31, 1997 the Company's total market capitalization was $565 million. With a debt to total market capitalization ratio of 12%, the Company is well positioned for future growth. Funding of new acquisitions and development is expected to be provided by a combination of debt and equity. The Company currently intends to take advantage of the low interest rates available today by locking in long term debt financing on a portion of its portfolio. At the same time, the Company intends to preserve its financing flexibility through the use of short term debt facilities such as its existing $175 million bank line of credit as well as other means of managing interest rate risk. The Company plans to access the equity markets from time to time to balance its overall capital structure. Transactions and Significant Events During 1997 Acquisitions and Development During the year, the Company acquired 26 Properties, including 13 Industrial Properties and 13 Suburban Office Properties aggregating approximately 2.3 million rentable square feet, for a total investment of approximately $206 million. At acquisition, the Company estimated that these Properties would provide an initial weighted average unleveraged return on cost (computed as annualized property NOI at the date of acquisition divided by total acquisition cost) of 9.4%. The Company estimates that the purchase price of acquisitions completed in 1997 is approximately 84% of the replacement cost. In addition, the Company completed shell construction of four industrial properties aggregating approximately 365,000 square feet, for a total investment to date of approximately $18 million. The Company also acquired 6 parcels of land aggregating approximately 21 acres for a total investment of approximately $5 million, 5 of which are adjacent to existing Properties. The Company plans to develop industrial or office properties on each of these parcels. Property Dispositions In 1997, the Company sold three properties aggregating approximately 297,000 square feet. On July 31, 1997, two of its Southern California office properties were sold for a sale price of approximately $25.8 million, which resulted in a gain of approximately $10.8 million. The properties were 1000 Town Center Drive in Oxnard, California and Mariner Court in Torrance, California. On October 22, 1997, Academy Place Shopping Center in Colorado Springs, Colorado was sold for a sale price of approximately $7.5 million, which resulted in a gain of approximately $748,000. Common Stock Offerings and Credit Facility The Company completed the sale of 4,600,000 shares of common stock at $17 3/8 per share in February 1997 and 7,245,000 shares of common stock at $19 5/8 per share in November 1997. Net cash proceeds from these offerings were used to pay off the outstanding borrowings under the Company's credit facility. The facility was amended and expanded to $150 million in June 1997, and was further expanded to $175 million in September 1997. Under this facility, the Company can borrow up to $25 million on an unsecured basis. The secured loans bear interest at a rate of LIBOR plus 1.50% and the unsecured loans bear interest at LIBOR plus 1.75%. The amended facility matures on June 1, 2000 and had an outstanding balance of $8 million at December 31, 1997. The Company was in compliance with the covenants and requirements of its revolving credit facility at December 31, 1997. Dividends The Company has made regular quarterly distributions to the holders of the Common Stock in each quarter since the second quarter of 1993, having increased the dividend eight times since that time from $0.10 per share in the second quarter of 1993 to $0.30 per share in each of the third and fourth quarters of 1997. In March 1998, the Company declared a dividend distribution for the first quarter 1998 to its stockholders in the amount of $0.30 per share of Common Stock, payable 15 days after the quarter- end. The Company paid dividends to the holders of the 8,333,334 shares of its Series A Convertible Preferred Stock par value $0.01 per share (the "Convertible Preferred Stock") in the amount of $.135 per share for each of the first two quarters of 1997 and $.15 per share for the third quarter of 1997. In October 1997, the Convertible Preferred stock was converted to 4,166,667 shares of common stock. Tenants Based on rentable square feet, as of December 31, 1997, the Suburban Office Properties and Industrial Properties were approximately 99% occupied by a total of 444 tenants, of which 94 were Suburban Office Property tenants and 350 were Industrial Property tenants. The Company's tenants include local, regional, national and international companies engaged in a wide variety of businesses. Financing The Company expects cash flow from operations to be sufficient to pay operating expenses, real estate taxes, general and administrative expenses, and interest on indebtedness and to make distributions to stockholders required to maintain the Company's REIT qualification. The Company expects to fund the cost of acquisitions, capital expenditures, costs associated with lease renewals and reletting of space, repayment of indebtedness, and development of properties from (i) cash flow from operations, (ii) borrowings under the credit facility and, if available, other indebtedness (which may include indebtedness assumed in acquisitions), (iii) the sale of real estate investments, and (iv) the sale of equity securities and, possibly, the issuance of equity securities in connection with acquisitions. The Company does not anticipate that cash flow from operations will be sufficient to enable it to repay amounts then outstanding under the credit facility when it becomes due in 2000. The Company expects to make such payment by refinancing or extending the credit facility or by raising funds through the sale of equity securities or properties. Insurance The Company carries commercial general liability coverage with primary limits of $1 million per occurrence and $2 million in the aggregate, as well as a $20 million umbrella liability policy. This coverage protects the Company against liability claims as well as the cost of defense. The Company carries property insurance on a replacement value basis covering both the cost of direct physical damage and the loss of rental income. Separate flood and earthquake insurance is provided with an annual aggregate limit of $12.5 million subject to a deductible of 5-10% of total insurable value per building with respect to the earthquake coverage. The Company also carries director and officer liability insurance with an aggregate limit of $10 million. This coverage protects the Company's directors and officers against liability claims as well as the cost of defense. Competition, Regulation, and Other Factors The success of the Company depends upon, among other factors, general economic conditions and trends, including real estate trends, interest rates, government regulations and legislation, income tax laws and zoning laws. The Company's real estate investments are located in markets in which they face significant competition for the rental revenues they generate. Many of the Company's investments, particularly the office buildings, are located in markets in which there is a significant supply of available space, resulting in intense competition for tenants and low rents. Government Regulations The Company's properties are subject to various federal, state and local regulatory requirements such as local building codes and other similar regulations. The Company believes its properties are currently in substantial compliance with all applicable regulatory requirements, although expenditures at its properties may be required to comply with changes in these laws. No material expenditures are contemplated at this time in order to comply with any such laws or regulations. Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances released on, above, under, or in such property. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of such removal or remediation could be substantial. Additionally, the presence of such substances or the failure to properly remediate such substances may adversely affect the owner's ability to borrow using such real estate as collateral. The Company believes that it is in compliance in all material respects with all federal, state and local laws regarding hazardous or toxic substances, and the Company has not been notified by any governmental authority of any non-compliance or other claim in connection with any of its present or former properties. The Company does not 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. Other Information The Company currently employs 46 full time employees. The Company is not dependent upon a single tenant or a limited number of tenants. The Company has conducted a comprehensive review of its computer systems to identify "Year 2000" issues. The Year 2000 problem is a result of computer programs being written using two digits rather than four to define the applicable year. The Company purchased and implemented a new computer information system in January 1997 in order to increase efficiencies related to asset management and reporting. The new computer information system is Year 2000 compliant. The Company presently believes that the Year 2000 issue will not pose significant operational problems for the Company and the Company does not anticipate material expenditures related to this issue. ITEM 2. PROPERTIES Real Estate Summary As of December 31, 1997, the Company's real estate investments (net of accumulated depreciation) were diversified by property type as follows: Number of Investment Properties Amount % of Total Industrial Buildings 51 $230,890,000 55 Office Buildings 20 168,326,000 40 Properties Under Development 4 18,158,000 4 Land Held for Development 7 5,712,000 1 Total 82 $423,086,000 100 As of December 31, 1997, the Company's real estate investments (net of accumulated depreciation) were diversified by geographic region as follows: Number of Investment Properties Amount % of Total Industrial Northern California 28 132,735,000 31 Southern California 8 43,276,000 10 Denver, Colorado 2 5,014,000 1 Arizona 4 20,486,000 5 Greater Portland Area 2 10,596,000 3 Greater Kansas City Area 6 16,039,000 4 Dallas, Texas 1 2,744,000 1 Total Industrial 51 230,890,000 55 Suburban Office Northern California 4 17,394,000 4 Southern California 3 25,028,000 6 Salt Lake City 1 6,093,000 1 Greater Kansas City Area 1 6,361,000 2 Greater Seattle Area 2 44,871,000 11 Reno, Nevada 1 12,387,000 3 Austin, Texas 1 9,750,000 2 Arizona 6 31,382,000 7 Denver, Colorado 1 15,060,000 4 Total Suburban Office 20 168,326,000 40 Industrial Properties Under Development Northern California 2 10,484,000 2 Arizona 1 4,407,000 1 Greater Kansas City Area 1 3,267,000 1 Total Industrial Properties Under Development 4 18,158,000 4 Land Held for Development Northern California 2 1,752,000 * Southern California 2 981,000 * Arizona 2 1,334,000 * Denver, Colorado 1 1,645,000 * Total Land held for Development 7 5,712,000 1 Total 82 423,086,000 100 * 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, 1997. Percentage Occupied/Number of Tenants Occupying 10% or more 1993 1994 1995 1996 1997 Property % # % # % # % # % # Principal Business at December 31, 1997 INDUSTRIAL PROPERTIES Northern California Building #3 at Contra Costa Diablo Ind. Park, Concord 100% 1 100% 1 100% 1 100% 1 100% 1 Production and assembly of robotic parts and machines. 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 90% 2 83% 2 83% 2 100% 2 Warehouse of scaffolding materials and construction supplies. 115 Mason Circle, Concord N/A N/A N/A 100% 5 100% Mechanical systems insulation and acoustical contractor, pipeline servicing co., wholesale distributor of computer peripherals and software, distributor of fluid ceiling products, manufacturer and welder of pipes. Auburn Court, Fremont N/A N/A 100% 4 100% 4 100% 4 Manufacturing of computer equipment, assembly of cable items, lab engineering, and marketing design. 47650 Westinghouse Drive, Fremont N/A N/A 100% 1 100% 1 100% 1 Electronic personal computer board assembly. 47600 Westinghouse Drive, Fremont N/A N/A N/A 100% 1 100% 1 Research and development assembly and testing related to the semi- conductor/electronics industry. 47633 Westinghouse Drive, Fremont N/A N/A N/A 100% 1 100% 1 Design and manufacture chemical vapor equipment for semi-conductors. 6500 Kaiser Drive, Fremont N/A N/A N/A N/A 100% 1 Officce, research and development, manufacturing of computers. Bedford Fremont Business Center, Fremont N/A N/A N/A N/A 100% 1 Administration and testing of samples for kidney dialysis facilities. Spinnaker Court, Fremont N/A N/A N/A N/A 100% 2 Warehouse and assembly of computer products and general industrial, warehouse research and development. Fourier Avenue, Fremont N/A N/A N/A 100% 1 100% 1 Manufacturer of testers and equipment for semi-conductors. Milpitas Town Center, Milpitas N/A 100% 4 100% 4 100% 4 100% 4 Manufacturing of blood glucose meters, assembly and repair of accelerator systems, light manufacturing of OEM's and assembly and manufacturing of vacuum components. 598 Gibraltar Drive, Milpitas N/A N/A N/A 100% 1 100% 1 Manufacturing of personal computers. Doherty Avenue, Modesto N/A N/A N/A 100% 1 100% 1 Storing canned goods. 860-870 Napa Valley Corporate Way, Napa N/A N/A N/A 96% 3 86% 3 Winery, engineering company and software developer. The Mondavi Building, Napa N/A N/A N/A N/A 100% 1 Wine storage and administration. 350 East Plumeria Drive, San Jose N/A N/A 100% 1 100% 1 100% 1 Developer of data transmission technology. Lundy Avenue, San Jose N/A N/A N/A 100% 2 100% 2 Distributor of electronic components, manufacturer and distributor of high quality personal computers. O'Toole Business Center, San Jose N/A N/A N/A 94% 0 90% 0 N/A 301 East Grand, South San Francisco N/A N/A 71% 2 100% 3 100% 3 Freight forwarding, furniture wholesale, and distributor of MRI Equipment. 342 Allerton, South San Francisco N/A N/A 100% 4 100% 4 100% 4 Freight forwarding. 400 Grandview, South San Francisco N/A N/A 100% 5 100% 5 100% 4 Radiology research and developer, freight forwarding, manufacturing and distribution of point- of-sale marketing products. 410 Allerton, South San Francisco N/A N/A 100% 1 100% 1 100% 1 Candy manufacturer and distributor. 417 Eccles, South San Francisco N/A N/A 100% 2 100% 2 53% 1 Storage/distribution of food products. 2277 Pine View Way, Petaluma N/A N/A N/A N/A 100% 1 Manufacturer and distributor of plastic and glass eyeglass lenses for world-wide distribution. Monterey Commerce Center 2, Monterey N/A N/A N/A N/A 100% 1 Language interpretation - over seas calls. Monterey Commerce Center 3, Monterey N/A N/A N/A N/A 100% 3 Sales. Southern California Dupont Industrial Center, Ontario N/A 91% 1 100% 1 59% 0 100% 1 Distribution of swimming pool supplies. 3002 Dow Business Center, N/A N/A 83% 0 99% 0 100% 0 N/A Tustin Carroll Tech I, San Diego N/A N/A N/A 100% 1 100% 1 Bio-technology company. Vacated 12/31/97. Carroll Tech II, San Diego N/A N/A N/A 100% 1 100% 1 Bio-technology company. Signal Systems Building, San Diego N/A N/A N/A 100% 1 100% 1 Developer and manufacturer of avionic diagnostic equipment. Filed Chapter 11. Vista 1, Vista N/A N/A N/A 100% 1 100% 1 Manufacturer of heat sensitive film paper. Vacated 12/31/97. Company liquidated under statute per the general assignment for the benefit of creditors. Vista 2, Vista N/A N/A N/A 100% 1 100% 1 Manufacturer of graphite golf club shaft. 2230 Oak Ridge Way N/A N/A N/A N/A 100% 1 Manufacturer of equipment for circuit board assembly. Denver, Colorado Bryant Street Annex, Denver N/A N/A 100% 2 100% 2 100% 2 Office supplies distributor and automotive paint distributor. Bryant Street Quad, Denver N/A N/A 97% 3 100% 3 100% 3 Health care provider, photo processing lab, and radiator coating plant/distributor. Arizona Westech Business Center, Phoenix N/A N/A N/A 93% 0 96% 0 N/A 2601 W. Broadway, Tempe N/A N/A N/A N/A 100% 1 Wireless phone service provider. Phoenix Airport Center #3, Phoenix N/A N/A N/A N/A 100% 1 Cosmetic manufacturing and distribution. Butterfield Business Center, Tucson N/A N/A N/A N/A 100% 3 Sears call center, polish/wax research and development. Greater Portland Area, Oregon Twin Oaks Technology Center, Beaverton N/A N/A 81% 2 91% 3 96% 2 Software developer and telecommunications. Twin Oaks Business Park, Beaverton N/A N/A 94% 3 80% 4 81% 4 Electronic engineering, electronic equipment assembly, computer equipment distributor and postal service. Kansas City, Kansas Ninety-Ninth Street #1, Lenexa N/A N/A 100% 2 100% 2 100% 2 Tool distribution and surgical instrument manufacturing. Ninety-Ninth Street #2, Lenexa N/A N/A 100% 1 100% 1 100% 1 Drug testing clinic. Ninety-Ninth Street #3, Lenexa 100% 2 100% 2 100% 2 89% 2 100% 2 Warehouse for computer cables/wiring and storage of corporate records/ supplies. Lackman Business Center, Lenexa N/A N/A 98% 2 91% 2 100% 2 Data document services and environmental testing and survey. 85th Street, Lenexa N/A N/A N/A N/A 100% 1 Manufacturing of plastic containers. Panorama Business Center, Kansas City N/A N/A N/A 100% 2 100% 2 Graphics and refrigeration companies. Dallas, Texas Ferrell N/A N/A N/A N/A 100% 5 Glass manufacturing (sub-tenant is telecommunications), medical products distribution, hardware distribution, and direct sales of nutritional products. SUBURBAN OFFICE PROPERTIES Northern California Village Green, Lafayette N/A 82% 3 100% 2 100% 1 99% 1 Software developer. 100 View Street, Mountain View N/A N/A N/A 100% 4 100% 3 Architectural servicing (two tenants), designing and marketing of integrated circuits for semi- conductors, research and development of governmental devices. Monterey Commerce Center 1 Monterey N/A N/A N/A N/A 87% 4 Financial services, software development, telecommunications sales, electronic equipment sales. Canyon Park, San Ramon N/A N/A N/A N/A 100% 2 Medical administrative offices and geotechnical lab; soils testing, engineering services. Southern California Laguna Hills Square, Laguna N/A N/A N/A 86% 2 96% 4 Medical facility and securities brokerage firm. Carroll Tech III, San Diego N/A N/A N/A N/A 100% 1 Biomedical firm. Scripps Wateridge, San Diego N/A N/A N/A N/A 100% 2 Wireless communications. Denver, Colorado Oracle Building N/A N/A N/A N/A 100% 2 Software company. Salt Lake City Woodlands Tower II, Salt Lake City 96% 2 98% 2 95% 2 100% 2 100% 2 Insurance services and health care staffing. Greater Kansas City Area 6600 College Blvd., Overland Park N/A N/A 100% 1 98% 1 100% 1 Telecommunication. Greater Seattle Area Kenyon Center, Bellevue N/A N/A N/A 100% 1 100% 1 Manufacturer of aircraft. Orillia Office Park, Renton N/A N/A N/A N/A 100% 1 Manufacturer of aircraft. Reno U. S. Bank Centre, Reno N/A N/A N/A N/A 94% 1 Insurance services. Austin 9737 Great Hills Trail, Austin N/A N/A N/A N/A 100% 1 Home mortgage business. Arizona Executive Center at Southbank, Phoenix N/A N/A N/A N/A 98% 3 Appliance sales, travel agency, and customer credit call center. Troika Building, Tucson N/A N/A N/A N/A 100% 1 Architectural Services Phoenix Airport Center #1, Phoenix N/A N/A N/A N/A 100% 5 Electronics, customer service, and sales office. Phoenix Airport Center #2, Phoenix N/A N/A N/A N/A 100% 1 Electronics and customer service. Phoenix Airport Center #4, Phoenix N/A N/A N/A N/A 100% 1 Package delivery/service call center. Phoenix Airport Center #5, Parking, Phoenix N/A N/A N/A N/A N/A
Lease Expirations - Real Estate Portfolio The following table presents lease expirations for each of the ten years beginning January 1, 1998. The table presents: (i) the number of leases that expire each year, (ii) the square feet covered by such expiring leases, (iii) the annualized base rent (the "Annualized Base Rent") represented by such expiring leases and (iv) the percentage of total Annualized Base Rent for expiring leases. Number of Percentage Leases Rentable Annualized of Annualized Year Expiring Square Feet Base Rent Base Rent 1998 118 905,135 7,146,108 14.5% 1999 86 664,328 5,819,472 11.8% 2000 102 839,316 8,766,924 17.8% 2001 51 953,514 8,022,576 16.3% 2002 53 507,664 5,138,448 10.4% 2003 8 235,997 3,325,836 6.8% 2004 5 585,359 5,267,640 10.7% 2005 3 127,203 1,400,148 2.9% 2006 4 413,327 1,862,940 3.8% 2007 and thereafter 5 478,168 2,447,544 5.0% Total 435 5,710,011 49,197,636 100.0% 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 1997. Annual # of Tenants Square Feet Contract Rent Realty with 10% or Project of Each ($/Sq/Yr) Lease Renewal Property Taxes/Rate More of GLA Square Feet Tenant At End of Year Expiration Options INDUSTRIAL PROPERTIES Northern California Building #3 at Contra Costa $14,829 1 21,840 21,840 $6.84 Aug. 98 None Diablo Ind. Park, Concord $1.03/100 Building #8 at Contra Costa $24,023 1 31,800 31,800 $6.00 Dec. 00 2-5 yr. Diablo Ind. Park, Concord $1.03/100 Building #18 at Mason $18,944 2 28,836 7,225 $6.75 Oct. 98 None Industrial Park, Concord $1.03/100 4,825 $7.70 Mar. 98 None 115 Mason Circle, Concord $18,293 5 35,000 5,833 $5.16 Jan. 00 None $1.03/100 5,832 $6.18 Dec. 98 1-3 yr. 8,154 $6.96 Aug. 02 None 7,296 $6.24 Nov. 98 1-3 yr. 7,885 $6.24 Apr. 99 None Auburn Court, Fremont $49,487 4 68,030 15,755 $10.20 Apr. 99 1-5 yr. $1.07/100 16,095 $6.00 Sep. 98 1-5 yr. 12,060 $9.00 Apr. 98 None 12,060 $7.20 Jul. 00 None 47650 Westinghouse Drive, $15,308 1 24,030 24,030 $9.00 Sep. 04 1-3 yr. Fremont $1.07/100 47600 Westinghouse Drive, $17,132 1 24,030 24,030 $10.20 Oct. 03 1-3 yr. Fremont $1.07/100 47633 Westinghouse Drive, $52,810 1 50,088 50,088 $11.60 Oct. 03 1-3 yr. Fremont $1.07/100 6500 Kaiser Drive, Fremont $134,912 1 78,611 78,611 $9.00 Sep. 04 2-5 yr. $1.07/100 Bedford Fremont Business Center, Fremont $132,082 1 146,509 27,750 $11.65 Jul. 98 1-3 yr. $1.07/100 Spinnaker Court, Fremont $73,380 2 98,500 69,230 $8.10 Feb. 98 None $1.07/100 29,270 $7.78 Mar. 00 None Fourier Avenue, Fremont $105,583 1 104,400 104,400 $8.99 Apr. 04 None $1.07/100 Milpitas Town Center, $65,950 4 102,620 23,924 $9.63 Sep. 99 1-2 yr. Milpitas $1.07/100 24,426 $11.04 Apr. 02 1-2 yr. 30,840 $7.68 Jul. 03 1-5 yr. 23,430 $7.52 Jan. 00 1-5 yr. 598 Gibraltar Drive, $58,448 1 45,090 45,090 $9.48 Apr. 01 1-5 yr. Milpitas $1.07/100 Doherty Avenue, Modesto $56,189 1 251,308 251,308 $1.88 Dec. 06 None $1.10/100 860-870 Napa Valley Corporate $82,094 3 67,775 13,111 $9.61 Dec. 00 1-5 yr. Way, Napa $1.03/100 7,558 $9.89 Sep. 01 None 8,474 $9.60 Dec. 99 None The Mondavi Building, Napa $124,256 1 120,157 120,157 $4.92 Sep. 12 1-5 yr. $1.03/100 350 East Plumeria Drive, $134,490 1 142,700 142,700 $8.40 Dec. 01 1-3 yr. San Jose $1.08/100 Lundy Avenue, San Jose $60,310 3 60,428 11,086 $7.14 Jul. 98 None $1.10/100 32,877 $7.80 Apr. 99 1-5 yr. 16,465 $5.64 Apr. 99 1-3 yr. O'Toole Business Center, $111,276 0 122,320 N/A N/A N/A N/A San Jose $1.10/100 301 East Grand, $32,333 3 57,846 26,240 $6.24 Jun. 98 None South San Francisco $1.03/100 14,400 $5.46 Oct. 99 None 17,206 $4.68 Aug. 98 None 342 Allerton, $51,485 4 69,312 19,751 $6.96 Mar. 00 None South San Francisco $1.03/100 9,720 $8.40 Mar. 02 None 30,953 $7.28 Feb. 99 None 8,888 $9.00 Aug. 02 None 400 Grandview, $75,734 4 107,004 21,841 $7.20 Dec. 98 None South San Francisco $1.03/100 43,642 $7.41 Jul. 02 1-5 yr. 18,789 $6.45 May 99 1-5 yr. 18,864 $6.00 Jan. 03 None 410 Allerton, $25,858 1 46,050 46,050 $5.16 Apr. 01 None South San Francisco $1.03/100 417 Eccles, $12,532 1 24,624 12,960 $6.36 Dec. 97 1-5 yr. South San Francisco $1.03/100 2277 Pine View Way, $24,607 1 120,480 120,480 $6.91 Mar. 07 2-5 yr. Petaluma $1.08/100 Monterey Commerce $22,627 1 28,020 28,020 $14.16 Dec. 00 None Center 2, Monterey $1.00/100 Monterey Commerce $22,347 3 24,240 3,817 $13.08 Jul. 01 None Center 3, Monterey $1.00/100 3,050 $12.96 Nov. 00 None 17,373 $15.36 Oct. 00 None Southern California Dupont Industrial Center, $205,346 1 451,192 183,244 $2.88 Jan. 07 2-5 yr. Ontario $1.01/100 3002 Dow Business Center, $195,932 0 192,125 N/A N/A N/A N/A Tustin $1.02/100 Carroll Tech I, $21,207 1 21,936 21,936 $11.93 Dec. 97 None San Diego $1.12/100 Carroll Tech II, $34,605 1 37,586 37,586 $11.52 Dec. 98 1-3 yr. San Diego $1.12/100 Signal Systems Building, $96,473 1 109,780 109,780 $8.11 Aug. 06 2-5 yr. San Diego $1.02/100 Vista 1, Vista $33,289 1 42,508 42,508 $0.00 Chapter 11, 12/31/97 $1.04/100 Vista 2, Vista $36,584 1 47,550 47,550 $6.61 Sep. 01 1-5 yr. $1.04/100 Denver, Colorado Bryant Street Annex, Denver $27,293 2 55,000 42,148 $4.25 Nov. 00 1-3 yr. $7.54/100 12,852 $3.55 Mar. 00 None Bryant Street Quad, Denver $77,203 3 155,536 17,440 $4.25 Apr. 02 None $7.54/100 20,726 $3.30 Feb. 01 1-5 yr. 16,055 $3.60 Feb. 99 1-3 yr. Arizona Westech Business Center, Phoenix $78,241 0 143,940 N/A N/A N/A N/A $12.69/100 2601 W. Broadway, Tempe $49,095 1 44,244 44,244 $7.14 Jan. 07 None $12.27/100 Phoenix Airport Center #3, $42,460 1 55,122 55,122 $6.36 Jul. 01 None Phoenix $12.69/100 Butterfield Business Center, $73,510 3 95,746 50,000 $7.92 Aug. 99 None Tucson $15.95/100 14,982 $2.60 Aug. 99 None 22,002 $8.37 Jun. 01 None Greater Portland Area Twin Oaks Technology Center, $54,684 2 95,173 11,460 $5.20 Nov. 98 None Beaverton $1.41/100 14,690 $7.56 Aug. 98 None Twin Oaks Business Park, $39,439 4 66,339 7,633 $9.60 Nov. 02 None Beaverton $1.41/100 6,702 $9.00 Feb. 00 None 14,522 $10.67 Jul. 99 1-3 yr. 11,686 $7.48 May 99 1-2 yr. Greater Kansas City Area Ninety-Ninth Street #1, $48,647 2 35,516 19,019 $8.09 Sep. 00 1-3 yr. Lenexa $1.13/100 13,305 $7.25 Oct. 02 None Ninety-Ninth Street #2, $26,397 1 12,974 12,974 $8.62 Oct. 99 None Lenexa $1.13/100 Ninety Ninth Street #3, $61,354 2 50,000 13,000 $7.10 Dec. 03 1 yr. Lenexa $1.13/100 31,250 $5.38 May 98 1-5 yr. Lackman Business Center, $61,235 3 45,956 5,510 $10.45 Jan. 98 None Lenexa $1.13/100 5,132 $9.68 May 98 None 5,320 $7.95 Jun. 99 None 85th Street, Lenexa $81,453 1 171,642 171,642 $3.11 Nov. 01 1-5 yr. $1.13/100 Panorama Business Center, $111,362 2 103,457 12,491 $5.95 Sep. 01 1-5 yr. Kansas City $9.23/100 12,951 $5.15 Feb. 01 None Dallas, Texas Ferrell $37,349 5 68,580 11,430 $4.50 Jan. 00 None $4.76/100 11,430 $4.50 Feb. 99 None 11,430 $4.20 Feb.00 None 11,430 $4.50 Jul. 01 1 yr. 11,430 $4.50 Apr. 99 1-3 yr. SUBURBAN OFFICE PROPERTIES Northern California Village Green, Lafayette $25,176 4 16,895 2,119 $21.66 Aug. 99 None $1.14/100 3,675 $26.84 Mar. 05 None 1,798 $22.05 Mar. 05 None 2,516 $22.03 Mar. 05 None 100 View Street, $56,297 3 42,141 5,490 $20.28 Jul. 01 1-5 yr. Mountain View $1.06/100 12,112 $18.60 Mar. 99 1-3 yr. 9,875 $22.20 Oct. 00 None Monterey Commerce Center 1, $57,957 4 50,031 5,809 $20.04 Aug. 99 None Monterey $1.00/100 7,000 $18.96 Mar. 03 None 16,088 $20.92 Jul. 98 None 5,046 $19.62 Mar. 98 None Canyon Park, $67,261 2 57,667 43,415 $16.48 Feb. 00 None San Ramon $1.08/100 7,736 $18.60 Jan. 98 None Southern California Laguna Hills Square, Laguna $67,008 4 51,734 8,474 $33.60 Jun. 02 1-5 yr. $1.05/100 7,368 $25.24 Apr. 00 1-3 yr. 6,391 $24.24 Sep. 00 1-5 yr. 9,229 $17.64 Jun. 02 2-3 yr. Carroll Tech III, San Diego $22,829 1 29,307 29,307 $8.52 Dec. 98 1-5 yr. $1.12/100 Scripps Wateridge, San Diego $175,873 2 123,853 49,295 $9.62 Jul. 06 1-5 yr. $1.12/100 74,558 $12.60 Aug. 05 2-3 yr. Denver Oracle Building, $250,217 2 90,712 10,043 $18.00 Aug. 11 1-4 yr. Denver $12.76/100 74,265 $24.00 Sep. 03 1-2 yr. Salt Lake City Woodlands Tower II, $119,869 2 114,352 42,590 $15.74 Feb. 02 1-5 yr. Salt Lake City $1.27/100 22,599 $15.00 Jan. 01 None Greater Kansas City Area 6600 College Blvd., $167,955 1 79,316 62,441 $11.80 Dec. 99 None Overland Park $11.95/100 Greater Seattle Area Kenyon Center, Bellevue $171,902 1 94,840 94,840 $11.61 Feb. 00 1-5 yr. $1.16/100 Orillia Office Park, Renton $262,365 2 334,255 274,405 $9.35 Feb. 04 None $1.32/100 59,850 $9.35 Feb. 04 None Reno U.S. Bank Centre, Reno $109,333 1 104,324 35,361 $17.40 Apr. 00 2-5 yr. $3.35/100 Austin 9737 Great Hills Trail, Austin $168,973 1 82,680 82,680 $18.00 Dec. 01 1-5 yr. $2.48/100 Arizona Executive Center at Southbank, $151,381 4 140,157 38,106 $9.18 Apr. 02 1-5 yr. Phoenix $16.50/100 17,910 $7.96 Sep. 03 2-5 yr. 30,518 $10.00 Jun. 01 2-5 yr. 21,626 $10.00 Jul. 02 2-5 yr. Troika Building, Tucson $109,698 1 52,000 52,000 $9.00 Oct. 01 None $16.94/100 Phoenix Airport Center #1, $31,022 5 32,460 11,990 $10.95 Aug. 00 None Phoenix $12.69/100 4,527 $15.00 Mar. 01 None 4,449 $17.55 Dec. 02 None 4,041 $16.39 Jul. 01 None 4,502 $12.00 M-T-M None Phoenix Airport Center #2, $48,035 1 35,768 35,768 $7.20 Aug. 01 None Phoenix $12.69/100 Phoenix Airport Center #4, $25,100 1 30,504 30,504 $7.20 Jun. 00 None Phoenix $12.69/100 Phoenix Airport Center #5, $17,358 N/A N/A N/A N/A N/A N/A Parking, Phoenix $12.69/100
Average Effective Rent The following table sets forth for each of the Properties the average rent at the end of each year for the last five years. Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year INDUSTRIAL PROPERTIES: Northern California Building #3 at Contra Costa Diablo 47650 Westinghouse Drive 1993 $8.35 1993 N/A 1994 $8.35 1994 N/A 1995 $4.95 1995 $5.52 1996 $6.64 1996 $5.52 1997 $6.84 1997 $9.00 Building #8 at Contra Costa Diablo 47600 Westinghouse Drive 1993 $7.43 1993 N/A 1994 $7.81 1994 N/A 1995 $6.00 1995 N/A 1996 $6.00 1996 $5.94 1997 $6.00 1997 $10.20 Building #18 at Mason Industrial Park 47633 Westinghouse Drive 1993 $7.03 1993 N/A 1994 $6.95 1994 N/A 1995 $6.63 1995 N/A 1996 $6.78 1996 $11.37 1997 $6.88 1997 $11.60 115 Mason Circle 6500 Kaiser Drive 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 $6.05 1996 N/A 1997 $6.22 1997 $9.00 Auburn Court Bedford Fremont Business Center 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $6.54 1995 N/A 1996 $6.78 1996 N/A 1997 $7.80 1997 $11.93 Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year INDUSTRIAL PROPERTIES(continued): Spinnaker Court The Mondavi Building 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 N/A 1997 $8.01 1997 $4.92 Fourier Avenue 350 East Plumeria Drive 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 $7.80 1996 $8.99 1996 $7.80 1997 $8.99 1997 $8.40 Milpitas Town Center Lundy Avenue 1993 N/A 1993 N/A 1994 $7.11 1994 N/A 1995 $7.35 1995 N/A 1996 $8.03 1996 $7.09 1997 $8.90 1997 $7.09 598 Gibraltar Drive O'Toole Business Center 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 $9.48 1996 $8.75 1997 $9.48 1997 $10.31 Doherty Avenue 301 East Grand 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 $5.92 1996 $1.87 1996 $5.57 1997 $1.88 1997 $5.58 860-870 Napa Valley Corporate 342 Allerton 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 $6.88 1996 $9.44 1996 $7.18 1997 $8.86 1997 $7.57 Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year INDUSTRIAL PROPERTIES(continued): 400 Grandview 410 Allerton 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $7.49 1995 $5.16 1996 $7.53 1996 $5.16 1997 $7.03 1997 $5.16 417 Eccles 2277 Pine View Way 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $5.71 1995 N/A 1996 $6.01 1996 N/A 1997 $6.36 1997 $6.91 Monterey Commerce Center 2 Monterey Commerce Center 3 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 N/A 1997 $14.16 1997 $14.70 Southern California Dupont Industrial Center Carroll Tech II 1993 N/A 1993 N/A 1994 $3.07 1994 N/A 1995 $3.17 1995 N/A 1996 $3.53 1996 N/A 1997 $3.40 1997 $11.52 3002 Dow Business Center Signal Systems Building 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $8.88 1995 N/A 1996 $8.55 1996 $7.80 1997 $8.32 1997 $8.11 Carroll Tech I Vista I 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 $10.35 1996 $5.16 1997 $11.93 1997 $0.00** **Bankruptcy Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year INDUSTRIAL PROPERTIES (continued): Vista 2 1993 N/A 1994 N/A 1995 N/A 1996 $6.36 1997 $6.61 Denver Bryant Street Annex Bryant Street Quad 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $4.02 1995 $3.09 1996 $3.93 1996 $3.39 1997 $4.09 1997 $3.82 Arizona Westech Business Center Phoenix Airport Center #3 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 $8.85 1996 N/A 1997 $9.44 1997 $6.36 2601 W. Broadway Butterfield Business Center 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 N/A 1997 $7.14 1997 $7.08 Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year INDUSTRIAL PROPERTIES (continued): Greater Portland Area, Oregon Twin Oaks Technology Center Twin Oaks Business Park 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $7.27 1995 $7.75 1996 $7.32 1996 $8.35 1997 $7.67 1997 $8.86 Greater Kansas City Area Ninety-Ninth Street #1 Ninety-Ninth Street #2 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $7.96 1995 $7.56 1996 $8.32 1996 $8.62 1997 $7.72 1997 $8.62 Lackman Business Center Ninety-Ninth Street #3 1993 N/A 1993 $5.86 1994 N/A 1994 $5.86 1995 $8.36 1995 $5.86 1996 $8.59 1996 $5.30 1997 $8.77 1997 $6.08 85th Street, Lenexa Panorama Business Center 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 $6.54 1997 $3.11 1997 $6.70 Dallas, Texas Ferrell 1993 N/A 1994 N/A 1995 N/A 1996 N/A 1997 $4.55 Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year SUBURBAN OFFICE PROPERTIES: Northern California Village Green 100 View Street 1993 N/A 1993 N/A 1994 $20.85 1994 N/A 1995 $18.23 1995 N/A 1996 $19.99 1996 $18.82 1997 $23.24 1997 $20.10 Monterey Commerce Center 1 Canyon Park 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 N/A 1997 $20.12 1997 $15.92 Southern California Laguna Hills Square Scripps Wateridge 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 $25.38 1996 N/A 1997 $23.90 1997 $11.41 Carroll Tech III 1993 N/A 1994 N/A 1995 N/A 1996 N/A 1997 $8.52 Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year SUBURBAN OFFICE PROPERTIES(continued): Denver, Colorado Reno Oracle Building U.S. Bank Centre 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 N/A 1997 $23.37 1997 $18.59 Salt Lake City Austin Woodlands Tower II 9737 Great Hills Trail 1993 $13.02 1993 N/A 1994 $14.47 1994 N/A 1995 $14.25 1995 N/A 1996 $14.58 1996 N/A 1997 $15.86 1997 $18.00 Greater Kansas City Area 6600 College Boulevard 1993 N/A 1994 N/A 1995 $12.01 1996 $11.99 1997 $12.28 Greater Seattle Area Kenyon Center 1993 N/A 1994 N/A 1995 N/A 1996 $11.61 1997 $11.61 Orillia Office Park 1993 N/A 1994 N/A 1995 N/A 1996 N/A 1997 $9.35 Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year SUBURBAN OFFICE PROPERTIES(continued): Arizona Executive Center at Southbank Phoenix Airport Center #2 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 N/A 1997 $9.23 1997 $7.20 Troika Building Phoenix Airport Center #4 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 N/A 1997 $9.00 1997 $7.20 Phoenix Airport Center #1 Phoenix Airport Center #5 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 N/A 1997 $13.81 1997 $7.21 Tax Information The following table sets forth tax information of the Company's real estate investments at December 31, 1997, as follows: (i) Federal tax basis, (ii) annual rate of depreciation, (iii) method of depreciation, and (iv) life claimed, with respect to each property or component thereof for purposes of depreciation (in thousands): Federal Annual Rate of Depreciation Life Depreciable assets Tax Basis Depreciation Method In Years INDUSTRIAL PROPERTIES Northern California 3,789 3.18% Straight Line 31.5 91,871 2.56% Straight Line 39.0 95,660 Southern California 31,067 2.56% Straight Line 39.0 Denver, Colorado 3,256 2.56% Straight Line 39.0 Greater Phoenix Area, Arizona 13,688 2.56% Straight Line 39.0 Tucson, Arizona 4,231 2.56% Straight Line 39.0 Greater Portland Area 8,404 2.56% Straight Line 39.0 Greater Kansas City Area 2,132 3.18% Straight Line 31.5 13,888 2.56% Straight Line 39.0 16,020 Dallas, Texas 1,639 2.56% Straight Line 39.0 Total depreciable assets for industrial properties 173,965 SUBURBAN OFFICE PROPERTIES Northern California 13,138 2.56% Straight Line 39.0 Southern California 18,075 2.56% Straight Line 39.0 Salt Lake City 6,472 2.56% Straight Line 39.0 Greater Kansas City Area 4,046 2.56% Straight Line 39.0 Greater Seattle Area 30,225 2.56% Straight Line 39.0 Reno, Nevada 10,438 2.56% Straight Line 39.0 Austin, Texas 7,075 2.56% Straight Line 39.0 Phoenix, Arizona 17,645 2.56% Straight Line 39.0 Tucson, Arizona 2,666 2.56% Straight Line 39.0 Denver, Colorado 13,248 2.56% Straight Line 39.0 Total depreciable assets for suburban office properties 123,028 296,993
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 Exchange and the Pacific Exchange under the symbol "BED." As of December 31, 1997 the Company had 518 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 1996 and 1997. All of the following quotations have been adjusted to reflect the one-for-two reverse stock split of the Common Stock effected on March 29, 1996. Dividend High Low Per Share 1996 First Quarter $15 1/4 $14 $.24 Second Quarter $16 $12 3/8 $.24 Third Quarter $14 5/8 $12 3/4 $.26 Fourth Quarter $17 1/2 $14 1/8 $.26 1997 First Quarter $21 1/4 $16 5/8 $.26 Second Quarter $20 1/8 $17 $.27 Third Quarter $22 $19 $.30 Fourth Quarter $22 7/8 $19 3/16 $.30 Credit Facility Effective January 13, 1997, the Company's existing credit facility (the "Credit Facility") was amended to lower the interest rate from LIBOR plus 2.00% to LIBOR plus 1.75%. On June 13, 1997, the Company further reduced this interest rate to LIBOR plus 1.50% and increased the size of the Credit Facility to $150 million. On September 24, 1997 the Company again increased the size of the Credit Facility from $150 million to $175 million. The credit facility contains various restrictive covenants including, among other things, a covenant limiting quarterly dividends to 95% of average Funds From Operations for the immediately preceding two fiscal quarters. The Company is currently under negotiations to restructure its Credit Facility as an unsecured line and to further lower the interest rate thereunder. No assurance can be given that the Credit Facility will be restructured or that the interest rate will be further reduced. 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) 1997 1996 1995 1994 1993 Operating Data: Rental income $ 46,377 $ 27,541 $ 11,695 $ 9,154 $ 7,207 Net income 31,291 11,021 2,895 3,609 3,147 Net income applicable to common stockholders 27,791 6,516 1,607 3,609 3,147 Net income per common share - assuming dilution $ 1.94 $ 1.14 $ 0.52 $ 1.17 $ 1.04 Balance Sheet Data: Real estate investments $423,086 $224,501 $128,964 $ 55,053 $ 35,962 Bank loan payable 8,216 46,097 43,250 22,400 3,621 Mortgage loans payable 60,323 51,850 - - - Redeemable preferred shares - 50,000 50,000 - - Common and other stockholders' equity 346,426 73,756 32,435 36,932 35,441 Other Data: Net cash provided by operating activities $ 25,041 $ 14,378 $ 4,898 $ 2,716 $ 1,220 Net cash (used) provided by investing activities (180,358) (96,964) (73,259) (19,720) 10,085 Net cash provided (used) by financing activities 155,350 82,887 64,655 16,807 (6,550) Funds From Operations(1) 25,582 13,645 5,021 3,622 1,964 Dividends declared per share $ 1.13 $ 1.00 $ 0.82 $ 0.71 $ 0.36
(1) Management considers Funds From Operations to be one measure of the performance of an equity REIT. Funds From Operations is used by financial analysts in evaluating REITs and can be one measure of a REIT's ability to make cash distributions. Presentation of this information provides the reader with an additional measure to compare the performance of REITs. Funds From Operations generally is defined by NAREIT as net income (loss) (computed in accordance with generally accepted accounting principles), excluding gains (losses) from debt restructurings 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. Funds From Operations does not represent cash generated by operating activities in accordance with generally accepted accounting principles; it is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to net income (loss) as an indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity. Further, Funds from Operations as disclosed by other Reit's may not be comparable to the Company's calculation of Funds from Operations. 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 section entitled "Potential Factors Affecting Future Operating Results" 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. Results of Operations The Company's operations consist of owning and operating industrial and suburban office properties located primarily in the Western United States. Increases in revenues, expenses, net income and cash flows in the years compared below were due primarily to the acquisition, development and sale of operating property as follows: 1997 1996 1995 Number of Square Number of Square Number of Square Properties Feet Properties Feet Properties Feet Acquisitions Industrial 13 1,091,000 13 1,251,000 18 1,384,000 Office 13 1,199,000 3 189,000 1 79,000 Retail - - - - 1 84,000 26 2,290,000 16 1,440,000 20 1,547,000 Development Industrial 4 365,000 1 45,000 - - Sales Industrial - - 2 186,000 1 38,000 Office 2 213,000 - - 1 88,000 Retail 1 84,000 - - - - 3 297,000 2 186,000 2 126,000
Comparison of 1997 to 1996 Income from Property Operations Income from property operations (defined as rental income less rental expenses) increased $13,268,000 or 80% in 1997 compared with 1996. This is due to an increase in rental income of $18,836,000 offset by an increase in rental expenses (which include operating expenses, real estate taxes and depreciation and amortization) of $5,568,000. The increase in rental income and expenses is primarily attributable to the acquisition of real estate investments during 1997 and 1996. This acquisition activity increased rental income and rental expenses by $21,545,000 and $7,055,000, respectively. This was partially offset by the sales of two office properties and one retail property in 1997 and two industrial properties in 1996, which generated a reduction in rental income and rental expenses of $3,256,000 and $1,779,000, respectively. Expenses Interest expense, which includes amortization of loan fees, increased $3,571,000 or 82.1% in 1997 compared with 1996. The increase is attributable to the Company's higher level of borrowings to finance the acquisition of properties in 1997, and higher financing costs incurred in connection with its credit facility and mortgage loans. The amortization of loan fees was $816,000 and $650,000 for 1997 and 1996, respectively. General and administrative expenses increased $585,000 or 33.4% in 1997 compared with 1996, a result of managing a larger real estate portfolio. Gain on Sale In July 1997, the Company sold two of its Southern California office properties for a sale price of approximately $25,800,000, which resulted in a gain of $10,785,000. In October 1997, the Company sold Academy Place Shopping Center in Colorado Springs, Colorado for a sale price of approximately $7,500,000, which resulted in a gain of approximately $748,000. Net operating loss carryforward was utilized to offset substantially all of the 1997 taxable income remaining after the deduction of dividends paid in 1997. Retention and reinvestment of gains on property sales generated alternative minimum tax expense of approximately $250,000 which is included in 1997 general and administrative expense. In April 1996, the Company sold 3.6 acres of land adjacent to its suburban office property in Utah for $1,000,000, receiving $950,000 in cash and a $50,000 note. The 10% interest bearing note was paid in April 1997. The sale resulted in a gain of $359,000. In December 1996, the Company sold two industrial properties in St. Paul, Minnesota for a cash price of $6,705,000. The sale resulted in a gain of $47,000. Dividends 1997 quarterly dividend declared for each share of common stock was $0.26 for the first quarter, $0.27 for the second quarter, and $0.30 for the third and fourth quarters. Consistent with the Company's policy, dividends are paid in the quarter after declared. In addition, the Company declared a quarterly dividend of $1,125,000 in each of the first two quarters of 1997 and $1,250,000 for the third quarter of 1997 on the Series A Convertible Preferred Stock. The preferred shares were converted into 4,166,667 shares of common stock on October 15, 1997. Comparison of 1996 to 1995 Income from Property Operations Income from property operations increased $10,202,000 or 160% in 1996 compared with 1995. This is due to an increase in rental income of $15,846,000 offset by an increase in rental expenses of $5,644,000. The increase in rental income and expenses is primarily attributable to the acquisition and development of real estate investments. This acquisition and development activity increased rental income and rental expenses by $16,684,000 and $5,445,000, respectively. This was partially offset by the sale of an office property and an industrial property in 1995 which generated a reduction in rental income and rental expenses of $1,078,000 and $687,000, respectively. Expenses Interest expense, which includes amortization of loan fees, increased $2,753,000 or 173% in 1996 compared with 1995. The increase is attributable to the Company's higher level of borrowings to finance the acquisition of properties in 1996, and higher financing costs incurred in connection with its credit facility and mortgage loans. The amortization of loan fees was $650,000 and $277,000 for 1996 and 1995, respectively. General and administrative expenses increased $295,000 or 20% in 1996 compared with 1995, a result of managing a larger real estate portfolio. Gain on Sale In April 1996, the Company sold 3.6 acres of land adjacent to its suburban office property in Salt Lake City, Utah for $1,000,000, receiving $950,000 in cash and a $50,000 note due in April 1997, with 10% interest payable monthly. The sale resulted in a gain of $359,000. In December 1996, the Company sold two industrial properties in St. Paul, Minnesota for a cash sale price of $6,705,000. The sale resulted in a gain of $47,000. In 1995, the Company sold an office property located in Mississippi and an industrial property located in Kansas for $8,000,000 cash. The sales resulted in a loss of $642,000. Dividends Quarterly dividends declared for the first and second quarters of 1996 were $0.24 per share of common stock, and $0.26 per share of common stock for the third and fourth quarters of 1996. Consistent with the Company's policy, dividends are paid in the quarter after declared. In addition, the Company declared a quarterly dividend of $1,125,000 on the Series A Convertible Preferred Stock in each of the four quarters of 1996. The preferred stock dividends are due and payable 45 days after the quarter end. Financial Condition Total assets of the Company at December 31, 1997 increased by $202,079,000 compared with December 31, 1996, primarily as a result of an increase in real estate investments (net of depreciation) of $198,585,000. Total liabilities at December 31, 1997 decreased by $20,379,000 compared with December 31, 1996, primarily as a result of the paydown of the Company's credit facility. Liquidity and Capital Resources During the year ended December 31, 1997, the Company's operating activities provided net cash flow of $25,041,000. Investing activities provided cash flow of $31,909,000 from the sale of properties and utilized $212,267,000 to acquire and improve real estate investments. Financing activities provided net cash flow of $155,350,000 consisting of the proceeds from bank borrowings of $167,559,000 and net proceeds from the sale of common stock of $210,953,000, offset by repayment of bank borrowings and mortgage loans of $207,245,000, payment of dividends of $15,660,000, and redemption of partnership units of $257,000. The Company's mortgage loans, obtained in 1997 and 1996, totaled $60,323,000 at December 31, 1997. They are secured by 17 properties (which Properties collectively accounted for approximately 26% of the Company's Annualized Base Rent and 20% of the Company's total assets as of December 31, 1997). The loans bear interest at rates ranging from 7.02% to 8.9% per annum and have terms ranging from two to nine years. Interest is due and payable monthly. In February 1998, the Company secured a mortgage loan of $20,900,000 which bears interest at 6.9% and has an eight year term. The proceeds of the mortgage loans were used to pay down a portion of the outstanding borrowings under the credit facility. The Company completed the sale of 3,350,000 shares of common stock at $13 per share in April 1996. In February 1997, the Company completed the sale of 4,600,000 shares of the common stock at $17 3/8 per share and in November 1997 sold an additional 7,245,000 shares of common stock at $19 5/8 per share. Net cash proceeds from each of these offerings was used to pay off the outstanding borrowings under the Company's credit facility. The facility was amended and expanded to $150 million in June 1997, and was further expanded to $175 million in September 1997. Under this facility, the Company can borrow up to $25 million on an unsecured basis. The secured loans bear interest at a rate of LIBOR plus 1.50% and the unsecured loans bear interest at LIBOR plus 1.75%. The credit facility contains various restrictive covenants including, among other things, a covenant limiting quarterly dividends to 95% of average Funds From Operations for the immediately preceding two fiscal quarters. At December 31, 1997 the Company was in compliance with the covenants and requirements of the credit facility. The Company anticipates that the cash flow generated by its real estate investments will be sufficient to meet its short-term liquidity requirements. The Company expects to fund the cost of acquisitions, capital expenditures, costs associated with lease renewals and reletting of space, repayment of indebtedness, and development of properties from (i) cash flow from operations, (ii) borrowings under the credit facility and, if available, other indebtedness (which may include indebtedness assumed in acquisitions), (iii) the sale of real estate investments, and (iv) the sale of equity securities and, possibly, the issuance of equity securities in connection with acquisitions. The ability to obtain mortgage loans on income-producing properties is dependent upon the ability to attract and retain tenants and the economics of the various markets in which the properties are located, as well as the willingness of mortgage-lending institutions to make loans secured by real property. The ability to sell real estate investments is partially dependent upon the ability of purchasers to obtain financing at commercially reasonable rates. Potential Factors Affecting Future Operating Results At the present time, borrowings under the Company's credit facility bear interest at a floating rate. Results from operations in 1998 may be negatively impacted if interest rates increase in the future. While the Company has historically been successful in renewing and reletting space, the Company will be subject to the risk that certain leases expiring in 1998 may not be renewed or the terms of renewal may be less favorable than current lease terms. However, the Company expects to release the vacant spaces without any material adverse impact on 1998 operations. In addition, the Company expects to incur costs in making improvements or repairs to its portfolio of properties required by new or renewing tenants and expenses associated with brokerage commissions payable in connection with the reletting of space. 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. Government Regulations The Properties are subject to various federal, state and local regulatory requirements such as local building codes and other similar regulations. The Company believes that the Properties are currently in substantial compliance with all applicable regulatory requirements, although expenditures at 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. The Company does not 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. Accounting Developments In June 1997, the FASB issued Financial Accounting Standard No. 130 (SFAS 130), Reporting Comprehensive Income. SFAS 130 is effective with the year-end 1998 financial statements; however, the total comprehensive income is required in the financial statements for interim periods beginning in 1998. In June 1997, the FASB issued Financial Accounting Standard No. 131, Disclosure About Segments of An Enterprise and Related Information. SFAS 131 is effective with the year-end 1998 financial statements. Management believes that the adoption of these statements will not have a material impact on the Company's financial statements. General Litigation The Company is involved in various legal matters in the ordinary course of business. In the opinion of management, none of these matters could have a material impact on the Company's financial statements. Inflation Most of the Company's leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. Inflation, however, could result in increases in the Company's borrowing costs. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements and Schedule Covered by Reports of Independent Public Accountants Report of Independent Public Accountants 48 Consolidated Balance Sheets as of December 31, 1997 and 1996 49 For the Years Ended December 31, 1997, 1996 and 1995: - - Consolidated Statements of Income 50 - - Consolidated Statements of Stockholders' Equity 51 - - Consolidated Statements of Cash Flows 52 Notes to Consolidated Financial Statements 53 Financial Statement Schedule: - - Schedule III - Real Estate and Accumulated Depreciation 64 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 13, 1998. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements Report of independent public accountants. The following consolidated financial statements of the Company and its subsidiaries are included in Item 8 of this report: Consolidated Balance Sheets as of December 31, 1997 and 1996. Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995. Notes to Consolidated Financial Statements. 2. Financial Statement Schedules Schedule III - Real Estate and Accumulated Depreciation All other schedules have been omitted as they are not applicable, or not required or because the information is given in the Consolidated Financial Statements or related Notes to Consolidated Financial Statements. 3. Exhibits Exhibit No.List of Exhibits 3.1 Charter of the Company, as amended, is incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-2, Registration No. 333- 921. 3.2 Amended and Restated Bylaws of the Company are incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.1 The Company's Automatic Dividend Reinvestment and Share Purchase Plan, as adopted by the Company, is incorporated herein by reference to Exhibit 4.1 to Amendment No. 2 to Registration Statement No. 2-94354 of ICM Property Investors Incorporated. 10.4 Second Amended and Restated Credit Agreement dated as of June 26, 1996, by and between the Company, as Borrower, Bank of America National Trust and Savings Association and the several financial institutions (the "Banks") is incorporated herein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. 10.5 Sale and Option Agreement dated as of August 26, 1995, by and between Kemper Investors Life Insurance Company, on behalf of itself and Participants (as defined therein), as Lender, the Company, as Purchaser, and Tustin Properties, as Owner, for 3002 Dow Business Center is incorporated herein by reference to Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.6 BPIA Agreement dated as of January 1, 1995, by and between Westminster Holdings, Inc., a California corporation and the Company is incorporated herein by reference to Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.7 Employment Agreement made as of February 17, 1993, by and between ICM Property Investors Incorporated and Peter B. Bedford is incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as amended by Form 10-K/A filed on May 1, 1995, and Form 10-K/A-2 filed on August 8, 1995. 10.8 Amendment No. 1 to Employment Agreement dated as of September 18, 1995, by and between Peter B. Bedford and the Company is incorporated herein by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.12 Purchase and Sale Agreement dated as of October 19, 1995, between Landsing Pacific Fund, Inc., a Maryland corporation as Seller, and the Company, the Buyer, as amended, is incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on December 27, 1995. 10.13 Amended and Restated Promissory Note date May 24, 1996 executed by the Company and payable to the order of Prudential Insurance Company of America is incorporated herein by reference to Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. 10.14 Loan Agreement dated as of December 24, 1996 between Bedford Property Investors, Inc. as Borrower and Union Bank of California, N.A. as Lender is incorporated herein by reference to Exhibit 10.14 to the Company's Form 10-K for the year ended December 31, 1996. 10.15* Loan Agreement dated as of January 30, 1998 between Bedford Property Investors, Inc. as Borrower and Prudential Insurance Company of America as Lender. 10.16* The Company's Amended and Restated Employee Stock Plan. 10.17* Form of Employee Stock Plan Option Agreement between the Company and the Named Executive Officers under the Company's Amended and Restated Employee Stock Plan. 10.18* The Company's Amended and Restated 1992 Directors' Stock Option Plan. 10.19* Form of Retention Agreement. 10.20* Employment Agreement made as of August 4, 1997, by and between Bedford Property Investors Incorporated and Scott R. Whitney. 10.21* Employment Agreement made as of November 18, 1997, by and between Bedford Property Investors Incorporated and Dennis Klimmek. 12* Ratio of Earnings to Fixed Charges. 21.1* Subsidiaries of the Company. 23.1* Consent of KPMG Peat Marwick LLP, independent auditors. 27* Financial Data Schedule * Filed herewith B. Reports on Form 8-K During the quarter ended December 31, 1997 the Company filed on October 31, 1997, a report on Form 8-K dated September 16, 1997, reporting items 5 and 7 and announcing the acquisitions of the Mondavi Building, 2230 Oak Ridge Way and Oracle Center. The following financial statements were filed: (i) Historical Summary of Gross Income and Direct Operating Expenses for Oracle Center for the four months ended December 31, 1996 and (ii) pro forma financial statements showing the effect resulting from all the Company's acquisitions through October 16, 1997. Report of Independent Public Accountants To the Stockholders and the Board of Directors of Bedford Property Investors, Inc.: We have audited the consolidated financial statements of Bedford Property Investors, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bedford Property Investors, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP San Francisco, California February 2, 1998 BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996 (in thousands, except share and per share amounts) 1997 1996 Assets: Real estate investments: Industrial buildings $237,184 $164,674 Office buildings 170,948 53,071 Retail buildings - 6,281 Properties under development 18,227 5,388 Land held for development 5,712 - 432,071 229,414 Less accumulated depreciation 8,985 4,913 423,086 224,501 Cash 1,361 1,328 Other assets 9,456 5,995 $433,903 $231,824 Liabilities and Stockholders' Equity: Bank loan payable 8,216 46,097 Mortgage loans payable 60,323 51,850 Accounts payable and accrued expenses 6,026 2,214 Dividend and distribution payable 6,804 2,827 Other liabilities 4,611 3,371 Total liabilities 85,980 106,359 Redeemable preferred stock: Series A convertible preferred stock, par value $0.01 per share; authorized 10,000,000 shares, issued and outstanding none in 1997 and 8,333,334 shares in 1996; aggregate redemption amount $50,000; aggregate liquidation preference $52,500 - 50,000 Minority interest in consolidated partnership 1,497 1,709 Stockholders' equity: Common stock, par value $0.02 per share; authorized 50,000,000 shares in 1997 and 15,000,000 shares in 1996; issued and outstanding 22,583,867 shares in 1997 and 6,526,325 shares in 1996 452 131 Additional paid-in capital 408,209 147,622 Accumulated losses and distributions in excess of net income (62,235) (73,997) Total stockholders' equity 346,426 73,756 $433,903 $231,824 See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995 (in thousands, except share and per share amounts) 1997 1996 1995 Property operations: Rental income $46,377 $27,541 $11,695 Rental expenses: Operating expenses 6,852 5,352 2,744 Real estate taxes 3,977 2,595 1,105 Depreciation and amortization 5,716 3,030 1,484 Income from property operations 29,832 16,564 6,362 General and administrative expenses (2,337) (1,752) (1,457) Interest income 289 150 226 Interest expense (7,918) (4,347) (1,594) Income before gain (loss) on sales of real estate investments and minority interest 19,866 10,615 3,537 Gain (loss) on sales of real estate investments 11,533 406 (642) Minority interest (108) - - Net income $31,291 $11,021 $ 2,895 Net income applicable to common stockholders $27,791 $ 6,516 $ 1,607 Basic earnings per share $ 2.21 $ 1.21 $ 0.53 Weighted average number of shares 12,566,065 5,405,727 3,005,950 Earnings per share - assuming dilution $ 1.94 $ 1.14 $ 0.52 Weighted average number of shares - assuming dilution 16,166,454 9,702,552 3,089,549 See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (in thousands, except share and per share amounts) Total Accumulated common losses and stock and Additional distributions other stock- Common paid-in in excess of holders' stock capital net income equity Balance, December 31, 1994 $ 60 $107,151 $(70,279) $ 36,932 Issuance of common stock 1 63 - 64 Costs of issuance of preferred stock - - (3,631) (3,631) Redemption of rights - - (60) (60) Net income - - 2,895 2,895 Dividends to common stockholders ($0.82 per share) - - (2,477) (2,477) Dividends to preferred stockholders - - (1,288) (1,288) Balance, December 31, 1995 $ 61 $107,214 $(74,840) $ 32,435 Issuance of common stock 70 43,778 - 43,848 Costs of issuance of preferred stock - - (2) (2) Costs of issuance of common stock - (3,370) - (3,370) Net income - - 11,021 11,021 Dividends to common stockholders ($1.00 per share) - - (5,671) (5,671) Distributions to limited partnership unit holders - - (5) (5) Dividends to preferred stockholders - - (4,500) (4,500) Balance, December 31, 1996 $ 131 $147,622 $(73,997) $ 73,756 Issuance of common stock 321 265,622 - 265,943 Costs of issuance of common stock - (4,990) - (4,990) Redemption of partnership units - (45) - (45) Net income - - 31,291 31,291 Dividends to common stockholders ($1.13 per share) - - (16,029) (16,029) Dividends to preferred stockholders - - (3,500) (3,500) Balance, December 31, 1997 $ 452 $408,209 $(62,235) $346,426
See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (in thousands) 1997 1996 1995 Operating Activities: Net income $31,291 $11,021 $2,895 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest 108 - - Depreciation and amortization 6,697 3,757 1,806 Loss (gain) on sale of real estate investments (11,533) (406) 642 Increase in other assets (4,655) (2,118) (1,679) Increase in accounts payable and accrued expenses 1,282 763 601 Increase in other liabilities 1,851 1,361 633 Net cash provided by operating activities 25,041 14,378 4,898 Investing Activities: Investments in real estate (212,267) (104,483) (81,173) Proceeds from sales of real estate investments 31,909 7,519 7,914 Net cash used by investing activities (180,358) (96,964) (73,259) Financing Activities: Proceeds from bank loan payable 167,559 101,189 47,100 Repayment of bank loan payable (206,804) (99,048) (26,250) Proceeds from mortgage loans payable - 49,384 - Repayment of mortgage loans payable (441) - - Issuance of common stock 210,953 40,476 64 Net proceeds from sale of preferred stock - - 46,369 Redemption of rights - - (60) Redemption of partnership units (257) - - Payment of dividends (15,660) (9,114) (2,568) Net cash provided by financing activities 155,350 82,887 64,655 Net increase (decrease) in cash 33 301 (3,706) Cash at beginning of year 1,328 1,027 4,733 Cash at end of year $ 1,361 $ 1,328 $ 1,027 Supplemental disclosure of cash flow information a) Non-cash investing and financing activities: Debt incurred with real estate acquired $ 8,914 $ 2,283 $ 3,000 Issuance of limited partnership units for real estate acquired - 1,709 - Note receivable from sale of real estate investment - 50 - b) Cash paid during the year for interest, net of amounts capitalized $ 7,291 $ 3,380 $ 1,283 c) Conversion of Preferred Stock (see footnote 9) $ 50,000 - -
See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization and Summary of Significant Accounting Policies and Practices The Company Bedford Property Investors Inc. (the Company) is a Maryland real estate investment trust with investments primarily in industrial and suburban office properties concentrated in the Western United States. The Company's Common Stock trades under the symbol "BED" on both the New York Exchange and Pacific Exchange. Principles of Consolidation The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its general partnership interest in Bedford Realty Partners, L.P. All significant inter-entity balances have been eliminated in consolidation. Use of Estimates The preparation of these financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Federal Income Taxes The Company has elected to be taxed as a real estate investment trust under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended ("the Code"). A real estate investment trust is generally not subject to Federal income tax on that portion of its real estate investment trust taxable income ("Taxable Income") which is distributed to its stockholders, provided that at least 95% of Taxable Income is distributed and other requirements are met. The Company believes it is in compliance with the Code. Taxable income differs from net income for financial reporting purposes primarily because of the different methods of accounting for depreciation. As of December 31, 1997, for Federal income tax purposes, the Company had an ordinary loss carry forward of approximately $32 million. As the Company does not expect to incur income tax liabilities, the asset value of these losses has been effectively fully reserved. Dividend distributions made for 1997 were classified 88% as ordinary income and 12% as capital gain for Federal income tax purposes. Real Estate Investments Buildings and improvements are carried at cost less accumulated depreciation. Buildings are depreciated on a straight-line basis over 45 years. Upon the acquisition of an investment by the Company, acquisition related costs are added to the carrying cost of that investment. These costs are being depreciated over the useful lives of the buildings. Leasing commissions and improvements to tenants' space incurred subsequent to the acquisition are amortized over the terms of the respective leases. Expenditures for repairs and maintenance, which do not add to the value or prolong the useful life of a property, are expensed as incurred. When the Company concludes that the recovery of the carrying amount of a real estate investment is impaired, it reduces such carrying amount to the estimated fair value of the investment. Investments which have been classified as held for sale are carried at the lower of the carrying amount or fair value less costs to sell. Income Recognition Rental income from operating leases is recognized in income on a straight-line basis over the period of the related lease agreement. The aggregate rental income exceeded contractual rentals by $1,644,000, $573,000 and $377,000 for 1997, 1996 and 1995, respectively. Per Share Data Per share data are based on the weighted average number of common and common equivalent shares outstanding during the year. Per share data reflects the retroactive application of the one-for-two reverse stock split which took place on March 29, 1996. Stock options issued under the Company's stock option plans are included in the calculation of per share data if, upon exercise, they would have a dilutive effect. The diluted earnings per share calculation assumes conversion of the Series A Convertible Preferred Stock of the Company and the limited partnership units of Bedford Realty Partners, L.P., if such conversions would have dilutive effects, as of the beginning of the year. Dividends accrued on the Series A Convertible Preferred Stock and distributions accrued on the limited partnership units are deducted from net income for purposes of determining net income applicable to common stockholders. Effective December 15, 1997, the Company adopted Statement of Financial Accounting Standard No. 128, Earnings per share (FAS 128). Earnings per share data for previous periods have been restated to conform to FAS 128. Note 2 - Real Estate Investments The following table sets forth the Company's real estate investments as of December 31, 1997 (in thousands): Less Accumulated Land Building Depreciation Total INDUSTRIAL PROPERTIES Northern California $ 42,941 $ 93,152 $ 3,358 $132,735 Southern California 13,551 31,130 1,405 43,276 Denver, Colorado 1,911 3,256 153 5,014 Arizona 6,248 14,502 264 20,486 Greater Portland Area 2,652 8,404 460 10,596 Greater Kansas City Area 3,398 13,295 654 16,039 Dallas, Texas 1,105 1,639 - 2,744 Total Industrial 71,806 165,378 6,294 230,890 SUBURBAN OFFICE PROPERTIES Northern California 4,313 13,357 276 17,394 Southern California 7,312 18,074 358 25,028 Salt Lake City 359 6,491 757 6,093 Greater Kansas City Area 2,518 4,046 203 6,361 Greater Seattle Area 15,116 30,225 470 44,871 Reno, Nevada 2,102 10,439 154 12,387 Austin, Texas 2,766 7,075 91 9,750 Arizona 11,416 20,230 264 31,382 Denver, Colorado 1,860 13,249 49 15,060 Total Suburban Office 47,762 123,186 2,622 168,326 PROPERTIES UNDER DEVELOPMENT Northern California 2,775 7,732 23 10,484 Arizona 1,033 3,407 33 4,407 Greater Kansas City Area 518 2,762 13 3,267 Total Properties Under Development 4,326 13,901 69 18,158 LAND HELD FOR DEVELOPMENT Northern California 1,752 - - 1,752 Southern California 981 - - 981 Arizona 1,334 - - 1,334 Denver, Colorado 1,645 - - 1,645 Total Land Held for Development 5,712 - - 5,712 Total $129,606 $302,465 $ 8,985 $423,086
The Company internally manages all but 7 of its properties from its regional offices in Lafayette, CA; Tustin, CA; Phoenix, AZ; Lenexa, KS; Denver, CO; Dallas, TX; and Seattle, WA. For the 7 properties located in markets not served by a regional office, the Company has subcontracted on-site management to local firms. All financial record-keeping is centralized at the Company's corporate office in Lafayette, CA. During 1997 and 1996, the Company capitalized interest costs relating to properties under development totaling $627,000 and $223,000, 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 receive limited partnership units ("OP Units"). A limited partner can seek redemption of the OP Units at any time after 90 days. The Company, at its option, may redeem the OP Units by either (i) issuing common stock at the rate of one share of common stock for each OP Unit, or (ii) paying cash to a limited partner based on the average trading price of its common stock. Each OP Unit is allocated partnership income and cash flow at a rate equal to the dividend being paid by the Company on a share of common stock. Additional partnership income and cash flow is allocated 99% to the Company and 1% to the limited partners. This acquisition strategy is referred to as a "Down REIT" transaction; as long as certain tax attributes are maintained, the income tax consequences to a limited partner are generally deferred until such time as the limited partner redeems their OP Units. On December 17, 1996, the Company acquired a $3.6 million industrial property located in Modesto, California utilizing the Operating Partnership. The sellers of the property received 108,495 OP Units. A director of the Company was a 9% owner of the property, but did not participate in the approval of the acquisition. In March 1997, 13,446 OP Units were redeemed for cash. Note 4 - Leases Minimum future lease payments to be received as of December 31, 1997 are as follows (in thousands): 1998 $ 7,146 1999 5,819 2000 8,767 2001 8,023 2002 5,138 Thereafter 14,304 $ 49,197 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 Due to the Company's limited financial resources existing in prior years, its activities relating to the acquisition of new properties and debt and equity financings have been performed by Bedford Acquisitions, Inc. (BAI) pursuant to a written contract dated January 1, 1995. The contract provides that BAI is obligated to provide services to the Company with respect to the Company's acquisition and financing activities, and that BAI is responsible for the payment of its expenses incurred in connection therewith. The contract provides that BAI is to be paid a fee in an amount equal to the lesser of (i) 1 1/2% of the gross amount raised in financings or the aggregated purchase price of the property for acquisitions, or (ii) an amount equal to (a) the aggregate amount of expenses funded by BAI through the time of such acquisition or financing minus (b) the aggregate amount of fees previously paid to BAI pursuant to such arrangement. In no event will the aggregate amount of fees paid to BAI exceed the aggregate amount of costs funded by BAI. The agreement with BAI has a term of one year and is renewable at the option of the Company for additional one-year terms. The current agreement will expire on January 1, 1999. For 1997, 1996 and 1995, the Company paid BAI $3,156,000, $1,808,000 and $2,143,000, respectively for acquisition and financing activities performed pursuant to the foregoing arrangements. The Company believes that since the fees charged under the foregoing arrangements (i) have been and continue to be comparable to those charged by other sponsors of real estate investment entities or other third party service providers and (ii) have been and continue to be charged only for services on acquired properties or completed financings, such fees were and continue to be properly includable in direct acquisition costs and capitalized as part of the asset or financing activities. Note 6 - Stock Option Plans A total of 900,000 shares of the Company's Common Stock have been reserved for issuance under the Employee Stock Option Plan (the "Employee Plan"). The Employee Plan expires in 2003. The Employee Plan provides for non-qualified stock options and incentive stock options. The Employee Plan is administered by the Compensation Committee of the Board of Directors, which determines the terms of options granted, including the exercise price, the number of shares subject to the option, and the exercisability of the options. Options granted to employees are exercisable upon vesting, and typically vest over a four-year period. The Employee Plan requires that the exercise price of incentive stock options be at least equal to the fair market value of such shares on the date of grant and that the exercise price of non-qualified stock options be equal to at least 85% of the fair market value of such shares on the date of the grant. The maximum term of options granted is ten years. Initially 250,000 shares of the Company's Common Stock were reserved for issuance under the Directors' Stock Option Plan (the "Directors' Plan"). On May 16, 1996 the shareholders approved an additional 250,000 shares. The Directors' Plan expires in 2002. The Directors' Plan provides for the grant of non-qualified stock options to directors of the Company. The Directors' Plan contains an automatic grant feature whereby a director receives a one-time "initial option" to purchase 25,000 shares upon a director's appointment to the Board of Directors and thereafter receives automatic annual grants of options to purchase 10,000 shares upon re-election to the Board of Directors. Options granted are generally exercisable six months from the date of grant. The Directors' Plan requires that the exercise price of options be equal to the fair market value of the underlying shares on the date of grant. The maximum term of options granted is ten years. In September 1995, the Company established a Management Stock Acquisition program. Under the program, options exercised by key members of management shortly after the grant date may be exercised either in cash or with a note payable to the Company. Such note bears interest at 7.5% or the Applicable Federal Rate as defined by the Internal Revenue Service, whichever is higher. The note is due in five years or within ninety days from termination of employment, with interest payable quarterly. During 1996 and 1995, options for 155,000 shares of Common Stock were exercised in exchange for notes payable to the Company. The notes bear interest at 7.5%. The unpaid balance of the notes is $1,466,000 and is included in the accompanying consolidated balance sheet as a reduction of additional paid-in capital. In addition, the Company may grant restricted stock to key employees. These shares generally vest over five years and are subject to forfeiture under certain conditions. In 1997, 42,500 shares were granted. The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, compensation costs have not been recognized for either the Employee or Directors' Plan. Had compensation costs for the plans been determined consistent with FASB Statement No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: 1997 1996 1995 Net income: As reported $31,291 $11,021 $2,895 Pro forma 31,045 10,831 2,821 Basic earnings per share: As reported $ 2.21 $ 1.21 $ 0.53 Pro forma 2.19 1.17 0.51 Earnings per share - assuming dilution: As reported $ 1.94 $ 1.14 $ 0.52 Pro forma 1.92 1.12 0.50 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 1997, 1996 and 1995, respectively: dividend yield of 5.8%, 6.9% and 6.7%; expected volatility of 16.8%, 18.1% and 19.4%; risk-free interest rates of 5.7%, 6.3% and 5.3%; and expected lives of five years for each period. A summary of the status of the Company's plans as of December 31, 1997, 1996 and 1995 and changes during the years ended on those dates is presented below: 1997 1996 1995 Weighted Avg. Weighted Avg. Weighted Avg. Shares Exercise Price Shares Exercise Price Shares Exercise Price Employee Plan Outstanding at beginning of year 242,250 $12.94 93,750 $12.78 107,500 $13.04 Granted 483,000 18.25 267,000 13.00 86,000 11.50 Exercised (7,125) 13.37 (106,000) 12.96 (56,875) 11.14 Forfeited (29,375) 13.30 (12,500) 12.92 (42,875) 12.91 Outstanding at end of year 688,750 $16.64 242,250 $12.94 93,750 $12.78 Options exercisable 118,750 45,063 25,875 Weighted average fair value of options granted during the year $ 1.94 $ 1.37 $ 1.19 Directors' Plan Outstanding at beginning of year 295,000 $ 9.94 250,000 $ 8.28 175,000 $ 6.76 Granted 70,000 18.82 70,000 14.22 75,000 11.84 Exercised - - (25,000) 5.33 - - Outstanding at end of year 365,000 $11.65 295,000 $ 9.94 250,000 $ 8.28 Options exercisable 365,000 295,000 175,000 Weighted average fair value of options granted during the year $ 1.59 $ 1.06 $ 1.16
The following table summarizes information about stock options outstanding on December 31, 1997: Options Outstanding Options Exercisable Weighted Avg. Range of Number Remaining Weighted Avg. Number Weighted Avg. Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price Employee Plan $ 8.50 2,750 0.4 $ 8.50 2,750 $ 8.50 13.75 to 14.00 49,750 2.5 13.93 47,750 13.95 11.50 34,500 7.7 11.50 17,250 11.50 13.00 120,750 8.3 13.00 51,000 13.00 $ 17.63 to 20.75 481,000 9.3 18.25 - - $ 8.50 to 20.75 688,750 8.5 $ 16.64 118,750 $ 13.06 Directors' Plan $ 5.33 100,000 0.9 $ 5.33 100,000 $ 5.33 7.71 25,000 0.9 7.71 25,000 7.71 12.97 25,000 1.8 12.97 25,000 12.97 11.82 to 11.85 75,000 3.2 11.84 75,000 11.84 14.22 70,000 8.8 14.22 70,000 14.22 $ 18.82 70,000 9.8 $ 18.82 70,000 $ 18.82 $ 5.33 to 18.82 365,000 4.7 $ 11.65 365,000 $ 11.65
Note 7 - Bank Loan Payable In June 1997, the Company expanded its secured revolving credit facility with Bank of America from $100 million to $150 million, maturing on June 1, 2000. In September 1997, the credit facility was further expanded to $175 million. Under this facility, the Company can borrow up to $25 million on an unsecured basis. The secured loans bear interest at a floating rate equal to either the lender's published "reference rate" or LIBOR plus 1.50%. The interest rate of the unsecured loans is 25 basis points higher than that of the secured loans. The credit facility is secured by mortgages on 35 properties (which properties collectively accounted for approximately 49% of the Company's Annualized Base Rent and approximately 47% of the Company's total assets as of December 31, 1997), together with the rental proceeds from such properties. The credit facility contains various restrictive covenants including, among other things, a covenant limiting quarterly dividends to 95% of average Funds From Operations for the immediately preceding two fiscal quarters. The daily weighted average amount owed to the bank was $45,642,000 and $10,997,000 in 1997 and 1996, respectively. The weighted average interest rates in these periods were 7.42% and 8.03%, respectively. The effective interest rate at December 31, 1997 was 7.50%. Note 8 - Mortgage Loans Payable Mortgage loans payable at December 31, 1997 consist of the following (in thousands): Floating rate note due December 15, 1999, current rate of 8.75% $ 1,823 7.5% note due January 1, 2002 24,677 7.02% note due March 15, 2003 25,000 8.9% note due July 31, 2006 8,823 $ 60,323 The mortgage loans are collaterized by 17 properties (which Properties collectively accounted for approximately 26% of the Company's Annualized Base Rent and approximately 20% of the Company's total assets as of December 31, 1997). The following table presents scheduled principal payments on mortgage loans as of December 31, 1997 (in thousands): 1998 $ 838 1999 2,768 2000 1,048 2001 1,130 2002 23,681 Thereafter 30,858 $ 60,323 Note 9 - Redeemable Preferred Stock On September 18, 1995, the Company issued and sold 8,333,334 shares of Series A Convertible Preferred Stock (the "Convertible Preferred Stock") for $6.00 per share. Holders of the Convertible Preferred Stock were entitled to cumulative quarterly dividends in cash in an amount equal to the greater of (i) $0.135 per share or (ii) the dividends payable in such quarter on the Common Stock into which the Convertible Preferred Stock is convertible plus, in both cases, the accumulated but unpaid dividends on the Convertible Preferred Stock. Dividends may be declared and paid on shares of Common Stock only if full cumulative dividends have been paid or authorized and set apart on all shares of Convertible Preferred Stock. Each share of Convertible Preferred Stock was convertible at any time after September 18, 1997 into one-half share of Common Stock. On October 14, 1997, the 8,333,334 shares of the Series A Convertible Preferred Stock were converted to 4,166,667 shares of common stock. Note 10 - Sales of Common Stock The Company completed the sale of 3,350,000 shares of common stock at $13 per share in April 1996. In February 1997, the Company completed the sale of 4,600,000 shares of the common stock at $17 3/8 per share and in November 1997 sold an additional 7,245,000 shares of common stock at $19 5/8 per share. Net cash proceeds from each of these offerings was used to pay off the outstanding borrowings under the Company's credit facility. Note 11 - Earnings per Share Following is a reconciliation of earnings per share: Year Ended December 31, 1997 1996 1995 Basic: Net income $ 31,291 $ 11,021 $ 2,895 Less:Dividends on the Series A Convertible Preferred Stock (3,500) (4,500) (1,288) Distributions to Operating Partnership Unit Holders - (5) - Net income applicable to common stockholders 27,791 6,516 1,607 Weighted average number of shares 12,566,065 5,405,727 3,005,950 Basic earnings per share $ 2.21 $ 1.21 $ 0.53 Diluted: Weighted average number of shares (from above) 12,566,065 5,405,727 3,005,950 Weighted average shares issuable upon conversion of the Series A Convertible Preferred Stock1 3,264,840 4,166,667 - Weighted average shares of dilutive stock options using average period stock price under the treasury stock method 237,185 125,711 83,599 Weighted average shares issuable upon the conversion of operating partnership units2 98,364 4,447 - Weighted average number of common shares - assuming dilution 16,166,454 9,702,552 3,089,549 Earnings per share - assuming dilution $ 1.94 $ 1.14 $ 0.52
Per share amounts and number of shares have been adjusted to reflect the one-for-two reverse stock split effective March 29, 1996. 1Not applicable before 1995. The Series A Convertible Preferred Stock was issued in September 1995. 2Not applicable before 1996. The Operating Partnership Units were issued in December 1996. Note 12 - Quarterly Financial Data-Unaudited The following is a summary of quarterly results of operations for 1997 and 1996 (in thousands of dollars, except per share data): 1997 Quarters Ended 3/31 6/30 9/30 12/31 Rental income $9,056 $10,627 $12,789 $13,905 Income from property operations 5,642 6,929 8,295 8,966 Income before gain on sales of real estate investments and minority interest 3,680 4,886 5,022 6,278 Net income $3,655 $ 4,860 $15,781 $ 6,995 Net income applicable to common stockholders1 $2,530 $ 3,735 $14,531 $ 6,995 Basic earnings per share3 $ 0.28 $ 0.34 $ 1.30 $ 0.37 Earnings per share - assuming dilution3 $ 0.27 $ 0.31 $ 1.01 $ 0.35 1996 Quarters Ended 3/31 6/30 9/30 12/31 Rental income $5,709 $ 6,369 $ 7,090 $ 8,373 Income from property operations 3,347 3,857 4,230 5,130 Income before gain on sales of real estate investments 1,953 2,621 2,932 3,109 Net income $1,953 $2,980 $2,932 $ 3,156 Net income applicable to common stockholders2 $ 828 $1,855 $1,807 $ 2,026 Basic earnings per share3 $ 0.27 $ 0.33 $ 0.28 $ 0.31 Earnings per share - assuming dilution3 $ 0.26 $ 0.30 $ 0.27 $ 0.29
1Reflects reduction for dividends and distributions of $1,125 each for the first and second quarter of 1997 and $1,250 for the third quarter of 1997. 2Reflects reduction for dividends and distributions of $1,130 for the fourth quarter of 1996 and $1,125 each for the first, second and third quarter of 1996. 3Reflects the one-for-two reverse stock split effective March 29, 1996. BEDFORD PROPERTY INVESTORS, INC. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 (in thousands of dollars) Initial Cost Cost to Company Capitalized Gross Amount Accumu- Depre Buildings Subsequent Carried at Close lated Date Date ciable & to of Period Depre- Con- Ac- Life Description Land Improvement Acquisition Land Building Total ciation structed quired (Years) INDUSTRIAL PROPERTIES: Northern California Building #3 at Contra Costa Diablo Industrial Park, Concord $ 495 $ 1,159 $ 89 $ 495 $ 1,248 $ 1,743 $ 235 1983 12/90 45 Building #8 at Contra Costa Diablo Industrial Park, Concord 877 1,548 143 877 1,691 2,568 300 1981 12/90 45 Building #18 at Mason Industrial Park, Concord 610 1,265 60 610 1,325 1,935 237 1984 12/90 45 115 Mason Circle, Concord 697 854 36 697 890 1,587 27 1971 9/96 45 Auburn Court, Fremont 1,391 2,473 232 1,416 2,680 4,096 119 1983 12/95 45 47650 Westinghouse Drive, Fremont 267 893 60 271 949 1,220 42 1982 12/95 45 47600 Westinghouse Drive, Fremont 356 1,067 43 356 1,110 1,466 32 1982 9/96 45 47633 Westinghouse Drive, Fremont 1,051 3,239 142 1,051 3,381 4,432 92 1983 10/96 45 Fourier Avenue, Fremont 2,120 7,018 - 2,120 7,018 9,138 247 1982 5/96 45 Milpitas Town Center, Milpitas 1,400 4,421 86 1,400 4,507 5,907 339 1983 8/94 45 598 Gibraltar Drive, Milpitas 535 2,522 - 535 2,522 3,057 145 1996 5/96 45 Doherty Avenue, Modesto 464 3,178 266 470 3,438 3,908 76 1963-71 12/96 45 860-870 Napa Valley Corporate Way, Napa 933 3,515 219 933 3,734 4,667 107 1984 9/96 45 350 E. Plumeria Drive, San Jose 3,621 4,704 166 3,683 4,808 8,491 240 1983 9/95 45 Lundy Avenue, San Jose 2,055 2,184 190 2,055 2,374 4,429 78 1982 7/96 45 O'Toole Business Center, San Jose 3,934 5,748 204 3,934 5,952 9,886 131 1984 12/96 45 301 East Grand, South San Francisco 2,036 959 160 2,070 1,085 3,155 60 1974 12/95 45 342 Allerton, South San Francisco 2,516 1,542 324 2,558 1,824 4,382 81 1969 12/95 45 400 Grandview, South San Francisco 3,246 3,517 227 3,300 3,690 6,990 169 1976 12/95 45 410 Allerton, South San Francisco 1,333 889 40 1,356 906 2,262 41 1970 12/95 45 417 Eccles, South San Francisco 649 510 28 661 526 1,187 24 1964 12/95 45 6500 Kaiser Drive, Fremont 1,556 6,411 29 1,556 6,440 7,996 143 1990 1/97 45 Bedford Fremont Business Center, Fremont 3,598 9,004 97 3,598 9,101 12,699 176 1990 3/97 45 Spinnaker Court, Fremont 2,548 5,989 32 2,548 6,021 8,569 89 1986 5/97 45 2277 Pine View Way, Petaluma 1,861 7,074 2 1,861 7,076 8,937 92 1989 6/97 45 Mondavi Building, Napa 1,315 5,214 - 1,315 5,214 6,529 29 1985 9/97 45 Building #2 at Monterey Commerce Center, Monterey 611 1,833 - 611 1,833 2,444 3 1990 12/97 45 Building #3 at Monterey Commerce Center, Monterey 604 1,812 - 604 1,812 2,416 3 1990 12/97 45 Southern California Dupont Industrial Center, Ontario 3,588 6,162 185 3,588 6,347 9,935 579 1989 5/94 45 3002 Dow Business Center, Tustin 4,209 7,291 665 4,305 7,860 12,165 452 1987-89 12/95 45 Building #1 at Carroll Tech Center, San Diego 511 1,372 - 511 1,372 1,883 38 1984 10/96 45 Building #2 at Carroll Tech Center, San Diego 1,022 2,129 - 1,022 2,129 3,151 59 1984 10/96 45 Signal Systems Building, San Diego 2,228 7,264 - 2,228 7,264 9,492 161 1990 12/96 45 Building #1 at Oak Ridge Business Center, Vista 646 2,135 - 646 2,135 2,781 55 1990 10/96 45 Building #2 at Oak Ridge Business Center, Vista 566 1,832 - 566 1,832 2,398 47 1990 10/96 45 2230 Oak Ridge Way, Vista 684 2,191 - 684 2,191 2,875 13 1997 10/97 45 Denver Metropolitan Area Bryant Street Annex, Denver 487 866 105 495 963 1,458 40 1968 12/95 45 Bryant Street Quad, Denver 1,394 2,181 135 1,416 2,294 3,710 113 1971-73 12/95 45 Greater Phoenix Area, Arizona Westech Business Center, Phoenix 3,531 4,422 257 3,531 4,679 8,210 197 1985 4/96 45 2601 W. Broadway, Tempe 1,127 2,348 80 1,127 2,428 3,555 22 1977 7/97 45 Building #3 at Phoenix Airport Center, Phoenix 682 3,163 - 682 3,163 3,845 29 1990 7/97 45 Greater Portland Area, Oregon Twin Oaks Technology Center, Beaverton 1,444 4,836 438 1,469 5,249 6,718 305 1984 12/95 45 Twin Oaks Business Center, Beaverton 1,163 2,847 328 1,183 3,155 4,338 155 1984 12/95 45 Greater Kansas City Area Panorama Business Center, Kansas City 675 3,098 177 675 3,275 3,950 81 1984 12/96 45 Ninety-Ninth Street #3, Lenexa 360 2,167 179 360 2,346 2,706 361 1990 12/90 45 Ninety-Ninth Street #1, Lenexa 404 1,547 40 408 1,583 1,991 79 1988 9/95 45 Ninety-Ninth Street #2, Lenexa 180 555 14 183 566 749 28 1988 9/95 45 Lackman Business Center, Lenexa 619 1,631 182 628 1,804 2,432 106 1985 9/95 45 Continental Can, Lenexa 1,144 3,722 - 1,144 3,722 4,866 - 1972 12/97 45 Tucson, Arizona Butterfield Business Center, Tucson 909 4,230 1 909 4,231 5,140 16 1986 11/97 45 Dallas, Texas Ferrell Drive, Dallas 1,105 1,639 - 1,105 1,639 2,744 - 1984 12/97 45 SUBURBAN OFFICE PROPERTIES: Southern California Laguna Hills Square, Laguna 2,436 3,655 546 2,436 4,201 6,637 180 1983 3/96 45 Building #3 at Carroll Tech Center, San Diego 716 1,400 - 716 1,400 2,116 39 1984 10/96 45 Scripps Wateridge, San Diego 4,160 12,472 - 4,160 12,472 16,632 139 1990 6/97 45 Salt Lake City, Utah Woodlands II, Salt Lake City 359 5,805 686 359 6,491 6,850 757 1990 8/93 45 Kansas City, Kansas 6600 College Blvd., Overland Park 2,480 3,880 204 2,518 4,046 6,564 203 1982-83 10/95 45 Northern California Village Green, Lafayette 547 1,245 508 743 1,557 2,300 140 1983 7/94 45 100 View Street, Mountain View 1,020 3,144 254 1,020 3,398 4,418 121 1985 5/96 45 Canyon Park, San Ramon 1,933 3,098 - 1,933 3,098 5,031 6 1971-72 12/97 45 Building #1 at Monterey Commerce Center, Monterey 616 5,302 - 616 5,302 5,918 10 1990 12/97 45 Greater Seattle Area, Washington Kenyon Center, Bellevue 5,095 7,250 - 5,095 7,250 12,345 215 1987 9/96 45 Orillia Office Park, Renton 10,021 22,975 - 10,021 22,975 32,996 255 1986 7/97 45 Phoenix, Arizona Executive Center at Southbank, Phoenix 4,943 7,134 - 4,943 7,134 12,077 133 1989 3/97 45 Building #1 at Phoenix Airport Center, Phoenix 944 1,541 16 944 1,557 2,501 14 1990 7/97 45 Building #2 at Phoenix Airport Center, Phoenix 723 3,278 - 723 3,278 4,001 30 1990 7/97 45 Building #4 at Phoenix Airport Center, Phoenix 517 1,732 - 517 1,732 2,249 16 1990 7/97 45 Building #5 at Phoenix Airport Center, Phoenix 1,507 3,860 3 1,507 3,863 5,370 36 1990 7/97 45 Phoenix Airport Center Parking, Phoenix 1,450 - - 1,450 - 1,450 1 1990 7/97 45 Tucson, Arizona Troika Building, Tucson 1,332 2,631 35 1,332 2,666 3,998 34 1985 6/97 45 Reno, Nevada U.S. Bank Centre, Reno 2,102 10,264 175 2,102 10,439 12,541 154 1989 5/97 45 Austin, Texas 9737 Great Hills Trail, Austin 2,766 7,028 47 2,766 7,075 9,841 91 1984 5/97 45 Denver Metropolitan Area, Colorado Oracle Building, Denver 1,860 13,249 - 1,860 13,249 15,109 49 1996 10/97 45 INDUSTRIAL PROPERTIES UNDER DEVELOPMENT 99th Street Building #4, Lenexa, KS 519 - 2,762 519 2,762 3,281 13 N/A 6/96 45 Westech Business Center II, Phoenix, AZ 1,033 - 3,407 1,033 3,407 4,440 33 N/A 7/96 45 Westinghouse Land, Fremont, CA 1,624 - 2,629 1,624 2,629 4,253 - N/A 10/96 45 Bordeaux Centre, Napa, CA 1,151 - 5,102 1,151 5,102 6,253 23 N/A 12/96 45 LAND HELD FOR DEVELOPMENT Napa Lot 10A, Napa, CA 961 - 13 974 - 974 - N/A 12/96 Scripps Land, San Diego, CA 622 - - 622 - 622 - N/A 6/97 Oak Ridge Way Lot, Vista, CA 359 - - 359 - 359 - N/A 10/97 Oracle Land, Denver, CO 1,645 - - 1,645 - 1,645 - N/A 10/97 Butterfield Land, Tucson, AZ 102 - - 102 - 102 - N/A 11/97 Canyon Park Land, San Ramon, CA 778 - - 778 - 778 - N/A 12/97 Eaton Freeway Land, Tempe, AZ 1,232 - - 1,232 - 1,232 - N/A 12/97 $128,910 $281,113 $22,048 $129,606 $302,465 $432,071 $8,985 (A) (B)
NOTES TO SCHEDULE III (in thousands of dollars) (A) An analysis of the activity in real estate investments for the years ended December 31, 1997, 1996 and 1995 is presented below: Investment Accumulated Depreciation 1997 1996 1995 1997 1996 1995 BALANCE AT BEGINNING OF PERIOD $229,414 $131,183 $ 58,203 $4,913 $2,219 $3,150 Add (deduct): Acquisition of Lackman Business Center - - 2,250 - - - Acquisition of 350 E. Plumeria Drive - - 8,325 - - - Sale of Cody Street Park, Building 6 (C) - - (1,639) - - (203) Acquisition of Ninety-Ninth Street, Building 1 - - 1,951 - - - Acquisition of Ninety-Ninth Street, Building 2 - - 735 - - - Sale of IBM Building (D) - - (8,325) - - (2,024) Acquisition of 6600 College Boulevard - - 6,360 - - - Acquisition of 3002 Dow Business Center - - 11,500 - - - Acquisition of Landsing Pacific Portfolio - - 49,708 - - - Acquisition of Laguna Hills Square - 6,091 - - - - Acquisition of Westech Business Center - 7,953 - - - - Acquisition of 100 View Street - 4,164 - - - - Acquisition of Fourier Avenue - 9,138 - - - - Acquisition of 598 Gibraltar - 1,743 - - - - Acquisition of Lundy Avenue - 4,239 - - - - Acquisition of Kenyon Center - 12,345 - - - - Acquisition of 47600 Westinghouse Drive - 1,423 - - - - Acquisition of 860-870 Napa Valley Corp. Way - 4,448 - - - - Acquisition of 115 Mason Circle - 1,551 - - - - Acquisition of Oak Ridge Business Center - 5,179 - - - - Acquisition of Carroll Tech Center - 7,151 - - - - Acquisition of 47633 Westinghouse Drive - 4,290 - - - - Acquisition of Panorama Business Center - 3,774 - - - - Acquisition of Signal Systems Building - 9,492 - - - - Acquisition of O'Toole Business Center - 9,681 - - - - Acquisition of Doherty Avenue - 3,642 - - - - Acquisition of Westinghouse Land - 1,625 - - - - Acquisition of Napa Lot 10A - 961 - - - - Acquisition of Napa Lots 12J & K - 1,151 - - - - Acquisition of Lenexa Land - 518 - - - - Acquisition of Phoenix Land - 1,033 - - - - Sale of Woodland Land (E) - (614) - - - - Sale of St. Paul East (F) - (2,792) - - (45) - Sale of St. Paul West (F) - (3,839) - - (36) - Acquisition of 6500 Kaiser Drive 7,967 - - - - - Acquisition of Bedford Fremont Business Center 12,602 - - - - - Acquisition of Spinnaker Court 8,537 - - - - - Acquisition of 2277 Pine View Way 8,935 - - - - - Acquisition of Mondavi Building 6,529 - - - - - Acquisition of Building #2 at Monterey Commerce Center 2,444 - - - - - Acquisition of Building #3 at Monterey Commerce Center 2,416 - - - - - Acquisition of 2230 Oak Ridge Way 2,875 - - - - - Acquisition of 2601 W. Broadway 3,475 - - - - - Acquisition of Building #3 at Phoenix Airport Center 3,845 - - - - - Acquisition of Continental Can 4,866 - - - - - Acquisition of Butterfield Business Center 5,139 - - - - - Acquisition of Ferrell Drive 2,744 - - - - - Acquisition of Scripps Wateridge 16,632 - - - - - Acquisition of Canyon Park 5,031 - - - - - Acquisition of Building #1 at Monterey Commerce Center 5,918 - - - - - Acquisition of Orillia Office Park 32,996 - - - - - Acquisition of Executive Center At Southbank 12,077 - - - - - Acquisition of Building #1 at Phoenix Airport Center 2,485 - - - - - Acquisition of Building #2 at Phoenix Airport Center 4,001 - - - - - Acquisition of Building #4 at Phoenix Airport Center 2,249 - - - - - Acquisition of Building #5 at Phoenix Airport Center 5,367 - - - - - Acquisition of Phoenix Airport Center Parking 1,450 - - - - - Acquisition of Troika Building 3,963 - - - - - Acquisition of U.S. Bank Centre 12,366 - - - - - Acquisition of 9737 Great Hills Trail 9,794 - - - - - Acquisition of Oracle Building 15,109 - - - - - Acquisition of Scripps Land 622 - - - - - Acquisition of Oak Ridge Way Lot 359 - - - - - Acquisition of Oracle Land 1,645 - - - - - Acquisition of Butterfield Land 102 - - - - - Acquisition of Canyon Park Land 778 - - - - - Acquisition of Eaton Freeway Land 1,232 - - - - - Sale of 1000 Town Center Drive (G) (6,622) - - (780) - - Sale of Mariner Court (G) (7,864) - - (419) - - Sale of Academy Place Shopping Center (H) (6,281) - - (110) - - Capitalized costs 16,874 3,884 2,115 - - - Depreciation - - - 5,381 2,775 1,296 BALANCE AT END OF PERIOD $432,071 $229,414 $131,183 $8,985 $4,913 $2,219
(B)The aggregate cost for Federal income tax purposes is $296,993. (C)In the third quarter 1995, the Company decided to sell the Cody Street Park, Building 6. The property was sold on September 20, 1995. (D) During 1995, the Company continued to offer for sale the IBM Building located in Jackson, Mississippi. This property was first offered for sale in 1991, at which time the Company's investment in the property was written down by $2,113,000. The property sold on October 2, 1995. (E) The property was sold in April 1996. (F) The properties were sold in December 1996. (G) The properties were sold in July 1997. (H) The property was sold in October 1997. 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: August 19, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacity and on the date indicated. /s/ Peter B. Bedford August 19, 1998 Peter B. Bedford, Chairman of the Board and Chief Executive Officer /s/ Claude M. Ballard August 19, 1998 Claude M. Ballard, Director /s/ Anthony Downs August 19, 1998 Anthony Downs, Director /s/ Anthony M. Frank August 19, 1998 Anthony M. Frank, Director /s/ Martin I. Zankel August 19, 1998 Martin I. Zankel, Director /s/ Thomas H. Nolan, Jr. August 19, 1998 Thomas H. Nolan, Jr., Director /s/ Thomas G. Eastman August 19, 1998 Thomas G. Eastman, Director /s/ Scott R. Whitney August 19, 1998 Scott R. Whitney Senior Vice President and Chief Financial Officer /s/ Hanh Kihara August 19, 1998 Hanh Kihara, Vice President Controller Exhibit 12 Bedford Property Investors, Inc. Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends and Limited Partner Distributions (in thousands, except for ratio) Year Ended December 31, 1997 1996 1995 1994 1993 Net income $31,291 $11,021 $ 2,895 $3,609 $3,147 Fixed charges - interest and amortization of loan fees 7,918 4,347 1,594 955 716 Fixed charges - interest capitalized 627 - - - - Net income including fixed charges 39,836 15,368 4,489 4,564 3,863 Preferred dividends and limited partner distributions 3,608 4,505 1,288 - - Net income including fixed charges, preferred dividends and limited partner distributions $43,444 $19,873 $ 5,777 $4,564 $3,863 Ratio of earnings to fixed charges, including preferred dividends and limited partner distributions 3.57 2.25 2.00 4.78 5.40 Ratio of earnings to fixed charges, excluding preferred dividends and limited partner distributions 4.66 3.54 2.82 4.78 5.40 Exhibit 21.1 Subsidiaries of Bedford Property Investors, Inc.
Name Under Subsidiary Which Subsidiary is Name State of Incorporation doing Business 1. ICMPI (Concord Diablo 3), Inc. Delaware ICMPI (Concord Diablo 3), Inc. 2. ICMPI (Concord Diablo 8), Inc. Delaware ICMPI (Concord Diablo 8), Inc. 3. ICMPI (Concord Mason 18), Inc. Delaware ICMPI (Concord Mason 18), Inc. 4. ICMPI (Overland Park), Inc. Delaware ICMPI (Overland Park), Inc. 5. ICMPI (Lenexa), Inc. Delaware ICMPI (Lenexa), Inc. 6. ICMPI (Jackson), Inc. Delaware ICMPI (Jackson), Inc. Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors Bedford Property Investors, Inc.: We consent to incorporation by reference in the registration statements on Form S-3 (No.'s 33-15233 and 333-23687) and the registration statement on Form S-8 (No. 333-18215) of Bedford Property Investors, Inc. of our report dated February 2, 1998, relating to the consolidated balance sheets of Bedford Property Investors, Inc. as of December 31, 1997 and 1996, 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, 1997, and the related financial statement schedule as of December 31, 1997, which report appears in the December 31, 1997 annual report on Form 10-K of Bedford Property Investors, Inc. KPMG Peat Marwick LLP San Francisco, California March 27, 1998 EX-27 2
5 EXHIBIT 27 FINANCIAL DATA SCHEDULE (in thousands except per share amounts) 12-MOS DEC-31-1997 DEC-31-1997 $1,361 0 0 0 0 2,416 432,071 8,985 433,903 15,839 68,539 452 0 0 345,974 433,903 0 46,666 0 0 18,882 0 7,918 31,291 0 31,291 0 0 0 31,291 2.21 1.94
EX-27 3
5 EXHIBIT 27 - AMENDED FINANCIAL DATA SCHEDULE (in thousands except per share amounts) 12-MOS DEC-31-1996 DEC-31-1996 $ 1,328 0 0 0 0 1,640 229,414 (4,913) 231,824 6,588 97,947 131 0 50,000 73,625 231,824 0 27,691 0 0 (12,729) 0 (4,347) 11,021 0 11,021 0 0 0 $ 11,021 $ 1.21 $ 1.14
EX-27 4
5 EXHIBIT 27 - AMENDED FINANCIAL DATA SCHEDULE (in thousands except per share amounts) 12-MOS DEC-31-1995 DEC-31-1995 $ 1,027 0 0 0 0 1,110 131,183 (2,219) 133,478 2,145 43,250 61 0 50,000 32,374 133,478 0 11,921 0 0 (6,790) 0 (1,594) 2,895 0 2,895 0 0 0 $ 2,895 $ 0.53 $ 0.52
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