-----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, AZuyg9VijkqN1LJOkuD46MZ7efnQ+N1PLC1m0tUP5ZiwC5O9FYkx75IFALF+NUqd QNwcRYdQWxCFjANCRmBNCg== 0000910079-00-000004.txt : 20000428 0000910079-00-000004.hdr.sgml : 20000428 ACCESSION NUMBER: 0000910079-00-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000427 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-Q SEC ACT: SEC FILE NUMBER: 001-12222 FILM NUMBER: 610980 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-Q 1 1Q00 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarter ended March 31, 2000. ___ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________________ to _______________. 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 of (I.R.S. Employer incorporation or organization) Identification No.) 270 Lafayette Circle, Lafayette, CA 94549 (Address of principal executive offices) Registrant's telephone number, including area code (925) 283-8910 Indicate by check mark whether 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 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 the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Class Outstanding as of April 28, 2000 Common Stock, $0.02 par value 18,620,450 BEDFORD PROPERTY INVESTORS, INC. INDEX PART I. FINANCIAL INFORMATION Page ITEM 1. FINANCIAL STATEMENTS Statement 1 Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 2 Consolidated Statements of Income for the three months ended March 31, 2000 and 1999 3 Consolidated Statements of Stockholders' Equity for the year ended December 31, 1999 and the three months ended March 31, 2000 4 Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999 5 Notes to Consolidated Financial Statements 6-13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 14-17 ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK 18 PART II. OTHER INFORMATION ITEMS 1 - 6 19 SIGNATURES 20 Exhibit 27 21 BEDFORD PROPERTY INVESTORS, INC. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STATEMENT The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of results of operations for the interim periods presented. Such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the notes to consolidated financial statements appearing in the annual report to stockholders for the year ended December 31, 1999. When used in the discussion in this Form 10-Q, the words "believes," "expects," "intends," "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 discussed, 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. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999 (Unaudited) (in thousands, except share and per share amounts) March 31, 2000 December 31, 1999 Assets: Real estate investments: Industrial buildings $276,986 $279,367 Office buildings 298,227 294,420 Operating properties held for sale 67,148 80,563 Properties under development 18,421 19,246 Land held for development 6,135 6,137 666,917 679,733 Less accumulated depreciation 30,224 28,695 636,693 651,038 Cash 1,330 1,584 Other assets 17,617 18,788 $655,640 $671,410 Liabilities and Stockholders' Equity: Bank loan payable $130,656 $137,156 Mortgage loans payable 206,054 206,880 Accounts payable and accrued expenses 8,410 9,767 Dividend and distributions payable 7,853 8,270 Other liabilities 6,323 7,928 Total liabilities 359,296 370,001 Minority interest in consolidated partnership 1,229 1,229 Stockholders' equity: Common stock, par value $0.02 per share; authorized 50,000,000 shares; issued and outstanding 18,620,056 shares in 2000 and 19,613,472 shares in 1999 372 392 Additional paid-in capital 332,765 353,220 Accumulated dividends in excess of net income (38,022) (53,432) Total stockholders' equity 295,115 300,180 $655,640 $671,410 See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (Unaudited) (in thousands, except share and per share amounts) 2000 1999 Property operations: Rental income $ 24,392 $ 21,359 Rental expenses: Operating expenses 3,927 3,580 Real estate taxes 2,381 1,908 Depreciation and amortization 3,143 2,972 Income from property operations 14,941 12,899 General and administrative expenses (895) (822) Interest income 34 30 Interest expense (6,050) (3,833) Income before gain on sales of real estate investments and minority interest 8,030 8,274 Gain on sales of real estate investments 15,234 568 Minority interest (33) (31) Net income $ 23,231 $ 8,811 Earnings per share - basic $ 1.20 $ 0.39 Weighted average number of shares - basic 19,286,636 22,496,811 Earnings per share - diluted $ 1.19 $ 0.39 Weighted average number of shares - diluted 19,498,352 22,642,418 See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE THREE MONTHS ENDED MARCH 31, 2000 (Unaudited) (in thousands, except per share amounts) Accumulated Total Additional dividends stock- Common paid-in in excess of holders' stock capital net income equity Balance, December 31, 1998 $ 453 $407,760 $(60,624) $347,589 Issuance of common stock 6 1,978 - 1,984 Repurchase and retirement of common stock (67) (56,518) - (56,585) Net income - - 39,855 39,855 Dividends to common stockholders ($1.56 per share) - - (32,663) (32,663) Balance, December 31, 1999 $ 392 $353,220 $(53,432) $300,180 Issuance of common stock 4 367 - 371 Repurchase and retirement of common stock (24) (20,822) - (20,846) Net income - - 23,231 23,231 Dividends to common stockholders ($0.42 per share) - - (7,821) (7,821) Balance, March 31, 2000 $ 372 $332,765 $(38,022) $295,115
See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (Unaudited) (in thousands) 2000 1999 Operating Activities: Net income $ 23,231 $ 8,811 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest 33 31 Depreciation and amortization 3,590 3,342 Gain on sales of real estate investments (15,234) (568) Change in other assets (1,877) (7,179) Change in accounts payable and accrued expenses (1,503) (192) Change in other liabilities (1,605) (1,882) Net cash provided by operating activities 6,635 2,363 Investing Activities: Investments in real estate (7,128) (11,713) Proceeds from sales of real estate investments 36,339 1,789 Net cash (used) provided by investing activities 29,211 (9,924) Financing Activities: Proceeds from bank loan payable 25,715 34,463 Repayments of bank loan payable (32,228) (1,300) Proceeds from mortgage loans payable (15) (1,414) Repayments of mortgage loans payable (826) (326) Issuance of common stock 371 458 Payment of dividends and distributions (8,271) (8,185) Repurchase and retirement of common stock (20,846) (16,253) Net cash used (provided) by financing activities (36,100) 7,443 Net decrease in cash (254) (118) Cash at beginning of period 1,584 1,286 Cash at end of period $ 1,330 $ 1,168 Supplemental disclosure of cash flow information: Cash paid during the period for interest, net of amounts capitalized of $810 in 2000 and $404 in 1999 $ 5,669 $ 3,460
See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. The Company and Basis of Presentation The Company Bedford Property Investors, Inc. (the Company) is a Maryland real estate investment trust with investments primarily in industrial and suburban office properties concentrated in the western United States. The Company's common stock trades under the symbol "BED" on both the New York Stock Exchange and the Pacific Exchange. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes necessary for a presentation of financial condition, results of operations and cash flows in conformity with generally accepted accounting principles. The unaudited interim consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of results for the interim periods presented in compliance with the instructions to Form 10-Q. All such adjustments are of a normal, recurring nature. Per Share Data Per share data are based on the weighted average number of common shares outstanding during the period. Stock options issued under the Company's stock option plans, non-vested restricted stock, and the limited partnership units of Bedford Realty Partners, L.P. are included in the calculation of diluted per share data if, upon exercise or vestiture, they would have a dilutive effect. Recent Accounting Pronouncements In June 1998, the FASB issued Financial Accounting Standard No. 133, Accounting for Derivatives Instruments and Hedging Activities. SFAS 133, as amended, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Management believes that the adoption of this statement will not have a material impact on the Company's financial statements. In December 1999, the SEC Staff issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). SAB 101 summarizes certain of the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. Management believes that SAB 101 will not have a material impact on the Company's financial statements. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation - an interpretation of APB Opinion No. 25 (FIN 44). The provisions of FIN 44 are effective July 1, 2000. Management believes that the adoption of FIN 44 will not have a material impact on the Company's financial statements. Note 2. Real Estate Investments As of March 31, 2000, the Company's real estate investments were diversified by property type as follows (dollars in thousands): Number of Percent Properties Cost of Total Industrial buildings 56 $276,986 41% Office buildings 25 298,227 45% Operating properties held for sale 18 67,148 10% Properties under development 7 18,421 3% Land held for development 5 6,135 1% Total 111 $666,917 100% The following table sets forth the Company's real estate investments as of March 31, 2000 (in thousands): Less Development Accumulated Land Building In-Progress Depreciation Total Industrial buildings Northern California $ 44,238 $106,859 $ - $ 9,607 $141,490 Arizona 16,717 46,004 - 2,568 60,153 Southern California 17,663 40,308 - 3,295 54,676 Colorado 1,911 3,286 - 368 4,829 Total industrial buildings 80,529 196,457 - 15,838 261,148 Office buildings Northern California 6,801 24,370 - 1,282 29,889 Arizona 10,622 24,387 - 988 34,021 Southern California 9,361 21,456 - 1,402 29,415 Colorado 5,560 45,687 - 2,027 49,220 Greater Seattle Area 23,652 113,543 - 4,454 132,741 Nevada 2,102 10,686 - 728 12,060 Total office buildings 58,098 240,129 - 10,881 287,346 Operating properties held for sale Arizona 3,110 7,348 - 363 10,095 Southern California 1,558 3,475 - 145 4,888 Greater Kansas City Area 6,571 20,933 - 2,184 25,320 Texas 5,932 18,221 - 813 23,340 Total operating properties held for sale 17,171 49,977 - 3,505 63,643 Properties under development Northern California - - 868 - 868 Arizona - - 6,316 - 6,316 Colorado - - 7,530 - 7,530 Greater Seattle Area - - 3,707 - 3,707 Total properties under development - - 18,421 - 18,421 Land held for development Northern California 2,131 - - - 2,131 Southern California 703 - - - 703 Colorado 3,301 - - - 3,301 Total land held for development 6,135 - - - 6,135 Total $161,933 $486,563 $18,421 $30,224 $636,693
Company personnel directly manage all but nine of the Company's properties from regional offices in Lafayette, California; Tustin, California; Phoenix, Arizona; Lenexa, Kansas; Denver, Colorado; and Seattle, Washington. For the nine properties located in markets not served by one of the Company's regional offices, the Company has subcontracted management to local firms. All financial record-keeping is centralized at the Company's corporate office in Lafayette, California. Income from property operations for properties held for sale as of March 31, 2000 was $2,475,000 and $1,944,000 for the three months ending March 31, 2000 and 1999, respectively. For the three months ending March 31, 2000 and 1999, the Company capitalized interest costs relating to properties under development totaling $810,000 and $404,000, respectively. The Company has contractual construction commitments of approximately $14.8 million at March 31, 2000 relating to seven of its properties under development and two of its properties under rehabilitation. Note 3. Debt Bank Loan Payable In June 1998, the Company amended and restated its secured revolving credit facility led by Bank of America. Under this facility, which matures June 15, 2001, the Company can borrow up to $175 million on a secured basis. The facility contains an unsecured sub-line of $50 million. The secured loans bear interest at a floating rate equal to either the lender's published "reference rate" or LIBOR plus a margin ranging from 1.10% to 1.35% depending on the Company's leverage level. The unsecured loans bear interest at either the lender's published "reference rate" or LIBOR plus a margin of 1.50%. At March 31, 2000, the facility, which was all secured, had an outstanding balance of $130,656,000, with an interest rate of LIBOR plus 1.35%. Approximately 58% ($75 million) of the loan was fixed at a six-month LIBOR rate which expires in June 2000. The credit facility is secured by mortgages on 41 properties, which properties collectively accounted for approximately 39% of the Company's annualized base rent and approximately 38% of the Company's total real estate assets as of March 31, 2000, together with the rental proceeds from such properties. The credit facility contains various restrictive covenants including, among other things, a covenant limiting quarterly dividends to 95% of average Funds From Operations. As of March 31, 2000, the Company was in compliance with the covenants and requirements of its revolving credit facility. The daily weighted average amount owed to the bank was $141,671,000 and $157,929,000 for the three months ended March 31, 2000 and 1999, respectively. The weighted average interest rates in each of these periods was 7.47% and 6.25%, respectively. The effective interest rate at March 31, 2000 was 7.71%. Mortgage Loans Payable In May 1999 the Company obtained a total of $108 million of new first mortgage financing from TIAA. The financing consists of a $43.45 million 10-year loan, a $37.2 million 8-year loan, and a $27.35 million 6-year loan, all with interest at a fixed rate of 7.17%. In November 1999, the Company secured an additional $22.15 million mortgage loan from TIAA. The loan has a 7-year term with interest at a fixed rate of 7.95%. In December 1999, the Company secured a $4.6 million mortgage loan from Union Bank. The loan has a 5-year term with interest at a variable rate of LIBOR plus 2.50%. Proceeds of the mortgage loans were used to pay down the outstanding balance of the Company's $175 million line of credit. Mortgage loans payable at March 31, 2000 consist of the following (in thousands): Floating rate note due January 1, 2005, current rate of 8.68% $ 4,591 7.50% note due January 1, 2002 23,782 7.02% note due March 15, 2003 19,174 7.17% note due June 1, 2005 27,047 8.90% note due July 31, 2006 8,470 6.91% note due July 31, 2006 20,199 7.95% note due December 1, 2006 22,079 7.17% note due June 1, 2007 36,788 7.75% note due April 1, 2009 955 7.17% note due June 1, 2009 42,969 $206,054 The mortgage loans are collaterized by 41 properties at March 31, 2000, which properties collectively accounted for approximately 49% of the Company's annualized base rent and approximately 46% of the Company's total real estate assets as of March 31, 2000, together with the rental proceeds from such properties. The Company was in compliance with the covenants and requirements of its various mortgage financings as of March 31, 2000. The following table presents scheduled principal payments on mortgage loans as of March 31, 2000 (in thousands): Twelve month period ending March 31, 2001 $ 3,385 Twelve month period ending March 31, 2002 26,469 Twelve month period ending March 31, 2003 21,609 Twelve month period ending March 31, 2004 3,328 Twelve month period ending March 31, 2005 7,878 Thereafter 143,385 $206,054 Note 4. Comprehensive Income There are no adjustments necessary to net income as presented in the accompanying consolidated statements of income to derive comprehensive income in accordance with FASB Statement No. 130, Reporting Comprehensive Income. Note 5. Segment Disclosure The Company has six reportable segments organized by the region in which they operate: Northern California (Northern California and Nevada), Southwest (Arizona and greater Austin, Texas), Southern California, Northwest (greater Portland, Oregon and greater Seattle, Washington), Midwest (greater Kansas City, Kansas/Missouri, and greater Dallas, Texas) and Colorado. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based upon income from real estate from the combined properties in each segment. For the three months ended March 31, 2000 (in thousands) Northern Southern Corporate California Southwest California Northwest Midwest Colorado & Other Consolidated Rental income $ 8,536 $ 4,460 $ 3,410 $ 4,597 $ 1,218 $ 2,179 $ (8) $ 24,392 Operating expenses and real estate taxes 1,800 1,160 646 1,273 382 912 135 6,308 Depreciation and amortization 1,165 527 442 719 - 290 - 3,143 Income from property operations $ 5,571 $ 2,773 $ 2,322 $ 2,605 $ 836 $ 977 $ (143) $ 14,941 Percent of income from property operations 37% 19% 16% 17% 5% 7% (1)% 100% General and administrative expenses - - - - - - (895) (895) Interest income (1) 5 - - 1 - - 28 34 Interest expense - - - - - - (6,050) (6,050) Income before gain on sales of real estate investments and minority interest 5,576 2,773 2,322 2,606 836 977 (7,060) 8,030 Gain on sales of real estate investments 14,219 - - 1,015 - - - 15,234 Minority interest - - - - - - (33) (33) Net income $ 19,795 $ 2,773 $ 2,322 $ 3,621 $ 836 $ 977 $(7,093) $ 23,231 Real estate investments $198,055 $135,677 $ 94,524 $140,902 $ 30,484 $ 67,275 $ - $666,917 Additions (dispositions) of real estate investments $ (7,203) $ 2,166 $ 66 $ (9,479) $ 191 $ 1,443 $ - $(12,816) Total assets $204,530 $123,943 $101,833 $126,671 $ 30,192 $ 63,775 $ 4,696 $655,640
(1) The interest income in the Northern California and Northwest segments represents interest earned from tenant notes receivable. For the three months ended March 31, 1999 (in thousands) Northern Southern Corporate California Southwest California Northwest Midwest Colorado & Other Consolidated Rental income $ 8,388 $ 3,423 $ 2,664 $ 3,423 $ 1,225 $ 2,127 $ 109 $ 21,359 Operating expenses and real estate taxes 1,798 973 533 1,028 326 722 108 5,488 Depreciation and amortization 1,073 467 397 536 208 291 - 2,972 Income from property operations $ 5,517 $ 1,983 $ 1,734 $ 1,859 $ 691 $ 1,114 $ 1 $ 12,899 Percent of income from property operations 43% 15% 14% 14% 5% 9% 0% 100% General and administrative expenses - - - - - - (822) (822) Interest income(1) 6 - - 1 - - 23 30 Interest expense - - - - - - (3,833) (3,833) Income before gain on sale of real estate investments and minority interest 5,523 1,983 1,734 1,860 691 1,114 (4,631) 8,274 Gain on sale of real estate investments 568 - - - - - - 568 Minority interest - - - - - - (31) (31) Net income $ 6,091 $ 1,983 $ 1,734 $ 1,860 $ 691 $ 1,114 $ (4,662) $ 8,811 Real estate investments $210,130 $111,203 $ 82,689 $116,025 $ 32,359 $ 58,290 $ - $610,696 Additions to real estate investments $ 541 $ 1,771 $ 5,291 $ 2,775 $ 148 $ 189 $ - $ 10,715 Total assets $213,192 $103,835 $ 87,770 $108,982 $ 30,783 $ 57,100 $ 12,715 $614,377
(1) The interest income in the Northern California and Northwest segments represents interest earned from tenant notes receivable. Note 6. Fair Value of Financial Instruments The carrying values of trade accounts payable and receivable approximate fair value due to the short-term maturity of these instruments. Management has determined that the market value of the $201,463,000 fixed rate debt is approximately $195,618,000 based on the terms of existing debt compared to those available in the marketplace. The carrying value of variable rate debt approximates fair value, as the interest rates and other terms are comparable to current market terms. Note 7. Earnings per Share Following is a reconciliation of earnings per share: (in thousands, except share and per share amounts) Three Months Ended March 31, 2000 1999 Basic: Net income $ 23,231 $ 8,811 Weighted average number of shares - basic 19,286,636 22,496,811 Net income for basic earnings per share $ 1.20 $ 0.39 Diluted: Net income $ 23,231 $ 8,811 Add: Minority interest 33 31 Net income for diluted earnings per share $ 23,264 $ 8,842 Weighted average number of shares (from above) 19,286,636 22,496,811 Weighted average shares of dilutive stock options using average period stock price under the treasury stock method 60,256 58,719 Weighted average shares issuable upon the conversion of operating partnership units 77,992 86,888 Weighted average shares of non-vested restricted stock using average period stock price under the treasury stock method 73,468 - Weighted average number of shares - diluted 19,498,352 22,642,418 Net income for diluted earnings per share $ 1.19 $ 0.39 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations The Company's operations consist of developing, owning and operating industrial and suburban office properties located primarily in the western United States. Increases in revenues and expenses for the three months ended March 31, 2000 when compared with the same period in 1999 were due primarily to property additions during 1999, offset in part by the sales of operating properties in 2000 and 1999 as follows: Activities from January 1, 1999 Activities from April 1, 1999 to March 31, 1999 to March 31, 2000 Number of Square Number of Square Operating Properties Feet Operating Properties Feet Acquisitions Industrial - - 5 334,000 Office 1 43,000 3 237,000 1 43,000 8 571,000 Development Industrial - - 4 268,000 Office - - 2 94,000 - - 6 362,000 Sales Industrial 1 25,000 5 728,000 Office - - 1 114,000 1 25,000 6 842,000
The increase in net income for the three months ended March 31, 2000 when compared with the same period in 1999 was due to gains on the sales of operating properties, discussed below. Three Months Ended March 31, 2000 Compared with Three Months Ended March 31, 1999 Income from Property Operations Income from property operations (defined as rental income less rental expenses) increased $2,042,000 or 16% in 2000 compared with 1999. This is due to an increase in rental income of $3,033,000 partially offset by an increase in rental expenses (which include operating expenses, real estate taxes and depreciation and amortization) of $991,000. The increase in rental income and expenses is primarily attributable to properties acquired in 1999 and, to a lesser extent, properties developed during 1999 and 2000. These activities increased rental income and rental expenses in 2000 by $2,922,000 and $1,179,000, respectively, as compared to 1999. This was partially offset by the sale of three industrial properties and one office property in 1999, and the sale of three industrial properties in 2000, which resulted in a reduction in rental income and rental expenses of $893,000 and 393,000, respectively. The remaining increase in rental income is due to an overall increase in rental rates. The remaining increase in rental expenses is mainly due to increases in property tax assessments. Expenses Interest expense, which includes amortization of loan fees, increased $2,217,000 or 58% in 2000 compared with 1999. The increase is attributable to the Company's higher level of borrowings and related costs to finance the property acquisitions and development activities during 1999 and 2000 and the repurchase of shares since November 1998. The amortization of loan fees was $376,000 and $301,000 in the first quarter of 2000 and 1999, respectively. General and administrative expense increased $73,000 or 9% in the first quarter of 2000 compared with 1999, primarily the result of increased personnel costs. Gain on sale In March 1999, the Company sold 417 Eccles in South San Francisco, California, for a net sales price of $1,789,000, which resulted in a gain of approximately $568,000. In March 2000, the Company sold 350 East Plumeria in San Jose, California, for a net sales price of $24,582,000, which resulted in a gain of approximately $14,219,000. In March 2000, the Company also sold Twin Oaks Technology Center and Twin Oaks Business Center in Beaverton, Oregon, for a net sales price of $11,757,000, which resulted in a gain of approximately $1,015,000. Liquidity and Capital Resources In June 1998, the Company amended and restated its secured revolving credit facility with Bank of America. Under this facility, which matures June 15, 2001, the Company can borrow up to $175 million on a secured basis. The facility contains an unsecured sub-line of $50 million. Secured loans bear interest at a floating rate equal to either the lender's published "reference rate" or LIBOR plus a margin ranging from 1.10% to 1.35% depending on the Company's leverage level. The interest rate on the unsecured loans is either the lender's published "reference rate" or LIBOR plus a margin of 1.50%. As of March 31, 2000, the facility, which was all secured, had an outstanding balance of $130,656,000, and an effective interest rate of 7.71%. Approximately 58% ($75 million) of the loan was fixed at a six-month LIBOR rate which expires in June 2000. The $108 million TIAA financings consist of a $43.45 million 10-year loan, a $37.2 million 8-year loan, and a $27.35 million 6-year loan, all with interest at a fixed rate of 7.17%. In November 1999, the Company obtained an additional $22.15 million mortgage loan from TIAA. The loan has a 7-year term with interest at a fixed rate of 7.95%. In December 1999, the Company obtained a $4.6 million mortgage loan from Union Bank. The loan has a 5-year term with interest at a variable rate of LIBOR plus 2.50%. Proceeds from the mortgage loans were used to pay down the outstanding balance of the Company's $175 million line of credit. The Company was in compliance with the covenants and requirements of its various debt financings as of March 31, 2000. The Company anticipates that the cash flow generated by its real estate investments and funds available under the above credit facility will be sufficient to meet its short-term liquidity requirements. During the three months ended March 31, 2000, the Company's operating activities provided cash flow of $6,635,000. Investing activities utilized cash of $7,128,000 for real estate investments and development, offset by proceeds from real estate sales of $36,339,000. Financing activities utilized net cash flow of $36,100,000 consisting of the net proceeds from bank borrowings and mortgage loans of $25,700,000 and net proceeds from the issuance of common stock of $371,000, offset by repayment of bank borrowings and mortgage loans of $33,054,000, payment of dividends and distributions of $8,271,000, and the repurchase of 1,201,443 shares of common stock for $20,846,000. Common stock dividends declared for the first quarter of 2000 were $0.42 per share. Distributions declared for the first quarter of 2000 were $0.42 per OP Unit. Consistent with the Company's policy, dividends and distributions were paid in the quarter after the quarter in which they were declared. The Company expects to fund the cost of acquisitions, capital expenditures, costs associated with lease renewals and reletting of space, repayment of indebtedness, and development of properties from (i) cash flow from operations, (ii) borrowings under the credit facility and, if available, other indebtedness (which may include indebtedness assumed in acquisitions), and (iii) the sale of certain real estate investments. The ability to obtain mortgage loans on income producing property is dependent upon the ability to attract and retain tenants and the economics of the various markets in which the properties are located, as well as the willingness of mortgage-lending institutions to make loans secured by real property. The ability to sell real estate investments is partially dependent upon the ability of purchasers to obtain financing at commercially reasonable rates. Potential Factors Affecting Future Operating Results At the present time, borrowings under the Company's credit facility and the $4.6 million mortgage loan from Union Bank bear interest at floating rates. The Company recognizes that its results from operations may be negatively impacted by future increases in interest rates and substantial additional borrowings to finance property acquisitions, development projects and share repurchases. While the Company has historically been successful in renewing and reletting space, the Company is subject to the risk that certain leases expiring in 2000 and beyond may not be renewed, or the terms of renewal may be less favorable to the Company than current lease terms. The Company expects to incur costs in making improvements or repairs to its portfolio of properties required by new or renewing tenants and expects to incur expenses associated with brokerage commissions payable in connection with the reletting of space. 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. These factors include the following: Inflation Most of the leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. Inflation, however, could result in an increase in the Company's borrowing and other operating expenses. Government Regulations The Company's properties are subject to various federal, state and local regulatory requirements such as local building codes and other similar regulations. The Company believes its properties are currently in substantial compliance with all applicable regulatory requirements, although expenditures at its properties may be required to comply with changes in these laws. No material expenditures are contemplated at this time in order to comply with any such laws or regulations. Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances released on, above, under, or in such property. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of such removal or remediation could be substantial. Additionally, the presence of such substances or the failure to properly remediate such substances may adversely affect the owner's ability to borrow using such real estate as collateral. The Company believes that it is in compliance in all material respects with all federal, state and local laws regarding hazardous or toxic substances, and the Company has not been notified by any governmental authority of any non-compliance or other claim in connection with any of its present or former properties. Accordingly, the Company does not currently anticipate that compliance with federal, state and local environmental protection regulations will have any material adverse impact on the financial position, results of operations or liquidity of the Company. There can be no assurance, however, that future discoveries or events at the Company's properties, or changes to current environmental regulations, will not result in such a material adverse impact. Financial Performance Management considers Funds From Operations (FFO) to be one measure of the performance of an equity REIT. FFO during the three months ended March 31, 2000 amounted to $11,173,000. During the same period in 1999, FFO amounted to $11,246,000. FFO is used by financial analysts in evaluating REITs and can be one measure of a REIT's ability to make cash distributions. Presentation of this information provides the reader with an additional measure to compare the performance of REITs. FFO is generally defined by the National Association of Real Estate Investment Trusts as net income (loss) (computed in accordance with 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. FFO was computed by the Company in accordance with this definition. FFO does not represent cash generated by operating activities in accordance with generally accepted accounting principles; it is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to net income (loss) as an indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity. Further, FFO as disclosed by other REITs may not be comparable to the Company's presentation. Three Months Ended March 31, 2000 1999 Funds From Operations (in thousands): Net income $ 23,231 $ 8,811 Add: Depreciation and amortization 3,143 2,972 Minority interest 33 31 Less gain on sales (15,234) (568) Funds From Operations $ 11,173 $ 11,246 ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate changes primarily as a result of its line of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of the Company's real estate investment portfolio and operations. The Company's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives the Company balances its borrowings between fixed and variable rate debt. The Company does not enter into derivative or interest rate transactions for speculative purposes. The Company's interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts, weighted average interest rates, fair values and other terms required by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes (dollars in thousands): Twelve Month Period Ending March 31, Fair 2001 2002 2003 2004 2005 Thereafter Total Value Variable rate LIBOR debt $ 50 $130,710 $ 59 $ 63 $4,365 $ - $135,247 $135,247 Average interest rate 8.68% 7.52% 8.68% 8.68% 8.68% - 7.56% 7.56% Fixed rate debt $3,334 $ 26,415 $21,551 $ 3,264 $3,514 $143,385 $201,463 $195,618 Average interest rate 7.34% 7.48% 7.07% 7.36% 7.36% 7.34% 7.33% 8.04%
As the table incorporates only those exposures that exist as of March 31, 2000, it does not consider those exposures or positions which could arise after that date. Moreover, because firm commitments are not presented in the table above, the information presented therein has limited predictive value. As a result, the Company's ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, the Company's hedging strategies at that time, and interest rates. PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS None Item 2. CHANGES IN SECURITIES None Item 3. DEFAULTS UPON SENIOR SECURITIES None Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS None Item 5. OTHER INFORMATION None Item 6. EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits Exhibit No. Exhibit 3.1 Charter of the Company, as amended, is incorporated herein by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. 3.2 Amended and Restated Bylaws of the Company are incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 27* Financial Data Schedule * Filed herewith B. Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf of the undersigned, hereunto duly authorized. Dated: April 28, 2000 BEDFORD PROPERTY INVESTORS, INC. (Registrant) By: /s/ HANH KIHARA Hanh Kihara Senior Vice President and Chief Financial Officer By: /s/ KRISTA K. ROWLAND Krista K. Rowland Vice President Controller
EX-27 2
5 3-MOS DEC-31-2000 MAR-31-2000 $ 1,330 0 0 0 0 1,669 666,917 (30,224) 655,640 19,107 336,710 372 0 0 294,743 655,640 0 24,426 0 0 (10,346) 0 (6,050) 23,231 0 23,231 0 0 0 $ 23,231 $ 1.20 $ 1.19
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