-----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, C0/8G2iAu9AdAjzk2varZvIHdmQAJSj9f1oTeTfkBVg5hyKlLxdEewJpF3O/WYrT ziucotEf2cbJc81+VYf8Eg== /in/edgar/work/20001103/0000910079-00-000008/0000910079-00-000008.txt : 20001106 0000910079-00-000008.hdr.sgml : 20001106 ACCESSION NUMBER: 0000910079-00-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEDFORD PROPERTY INVESTORS INC/MD CENTRAL INDEX KEY: 0000910079 STANDARD INDUSTRIAL CLASSIFICATION: [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: 752584 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 0001.txt 3Q00 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 September 30, 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 November 3, 2000 Common Stock, $0.02 par value 17,652,521 BEDFORD PROPERTY INVESTORS, INC. INDEX PART I. FINANCIAL INFORMATION Page ITEM 1. FINANCIAL STATEMENTS Statement 1 Consolidated Balance Sheets as of September 30, 2000 (Unaudited) and December 31, 1999 2 Consolidated Statements of Income for the three and nine months ended September 30, 2000 and 1999 (Unaudited) 3 Consolidated Statements of Stockholders' Equity for the year ended December 31, 1999 and the nine months ended September 30, 2000 (Unaudited) 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999 (Unaudited) 5 Notes to Consolidated Financial Statements 6-13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 14-19 ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK 20 PART II. OTHER INFORMATION ITEMS 1 - 6 21 SIGNATURES 22 Exhibit 27 23 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 SEPTEMBER 30, 2000 (Unaudited) AND DECEMBER 31, 1999 (in thousands, except share and per share amounts) September 30, 2000 December 31, 1999 Assets: Real estate investments: Industrial buildings $300,636 $279,367 Office buildings 287,534 294,420 Operating properties held for sale 20,262 80,563 Properties under development 10,189 19,246 Land held for development 6,029 6,137 624,650 679,733 Less accumulated depreciation 33,067 28,695 591,583 651,038 Cash 3,004 1,584 Other assets 34,741 18,788 $629,328 $671,410 Liabilities and Stockholders' Equity: Bank loan payable $ 80,396 $137,156 Mortgage loans payable 225,104 206,880 Accounts payable and accrued expenses 11,136 9,767 Dividend and distributions payable 7,993 8,270 Other liabilities 6,913 7,928 Total liabilities 331,542 370,001 Minority interest in consolidated partnership 1,229 1,229 Stockholders' equity: Common stock, par value $0.02 per share; authorized 50,000,000 shares; issued and outstanding 17,665,180 shares in 2000 and 19,613,472 shares in 1999 353 392 Additional paid-in capital 314,647 353,220 Accumulated dividends in excess of net income (18,443) (53,432) Total stockholders' equity 296,557 300,180 $629,328 $671,410
See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited) (in thousands, except share and per share amounts) Three Months Nine Months 2000 1999 2000 1999 Property operations: Rental income $ 24,662 $ 22,475 $ 74,011 $ 66,180 Rental expenses: Operating expenses 4,149 3,396 12,491 10,288 Real estate taxes 2,034 1,849 6,868 5,629 Depreciation and amortization 3,537 3,149 10,060 9,054 Income from property operations 14,942 14,081 44,592 41,209 General and administrative expenses (830) (669) (2,656) (2,632) Interest income 203 40 310 121 Interest expense (6,626) (4,796) (18,975) (13,212) Income before gain on sales of real estate investments and minority interest 7,689 8,656 23,271 25,486 Gain on sales of real estate investments, net 20,200 190 35,427 7,801 Minority interest (35) (31) (101) (96) Income before extraordinary item 27,854 8,815 58,597 33,191 Loss on early extinguishment of debt - - - (298) Net income $ 27,854 $ 8,815 $ 58,597 $ 32,893 Earnings per share - basic: Income before extraordinary item $ 1.54 $ 0.41 $ 3.16 $ 1.51 Extraordinary item - loss on early extinguishment of debt - - - (0.01) Net income per share - basic $ 1.54 $ 0.41 $ 3.16 $ 1.50 Weighted average number of shares - basic 18,074,925 21,591,869 18,537,680 21,954,307 Earnings per share - diluted: Income before extraordinary item $ 1.52 $ 0.41 $ 3.12 $ 1.50 Extraordinary item - loss on early extinguishment of debt - - - (0.01) Net income per share - diluted $ 1.52 $ 0.41 $ 3.12 $ 1.49 Weighted average number of shares - diluted 18,396,361 21,744,843 18,784,051 22,103,719
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 NINE MONTHS ENDED SEPTEMBER 30, 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 6 2,844 - 2,850 Repurchase and retirement of common stock (45) (41,417) - (41,462) Net income - - 58,597 58,597 Dividends to common stockholders ($1.29 per share) - - (23,608) (23,608) Balance, September 30, 2000 $ 353 $314,647 $(18,443) $296,557
See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited) (in thousands) 2000 1999 Operating Activities: Net income $ 58,597 $ 32,893 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest 101 96 Depreciation and amortization 11,484 10,389 Gain on sales of real estate investments, net (35,427) (7,801) Change in other assets (4,873) (4,462) Change in accounts payable and accrued expenses 765 1,559 Change in other liabilities (960) 1,036 Net cash provided by operating activities $ 29,687 $ 33,710 Investing Activities: Deposit for future acquisitions $ (16,277) $ - Investments in real estate (23,011) (79,380) Proceeds from sales of real estate investments, net 113,121 19,346 Net cash provided (used) by investing activities $ 73,833 $ (60,034) Financing Activities: Proceeds from bank loan payable, net of loan costs $ 59,800 $ 107,044 Repayments of bank loan payable (116,856) (118,343) Proceeds from mortgage loans payable, net of loan costs 30,221 107,386 Repayments of mortgage loans payable (12,666) (8,262) Issuance of common stock 2,850 1,389 Redemption of partnership units - (160) Payment of dividends and distributions (23,987) (24,617) Repurchase and retirement of common stock (41,462) (38,060) Net cash (used) provided by financing activities $(102,100) $ 26,377 Net increase in cash $ 1,420 $ 53 Cash at beginning of period 1,584 1,286 Cash at end of period $ 3,004 $ 1,339 Supplemental disclosure of cash flow information: Cash paid during the period for interest, net of amounts capitalized of $1,691 in 2000 and $1,551 in 1999 $ 17,777 $ 11,628
See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) SEPTEMBER 30, 2000 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. Note 2. Real Estate Investments As of September 30, 2000, the Company's real estate investments were diversified by property type as follows (dollars in thousands): Number of Percent Properties Cost of Total Industrial buildings 60 $300,636 48% Office buildings 27 287,534 46% Operating properties held for sale 6 20,262 3% Properties under development 6 10,189 2% Land held for development 6 6,029 1% Total 105 $624,650 100%
The following table sets forth the Company's real estate investments as of September 30, 2000 (in thousands): Less Development Accumulated Land Building In-Progress Depreciation Total Industrial buildings Northern California $ 44,238 $107,491 - $ 11,180 $140,549 Arizona 20,218 55,906 - 3,674 72,450 Southern California 18,308 42,656 - 4,015 56,949 Greater Seattle Area 3,409 8,410 - 309 11,510 Total industrial buildings 86,173 214,463 - 19,178 281,458 Office buildings Northern California 5,781 21,477 - 1,296 25,962 Arizona 11,954 27,789 - 1,497 38,246 Southern California 9,361 21,634 - 1,672 29,323 Colorado 6,562 52,544 - 2,556 56,550 Greater Seattle Area 16,795 100,786 - 5,100 112,481 Nevada 2,102 10,749 - 852 11,999 Total office buildings 52,555 234,979 - 12,973 274,561 Operating properties held for sale Greater Kansas City Area 812 1,415 - 58 2,169 Texas 4,056 8,782 - 466 12,372 Colorado 1,911 3,286 - 392 4,805 Total operating properties held for sale 6,779 13,483 - 916 19,346 Properties under development Northern California 500 - 1,690 - 2,190 Colorado 4,918 - 3,081 - 7,999 Total properties under development 5,418 - 4,771 - 10,189 Land held for development Northern California 2,357 - - - 2,357 Southern California 705 - - - 705 Colorado 2,323 - - - 2,323 Arizona 644 - - - 644 Total land held for development 6,029 - - - 6,029 Total $156,954 $462,925 $4,771 $ 33,067 $591,583
Company personnel directly manage all but six of the Company's properties from regional offices in Lafayette, California; Tustin, California; Phoenix, Arizona; Lenexa, Kansas; Denver, Colorado; and Seattle, Washington. For the six 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 operating properties held for sale as of September 30, 2000 was $1,509,000 and $1,496,000 for the nine months ended September 30, 2000 and 1999, respectively. The Company has contractual construction commitments of approximately $8.4 million as of September 30, 2000 relating to seven of its properties under development and one of its office properties. Gain on sales During the first quarter 1999, the Company sold an industrial property in South San Francisco, California for a net sale price of $1,789,000, which resulted in a gain of approximately $568,000. In the second quarter 1999, the Company sold an office property in Salt Lake City, Utah and a 1.35 acre parcel of land in Vista, California for net sale prices totaling $13,545,000, which resulted in an aggregate gain of approximately $7,043,000. During the third quarter 1999, the Company sold an industrial property in Modesto, California for a net sale price of $4,012,000, which resulted in a gain of approximately $218,000. The sales of the properties in Salt Lake City, Utah and Modesto, California were completed as part of a tax-deferred exchange under Section 1031 of the Internal Revenue Code in which the Company acquired four properties. During the first quarter 2000, the Company sold an industrial property in San Jose, California and two industrial properties in Beaverton, Oregon for net sale prices totaling $36,339,000, which resulted in an aggregate gain of approximately $15,234,000. In the second quarter 2000, the Company sold an industrial property in San Diego, California for a net sale price of $2,165,000, which resulted in a loss of approximately $6,000. During the third quarter 2000, the Company sold three office properties, ten industrial properties, and a .99 acre parcel of land for net sale prices totaling $74,617,000, which resulted in an aggregate net gain of approximately $20,200,000. The properties were located in Mountain View, California; Bellevue, Washington; Overland Park and Lenexa, Kansas; Kansas City, Missouri; and Austin, Texas. The sale of the property in Mountain View, California was completed as part of a tax-deferred exchange under Section 1031 of the Internal Revenue Code in which the Company has identified a property for future acquisition. Net proceeds of approximately $16,277,000, which are being held by a qualified third party exchange accommodator, are classified as other assets as of September 30, 2000. 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 1, 2001, the Company can borrow up to $175 million on a secured basis. The facility also 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%. As of September 30, 2000, the facility, which was all secured, had an outstanding balance of $80,396,000, with an interest rate of LIBOR plus 1.35%. The credit facility is secured by mortgages on 28 properties, which properties collectively accounted for approximately 29% of the Company's annualized base rent and approximately 31% of the Company's total real estate assets as of September 30, 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 September 30, 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 $132,538,000 and $105,569,000 for the nine months ended September 30, 2000 and 1999, respectively. The weighted average interest rates in each of these periods was 7.68% and 6.34%, respectively. The effective interest rate at September 30, 2000 was 7.98%. Mortgage Loans Payable In May 1999, the Company obtained a total of $108 million of mortgage financing from TIAA. The financing consists of a $43.45 million 10-year loan, a $37.2 million 8-year loan, and a $27.35 million 6-year loan, all with interest at a fixed rate of 7.17%. In November 1999, the Company obtained an additional $22.15 million mortgage loan from TIAA. The loan has a 7-year term with interest at a fixed rate of 7.95%. In December 1999, the Company obtained a $4.6 million mortgage loan from Union Bank. The loan has a 5-year term with interest at a variable rate of LIBOR plus 2.50%. In July 2000, the Company obtained a total of $30.89 million of mortgage financing from Security Life of Denver Insurance Company. The loans have a five year term with options to renew for four additional five year terms. Interest on the mortgages are at a variable rate of LIBOR plus 1.40%. Proceeds of the mortgage loans, net of loan costs, were used to pay down a portion of the outstanding balance of the Company's $175 million line of credit. In September 2000, proceeds from the sale of real estate assets were used to pay down $9,184,000 on the 7.5% note due January 1, 2002 and to pay $918,000 in full satisfaction of the 7.17% note due April 1, 2009. Mortgage loans payable at September 30, 2000 consist of the following (in thousands): 7.50% note due January 1, 2002 $ 14,378 7.02% note due March 15, 2003 19,003 Floating rate note due January 1, 2005, current rate of 9.28% 4,566 7.17% note due June 1, 2005 26,836 8.90% note due July 31, 2006 8,382 6.91% note due July 31, 2006 20,015 7.95% note due December 1, 2006 21,933 7.17% note due June 1, 2007 36,501 7.17% note due June 1, 2009 42,633 Floating rate note due August 1, 2025, current rate of 8.02% 7,467 Floating rate note due August 1, 2025, current rate of 8.02% 23,390 $225,104 The mortgage loans are collaterized by 48 properties at September 30, 2000, which properties collectively accounted for approximately 56% of the Company's annualized base rents and approximately 54% of the Company's total real estate assets as of September 30, 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 September 30, 2000. The following table presents scheduled principal payments on mortgage loans as of September 30, 2000 (in thousands): Twelve month period ending September 30, 2001 $ 3,739 Twelve month period ending September 30, 2002 17,832 Twelve month period ending September 30, 2003 21,861 Twelve month period ending September 30, 2004 3,881 Twelve month period ending September 30, 2005 32,683 Thereafter 145,108 $225,104 Note 4. 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 nine months ended September 30, 2000 (in thousands, except percentages) Northern Southern Corporate California Southwest California Northwest Midwest Colorado & Other Consolidated Rental income $ 24,944 $ 14,264 $ 10,247 $ 14,330 $ 3,615 $ 6,611 $ - $ 74,011 Operating expenses and real estate taxes 5,332 4,082 1,985 4,363 1,198 2,399 - 19,359 Depreciation and amortization 3,587 1,844 1,413 2,445 (86) 857 - 10,060 Income from property operations 16,025 8,338 6,849 7,522 2,503 3,355 - 44,592 Percent of income from property operations 36% 19% 15% 16% 6% 8% 0% 100% General and administrative expenses - - - - - - (2,656) (2,656) Interest income(1) 20 1 - 1 1 - 287 310 Interest expense - (336) - - - - (18,639) (18,975) Income before gain on sales of real estate investments and minority interest 16,045 8,003 6,849 7,523 2,504 3,355 (21,008) 23,271 Gain (loss) on sales of real estate investments 26,019 (493) (6) 5,558 4,349 - - 35,427 Minority interest - - - - - - (101) (101) Net income $ 42,064 $ 7,510 $ 6,843 $ 13,081 $ 6,853 $ 3,355 $(21,109) $ 58,597 Real estate investments $196,385 $126,371 $ 92,664 $129,400 $ 5,205 $74,625 $ - $624,650 Additions (dispositions) of real estate investments $ (8,872) $ (7,141) $ (1,794) $(20,981) $(25,088) $ 8,793 $ - $(55,083) Total assets $209,415 $118,146 $103,668 $117,145 $ 11,453 $65,668 $ 3,833 $629,328
(1) The interest income in the Northern California, Southwest, Northwest, and Midwest segments represents interest earned from tenant notes receivable. For the nine months ended September 30, 1999 (in thousands, except percentages) Northern Southern Corporate California Southwest California Northwest Midwest Colorado & Other Consolidated Rental income $ 24,693 $ 11,361 $ 8,981 $ 10,760 $ 3,959 $ 6,422 $ 4 $ 66,180 Operating expenses and real estate taxes 5,258 2,823 1,710 2,683 1,014 2,129 300 15,917 Depreciation and amortization 3,063 1,588 1,230 1,686 622 865 - 9,054 Income from property operations 16,372 6,950 6,041 6,391 2,323 3,428 (296) 41,209 Percent of income from property operations 40% 17% 15% 15% 6% 8% (1%) 100% General and administrative expenses - - - - - - (2,632) (2,632) Interest income(1) 18 - - 3 - - 100 121 Interest expense - - - - - - (13,212) (13,212) Income before gain on sales of real estate investments and minority interest 16,390 6,950 6,041 6,394 2,323 3,428 (16,040) 25,486 Gain on sales of real estate investments 7,756 - 45 - - - - 7,801 Minority interest - - - - - - (96) (96) Income before extraordinary item 24,146 6,950 6,086 6,394 2,323 3,428 (16,136) 33,191 Loss on early extinguishment of debt (298) - - - - - - (298) Net income $ 23,848 $ 6,950 $ 6,086 $ 6,394 $ 2,323 $ 3,428 $(16,136) $ 32,893 Real estate investments $202,233 $125,475 $ 94,590 $148,983 $35,112 $60,968 $ - $667,361 Additions (dispositions) of real estate investments $ (7,356) $ 16,043 $ 17,192 $ 35,733 $ 2,901 $ 2,867 $ - $ 67,380 Total assets $212,641 $115,871 $100,432 $133,734 $34,041 $60,152 $ 5,757 $662,628
(1) The interest income in the Northern California and Northwest segments represents interest earned from tenant notes receivable. Note 5. Earnings per Share Following is a reconciliation of earnings per share: (in thousands, except share and per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2000 1999 2000 1999 Basic: Income before extraordinary item $ 27,854 $ 8,815 $ 58,597 $ 33,191 Extraordinary item - loss on early extinguishment of debt - - - (298) Net income $ 27,854 $ 8,815 $ 58,597 $ 32,893 Weighted average number of shares - basic 18,074,925 21,591,869 18,537,680 21,954,307 Earnings per share: Income before extraordinary item $ 1.54 $ 0.41 $ 3.16 $ 1.51 Extraordinary item - loss on early extinguishment of debt - - - (0.01) Net income for basic earnings per share $ 1.54 $ 0.41 $ 3.16 $ 1.50 Diluted: Income before extraordinary item $ 27,854 $ 8,815 $ 58,597 $ 33,191 Add: Minority Interest 35 31 101 96 Extraordinary item - loss on early extinguishment of debt - - - (298) Net income for diluted earnings per share $ 27,889 $ 8,846 $ 58,698 $ 32,989 Weighted average number of shares (from above) 18,074,925 21,591,869 18,537,680 21,954,307 Weighted average shares of dilutive stock options using average period stock price under the treasury stock method 79,174 74,984 49,488 65,523 Weighted average shares issuable upon the conversion of operating partnership units 77,992 77,990 77,992 83,889 Weighted average shares of non-vested restricted stock using average period stock price under the treasury stock method 164,270 - 118,891 - Weighted average number of shares - diluted 18,396,361 21,744,843 18,784,051 22,103,719 Earnings per share: Income before extraordinary item $ 1.52 $ 0.41 $ 3.12 $ 1.50 Extraordinary item - loss on early extinguishment of debt - - - (0.01) Net income for diluted earnings per share $ 1.52 $ 0.41 $ 3.12 $ 1.49
Note 6. Related Party Transactions The Company's 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, as amended. The contract provides that BAI is obligated to provide services to the Company with respect to the Company's acquisition and financing activities, and that BAI is responsible for the payment of its expenses incurred in connection therewith. The contract provides that BAI is to be paid a fee in an amount equal to the lesser of (i) 1 1/2% of the gross amount of the aggregate purchase price of the properties for acquisition and disposition, up to 1 1/2% of any loans arranged by BAI, plus 5% of development project costs, or (ii) an amount equal to (a) the aggregate amount of approved expenses funded by BAI through the time of such acquisitions, dispositions, loans or development minus (b) the aggregate amount of fees previously paid to BAI pursuant to such arrangement. In no event will the aggregate amount of fees paid to BAI exceed the aggregate amount of costs funded by BAI. The agreement with BAI has a term of one year and is renewable at the option of the Company for additional on-year terms. The current agreement will expire on January 1, 2001. For the nine months ended September 30, 2000 and 1999, the Company paid BAI $2,104,000 and $2,266,000, respectively, for acquisition, disposition, and financing activities performed pursuant to the foregoing arrangements. The Company believes that since the fees charged under the foregoing arrangements (i) have been and continue to be comparable to those charged by other sponsors of real estate investment entities or other third party service providers and (ii) have been and continue to be charged only for services on acquired properties or completed financings, such fees are properly includable in direct acquisition costs and capitalized as part of the asset or financing activities. Note 7. Subsequent Events In October 2000, the Company sold two office properties, one industrial property, and a 1.43 acre parcel of land for contract prices totaling $17.995 million. The office properties, consisting of 102,848 rentable square feet, are located in Austin, Texas, and Overland Park, Kansas. The industrial building, consisting of 68,580 rentable square feet, and the land parcel are located in Farmers Branch, Texas. The Company used proceeds from the sales to pay down a portion of the outstanding balance of the Company's $175 million line of credit. 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 and nine months ended September 30, 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 October 1, 1999 to September 30, 1999 to September 30, 2000 Number of Square Number of Square Operating Properties Feet Operating Properties Feet Acquisitions Industrial 4 231,893 1 101,835 Office 4 280,640 - - 8 512,533 1 101,835 Development Industrial - - 8 443,895 Office - - 3 168,251 - - 11 612,146 Sales Industrial 2 275,932 15 1,020,163 Office 1 114,352 3 211,356 3 390,284 18 1,231,519
The increase in net income for the nine months ended September 30, 2000 when compared with the same period in 1999 was primarily due to gain on sales of operating properties, discussed below. Three Months Ended September 30, 2000 Compared with Three Months Ended September 30, 1999 Income from Property Operations Income from property operations (defined as rental income less rental expenses) increased $861,000 or 6% in 2000 compared with 1999. This is due to an increase in rental income of $2,187,000 partially offset by an increase in rental expenses (which include operating expenses, real estate taxes, and depreciation and amortization) of $1,326,000. 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 $2,218,000 and $1,316,000, 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 fourteen industrial properties and three office properties in 2000, which resulted in a reduction in rental income and rental expenses of $1,350,000 and $335,000, 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 $1,830,000 or 38% 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 $432,000 and $346,000 in the third quarter of 2000 and 1999, respectively. General and administrative expense increased $161,000 or 24% in the third quarter of 2000 compared with 1999, primarily the result of increased stock compensation costs. Gain on sales During the third quarter 1999, the Company sold an industrial property in Modesto, California for a net sale price of $4,012,000, which resulted in a gain of approximately $218,000. The sale was completed as part of a tax-deferred exchange, under Section 1031 of the Internal Revenue Code, in which the Company acquired one property located in Phoenix, Arizona. During the third quarter 2000, the Company sold three office properties, ten industrial properties, and a .99 acre parcel of land for net sale prices totaling $74,617,000, which resulted in an aggregate net gain of approximately $20,200,000. The properties were located in Mountain View, California; Bellevue, Washington; Overland Park and Lenexa, Kansas; Kansas City, Missouri; and Austin, Texas. The sale of the property in Mountain View, California was completed as part of a tax-deferred exchange under Section 1031 of the Internal Revenue Code in which the Company has identified a property for future acquisition. Net proceeds of approximately $16,277,000, which are being held by a qualified third party exchange accommodator, are classified as other assets as of September 30, 2000. Nine Months Ended September 30, 2000 Compared with Nine Months Ended September 30, 1999 Income from Property Operations Income from property operations (defined as rental income less rental expenses) increased $3,383,000 or 8% in 2000 compared with 1999. This is due to an increase in rental income of $7,831,000 partially offset by an increase in rental expenses (which include operating expenses, real estate taxes, and depreciation and amortization) of $4,448,000. 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 $8,062,000 and $3,730,000, 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 fourteen industrial properties and three office properties in 2000, which resulted in a reduction in rental income and rental expenses of $3,388,000 and $1,170,000, 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 $5,763,000 or 44% 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 $1,210,000 and $1,113,000 in the first nine months of 2000 and 1999, respectively. Gain on sales During the first quarter 1999, the Company sold an industrial property in South San Francisco, California for a net sale price of $1,789,000, which resulted in a gain of approximately $568,000. In the second quarter 1999 the Company sold an office property in Salt Lake City, Utah and a 1.35 acre parcel of land in Vista, California for net sale prices totaling $13,545,000, which resulted in an aggregate gain of approximately $7,043,000. During the third quarter 1999, the Company sold an industrial property in Modesto, California for a net sale price of $4,012,000, which resulted in a gain of approximately $218,000. The sales of the properties in Salt Lake City, Utah and Modesto, California were completed as part of a tax-deferred exchange under Section 1031 of the Internal Revenue Code in which the Company acquired four properties. During the first quarter 2000, the Company sold an industrial property in San Jose, California and two industrial properties in Beaverton, Oregon for net sale prices totaling $36,339,000, which resulted in an aggregate gain of approximately $15,234,000. In the second quarter 2000, the Company sold an industrial property in San Diego, California for a net sale price of $2,165,000, which resulted in a loss of approximately $6,000. During the third quarter 2000, the Company sold three office properties, ten industrial properties, and a .99 acre parcel of land for net sale prices totaling $74,617,000, which resulted in an aggregate net gain of approximately $20,200,000. The properties were located in Mountain View, California; Bellevue, Washington; Overland Park and Lenexa, Kansas; Kansas City, Missouri; and Austin, Texas. The sale of the property in Mountain View, California was completed as part of a tax-deferred exchange under Section 1031 of the Internal Revenue Code in which the Company has identified a property for future acquisition. Net proceeds of approximately $16,277,000, which are being held by a qualified third party exchange accommodator, are classified as other assets as of September 30, 2000. Liquidity and Capital Resources In June 1998, the Company amended and restated its secured revolving credit facility with Bank of America. Under this facility, which matures June 1, 2001, the Company can borrow up to $175 million on a secured basis. The facility contains an unsecured sub-line of $50 million. Secured loans bear interest at a floating rate equal to either the lender's published "reference rate" or LIBOR plus a margin ranging from 1.10% to 1.35% depending on the Company's leverage level. The interest rate on the unsecured loans is either the lender's published "reference rate" or LIBOR plus a margin of 1.50%. As of September 30, 2000, the facility, which was all secured, had an outstanding balance of $80,396,000, and an effective interest rate of 7.98%. In May, 1999, the Company obtained a total of $108 million of mortgage financing from TIAA. The financing consists of a $43.45 million 10- year loan, a $37.2 million 8-year loan, and a $27.35 million 6-year loan, all with interest at a fixed rate of 7.17%. In November 1999, the Company obtained an additional $22.15 million mortgage loan from TIAA. The loan has a 7-year term with interest at a fixed rate of 7.95%. In December 1999, the Company obtained a $4.6 million mortgage loan from Union Bank. The loan has a 5-year term with interest at a variable rate of LIBOR plus 2.50%. In July 2000, the Company obtained a total of $30.89 million of mortgage financing from Security Life of Denver Insurance Company. The loans have a five year term with options to renew for four additional five year terms. Interest on the mortgages are at a variable rate of LIBOR plus 1.40%. Proceeds from the mortgage loans, net of loan costs, were used to pay down a portion of the outstanding balance of the Company's $175 million line of credit. The Company was in compliance with the covenants and requirements of its various debt financings as of September 30, 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 nine months ended September 30, 2000, the Company's operating activities provided cash flow of $29,687,000. Investing activities utilized cash of $39,288,000 for real estate investments and development, offset by proceeds from real estate sales of $113,121,000. Financing activities utilized net cash flow of $102,100,000 consisting of the net proceeds from bank borrowings and mortgage loans of $90,021,000 and net proceeds from the issuance of common stock of $2,850,000, offset by repayment of bank borrowings and mortgage loans of $129,522,000, payment of dividends and distributions of $23,987,000, and the repurchase of 2,263,122 shares of common stock for $41,462,000. Common stock dividends declared for the first and second quarters of 2000 were $0.42 per share, and $0.45 per share for the third quarter. Distributions declared for the first and second quarters of 2000 were $0.42 per OP Unit, and $0.45 per OP Unit for the third quarter. 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, share repurchases, and development of properties from (i) cash flow from operations, (ii) borrowings under the credit facility and, if available, other indebtedness (which may include indebtedness assumed in acquisitions), and (iii) the sale of certain real estate investments. The ability to obtain mortgage loans on income producing property is dependent upon the ability to attract and retain tenants and the economics of the various markets in which the properties are located, as well as the willingness of mortgage-lending institutions to make loans secured by real property. The ability to sell real estate investments is partially dependent upon the ability of purchasers to obtain financing at commercially reasonable rates. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (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, as amended, 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 FASB issued FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation - an interpretation of APB Opinion No. 25 (FIN 44). The provisions of FIN 44 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. Potential Factors Affecting Future Operating Results At the present time, borrowings under the Company's credit facility, the $4.6 million mortgage loan from Union Bank, and the $30.89 million mortgage loans from Security Life of Denver Insurance Company bear interest at floating rates. The Company recognizes that its results from operations may be negatively impacted by future increases in interest rates and substantial additional borrowings to finance property acquisitions, development projects and share repurchases. 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 and nine months ended September 30, 2000 amounted to $11,226,000 and $33,331,000, respectively. During the same periods in 1999, FFO amounted to $11,805,000 and $34,540,000, respectively. FFO is used by financial analysts in evaluating REITs and can be one measure of a REIT's ability to make cash distributions. Presentation of this information provides the reader with an additional measure to compare the performance of REITs. FFO is generally defined by the National Association of Real Estate Investment Trusts as net income (loss) (computed in accordance with generally accepted accounting principles), excluding extraordinary items such as gains (losses) from debt restructurings and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. 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 Nine Months Ended September 30, September 30, 2000 1999 2000 1999 Funds From Operations (in thousands, except share amounts): Net Income $27,854 $ 8,815 $58,597 $32,893 Adjustments: Depreciation and amortization 3,537 3,149 10,060 9,054 Minority interest 35 31 101 96 Extraordinary item - - - 298 Gain on sales, net (20,200) (190) (35,427) (7,801) Funds from operations $11,226 $11,805 $33,331 $34,540 Weighted average number of shares - diluted: 18,396,361 21,744,843 18,784,051 22,103,719
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 September 30, Fair 2001 2002 2003 2004 2005 Thereafter Total Value Variable rate LIBOR debt $80,854 $ 497 $ 539 $ 584 $ 4,883 $ 28,462 $115,819 $115,819 Average interest rate 7.98% 8.17% 8.17% 8.17% 9.14% 8.02% 8.04% 8.04% Fixed rate debt $ 3,281 $17,335 $21,322 $3,297 $27,800 $116,646 $189,681 $186,098 Average interest rate 7.32% 7.46% 7.07% 7.35% 7.19% 7.37% 7.32% 7.85%
As the table incorporates only those exposures that exist as of September 30, 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 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: November 3, 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 0002.txt ART. 5 FDS FOR 3RD QUARTER 10-Q
5 9-MOS DEC-31-2000 SEP-30-2000 $3,004 0 0 0 0 19,106 624,650 (33,067) 629,328 22,436 305,500 353 0 0 296,204 629,328 0 74,321 0 0 32,075 0 18,975 58,597 0 58,597 0 0 0 $58,597 $ 3.16 $ 3.12
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