-----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, EUtWnSSQhS+RUqw7mXM3OkMyaXWZUoR3tct9H/a3uRQLsr3gk49Blxah5kN9C0U7 jVICerBFG+cZFDCb/ZcxOQ== 0000910079-01-500013.txt : 20020410 0000910079-01-500013.hdr.sgml : 20020410 ACCESSION NUMBER: 0000910079-01-500013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 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: 1934 Act SEC FILE NUMBER: 001-12222 FILM NUMBER: 1784010 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 q10q301.txt 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 quarterly period ended September 30, 2001. 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) (Zip Code) (925) 283-8910 (Registrant's telephone number, including area code) 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 9, 2001 - ---------------------------------------------------------------------- Common Stock, $0.02 par value 16,612,441 BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page ITEM 1. FINANCIAL STATEMENTS Statement 1 Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000 (Unaudited) 2 Consolidated Statements of Income for the three and nine months ended September 30, 2001 and 2000 (Unaudited) 3 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the nine months ended September 30, 2001 (Unaudited) 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 (Unaudited) 5 Notes to Consolidated Financial Statements 6-15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 16-21 ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK 22-23 PART II. OTHER INFORMATION ITEMS 1 - 6 24 SIGNATURES 25 BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STATEMENT The consolidated financial statements included herein have been prepared by Bedford Property Investors, Inc. (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 its financial condition and 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, 2000. 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. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 (Unaudited) (in thousands, except share and per share amounts) September 30, 2001 December 31, 2000 Assets: Real estate investments: Industrial buildings $306,346 $305,857 Office buildings 326,794 310,882 Operating properties held for sale 16,325 5,226 Properties under development 2,827 13,702 Land held for development 11,698 11,721 - ------------------------------------------------------------------------------------------------ 663,990 647,388 Less accumulated depreciation 46,503 35,944 - ------------------------------------------------------------------------------------------------ 617,487 611,444 Cash and cash equivalents 966 3,160 Other assets 23,399 19,562 - ------------------------------------------------------------------------------------------------ $641,852 $634,166 ================================================================================================ Liabilities and Stockholders' Equity: Bank loan payable $ 96,323 $ 77,320 Mortgage loans payable 239,247 224,205 Accounts payable and accrued expenses 10,823 15,665 Dividend and distributions payable 8,020 8,005 Other liabilities 8,930 8,227 - ----------------------------------------------------------------------------------------------- Total liabilities 363,343 333,422 - ----------------------------------------------------------------------------------------------- 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 16,630,437 shares in 2001 and 17,709,738 shares in 2000 332 354 Additional paid-in capital 294,428 316,084 Accumulated dividends in excess of net income (17,106) (16,923) Accumulated other comprehensive loss (374) - - ------------------------------------------------------------------------------------------------ Total stockholders' equity 277,280 299,515 - ------------------------------------------------------------------------------------------------ $641,852 $634,166 ================================================================================================
See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (Unaudited) (in thousands, except share and per share amounts) Three Months Nine Months 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------- Property Operations: Rental income $ 25,211 $ 24,662 $ 74,634 $74,011 Rental expenses: Operating expenses 4,105 4,149 12,118 12,491 Real estate taxes 2,336 2,034 6,927 6,868 Depreciation and amortization 3,918 3,537 11,682 10,060 - ----------------------------------------------------------------------------------------------- Income from property operations 14,852 14,942 43,907 44,592 General and administrative expenses (1,091) (830) (3,114) (2,656) Interest income 57 203 160 310 Interest expense (5,686) (6,626) (17,373) (18,975) - ----------------------------------------------------------------------------------------------- Income before gain on sales and minority interest 8,132 7,689 23,580 23,271 Gain on sales of real estate investments, net - 20,200 - 35,427 Minority interest (38) (35) (108) (101) - ----------------------------------------------------------------------------------------------- Net income $ 8,094 $ 27,854 $ 23,472 $58,597 =============================================================================================== Earnings per share - basic $ 0.49 $ 1.54 $ 1.38 $ 3.16 =============================================================================================== Weighted average number of shares - basic 16,571,487 18,074,925 16,948,064 18,537,680 =============================================================================================== Earnings per share - diluted $ 0.48 $ 1.52 $ 1.36 $ 3.12 =============================================================================================== Weighted average number of shares - diluted 17,006,453 18,396,361 17,314,610 18,784,051 ===============================================================================================
See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (Unaudited) (in thousands, except per share amounts) Accumulated Accumulated Total Additional dividends other stock- Common paid-in in excess of comprehensive holders' stock capital net income loss equity - ----------------------------------------------------------------------------------------------- Balance, December 31, 2000 $ 354 $316,084 ($16,923) $ - $299,515 Issuance of common stock 3 990 - - 993 Repurchase and retirement of common stock (25) (23,928) - - (23,953) Amortization of deferred compensation - 1,282 - - 1,282 Dividends to common stockholders ($1.38 per share) - - (23,655) - (23,655) - ------------------------------------------------------------------------------------------------ Subtotal 332 294,428 (40,578) - 254,182 - ------------------------------------------------------------------------------------------------ Net income - - 23,472 - 23,472 Other comprehensive loss - - - (374) (374) - ------------------------------------------------------------------------------------------------ Comprehensive income (loss) - - 23,472 (374) 23,098 - ------------------------------------------------------------------------------------------------ Balance, September 30, 2001 $ 332 $294,428 $(17,106) $(374) $277,280 ================================================================================================
See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (Unaudited) (in thousands) 2001 2000 - ----------------------------------------------------------------------------------------- Operating Activities: Net income $ 23,472 $ 58,597 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest 108 101 Depreciation and amortization 13,535 11,484 Stock compensation amortization 1,282 1,217 Allowance for doubtful accounts 207 - Gain on sales of real estate investments, net - (35,427) Change in other assets (2,741) (4,873) Change in accounts payable and accrued expenses (4,067) 765 Change in other liabilities 329 (960) - ------------------------------------------------------------------------------------- Net cash provided by operating activities $ 32,125 $ 30,904 - ------------------------------------------------------------------------------------- Investing Activities: Deposit for future acquisitions $ - $ (16,277) Investments in real estate (18,918) (23,011) Proceeds from sales of real estate investments, net - 113,121 - ------------------------------------------------------------------------------------- Net cash (used) provided by investing activities $ (18,918) $ 73,833 - ------------------------------------------------------------------------------------- Financing Activities: Proceeds from bank loan payable, net of loan costs $ 41,861 $ 59,800 Repayments of bank loan payable (25,345) (116,856) Proceeds from mortgage loans payable, net of loan costs 17,749 30,221 Repayments of mortgage loans payable (2,958) (12,666) Issuance of common stock 993 1,633 Payment of dividends and distributions (23,748) (23,987) Repurchase and retirement of common stock (23,953) (41,462) - ------------------------------------------------------------------------------------- Net cash (used) by financing activities $ (15,401) $(103,317) - ------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents $ (2,194) $ 1,420 Cash and cash equivalents at beginning of period 3,160 1,584 - ------------------------------------------------------------------------------------ Cash and cash equivalents at end of period $ 966 $ 3,004 ===================================================================================== Supplemental disclosure of cash flow information: Cash paid during the year for interest, net of amounts capitalized of $998 in 2001 and $1,691 in 2000 $ 15,829 $ 17,777 =====================================================================================
See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) SEPTEMBER 30, 2001 Note 1. The Company and Basis of Presentation The Company Bedford Property Investors, Inc. and subsidiaries (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 accounting principles generally accepted in the United States of America. 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 year. Stock options issued under the Company's stock option plans, non-vested restricted stock, and the limited partnership units of Bedford Realty Partners, L.P. are included in the calculation of diluted per share data if, upon exercise or vestiture, they would have a dilutive effect. Derivative Instruments and Hedging Activities Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," as amended by FASB Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," and Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." SFAS 133, as amended, establishes accounting and reporting standards for derivative financial instruments. Specifically, SFAS 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either stockholders' equity or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. The adoption of SFAS 133 did not have a material impact on the Company's financial statements. See Note 4. The Company requires that hedging derivative instruments are effective in reducing the interest rate risk exposure that they are designated to hedge. This effectiveness is essential for qualifying for hedge accounting. Instruments that meet the hedging criteria are formally designated as hedges at the inception of the derivative contract. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income each period until the instrument matures. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market with changes in value included in net income for each period. Reclassifications Certain prior year accounts have been reclassified to conform to the current year presentation. Note 2. Real Estate Investments As of September 30, 2001, the Company's real estate investments were diversified by property type as follows (dollars in thousands): Number of Percent of Properties Cost Total Cost -------------------------------------------- Industrial buildings 59 $306,346 46% Office buildings 29 326,794 49 Operating properties held for sale 5 16,325 2 Properties under development 1 2,827 1 Land held for development 10 11,698 2 -------------------------------------------- Total 104 $663,990 100% ============================================
The following table sets forth the Company's real estate investments as of September 30, 2001 (in thousands): Less Development Accumulated Land Building In-Progress Depreciation Total ---------------------------------------------------------------- - -- Industrial buildings Northern California $ 43,985 $109,988 $ - $14,053 $139,920 Arizona 20,218 56,857 - 5,697 71,378 Southern California 18,308 42,954 - 5,169 56,093 Greater Seattle Area 3,409 10,627 - 1,091 12,945 ---------------------------------------------------------------- - -- Total industrial buildings 85,920 220,426 - 26,010 280,336 ---------------------------------------------------------------- - -- Office buildings Northern California 5,165 17,358 - 1,548 20,975 Arizona 11,954 27,988 - 2,237 37,705 Southern California 9,361 22,005 - 2,231 29,135 Colorado 13,935 88,474 - 4,466 97,943 Greater Seattle Area 16,811 100,799 - 7,747 109,863 Nevada 2,102 10,842 - 1,131 11,813 ---------------------------------------------------------------- - -- Total office buildings 59,328 267,466 - 19,360 307,434 ---------------------------------------------------------------- - -- Operating properties held for sale Northern California 1,831 9,262 - 733 10,360 Colorado 1,911 3,321 - 400 4,832 ---------------------------------------------------------------- - -- Total operating properties held for sale 3,742 12,583 - 1,133 15,192 ---------------------------------------------------------------- - -- Properties under development Southern California 890 - 1,937 - 2,827 ---------------------------------------------------------------- Total properties under development 890 - 1,937 - 2,827 ---------------------------------------------------------------- Land held for development Northern California 3,822 - 56 - 3,878 Arizona 645 - - - 645 Southern California 2,997 - 155 - 3,152 Colorado 3,684 - 339 - 4,023 ---------------------------------------------------------------- Total land held for development 11,148 - 550 - 11,698 ---------------------------------------------------------------- Total as of September 30, 2001 $161,028 $500,475 $2,487 $46,503 $617,487 ================================================================ Total as of December 31, 2000 $160,997 $476,999 $9,392 $35,944 $611,444 ================================================================
Company personnel directly manage all but three of the Company's properties from regional offices in Lafayette, California; Tustin, California; Phoenix, Arizona; Denver, Colorado; and Seattle, Washington. The Company has retained outside managers to assist in some of the management functions for the following three properties: U.S. Bank Centre in Reno, Nevada and Bryant Street Quad and Bryant Street Annex in Denver, Colorado. 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, 2001 was $1,499,000 and $1,262,000 for the nine months ended September 30, 2001 and 2000, respectively. Note 3. Debt Bank Loan Payable In May 2001, the Company renewed its revolving credit facility with a bank group led by Bank of America. The facility, which matures on June 1, 2004, consists of a $150 million secured line with an accordion feature to expand the facility to $175 million, if needed. Interest on the facility is at a floating rate equal to either the lender's published reference rate or LIBOR plus a margin ranging from 1.35% to 1.55% depending on the Company's leverage level. As of September 30, 2001, the facility had an outstanding balance of $96,323,000 and is secured by 32 properties and interest in such properties, which collectively accounted for approximately 33% of the Company's annualized base rent and approximately 34% of the Company's total real estate assets as of September 30, 2001. The credit facility contains various restrictive covenants including, among other things, a covenant limiting quarterly dividends to 95% of average Funds From Operations. The Company was in compliance with the covenants and requirements of its revolving credit facility during the quarter ended September 30, 2001. The daily weighted average amount owed to the bank was $93,934,000 and $132,538,000 for the nine months ended September 30, 2001 and 2000, respectively. The weighted average annual interest rates in each of these periods was 6.36% and 7.68%, respectively. The effective interest rate at September 30, 2001 was 5.68%. Mortgage Loans Payable In August 2001, the Company closed on $18 million of mortgage financing from Washington Mutual Bank. The loan has a 10-year term and bears interest at a floating rate of a trailing 1-year treasury rate plus 2.60%. Proceeds from the loan were used to pay down a portion of the outstanding balance of the $150 million line of credit. Mortgage loans payable at September 30, 2001 consist of the following (in thousands): 7.50% note due January 1, 2002 $ 14,113 7.02% note due March 15, 2003 18,644 Floating rate note due January 1, 2005, current rate of 6.21%(1) 4,503 7.17% note due June 1, 2005 26,390 Floating rate note due August 1, 2005, current rate of 5.55%(2) 7,348 Floating rate note due August 1, 2005, current rate of 5.55%(2) 23,017 8.90% note due July 31, 2006 8,193 6.91% note due July 31, 2006 19,627 7.95% note due December 1, 2006 21,623 7.17% note due June 1, 2007 35,895 7.17% note due June 1, 2009 41,925 Floating rate note due August 1, 2011, current rate of 7.918%(3) 17,969 -------- Total $239,247 ========
(1) Current rate based on 3 month LIBOR plus 2.50% (adjusted quarterly). (2) Current rate based on fixed rate on interest swap agreements. See Note 4. (3) Current rate based on a 12-month average of U.S. Treasury Security Yields plus 2.60% (adjusted semi-annually). The mortgage loans are collaterized by 50 properties and interest in such properties, which collectively accounted for approximately 63% of the Company's annualized base rents and approximately 56% of the Company's total real estate assets as of September 30, 2001. The Company was in compliance with the covenants and requirements of its various mortgage financings during the quarter ended September 30, 2001. The following table presents scheduled principal payments on mortgage loans as of September 30, 2001 (in thousands): Twelve month period ending September 30, 2002 $ 18,499 Twelve month period ending September 30, 2003 22,547 Twelve month period ending September 30, 2004 4,599 Twelve month period ending September 30, 2005 60,735 Twelve month period ending September 30, 2006 27,898 Thereafter 104,969 -------- $ 239,247 ========
Note 4. Derivative Instruments and Hedging Activities In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company limits these risks by following established risk management policies and procedures including the use of derivatives. For interest rate exposures, interest rate swaps are used primarily to hedge the cash flow risk of variable rate borrowing obligations. The Company does not use derivatives for trading or speculative purposes. Further, the Company has a policy of only entering into contracts with major financial institutions. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, the Company has not sustained a material loss from those instruments, nor does it anticipate any material adverse effect on its net income or financial position in the future from the use of derivatives. Interest rate swaps that convert variable payments to fixed payments are cash flow hedges. Hedging relationships that are fully effective have no effect on net income or FFO. The unrealized gains and losses in the fair value of these interest rate swaps are reported on the balance sheet, as a component of other assets or other liabilities as appropriate, with a corresponding adjustment to accumulated other comprehensive income (loss). On June 18, 2001, the Company entered into interest swap agreements with United California Bank. The swap agreements allow the Company to hedge its exposure to variable interest rates on two mortgages with remaining principal balances totaling $30,365,000 by effectively paying a fixed rate of interest over the term of the swap agreement. Interest rate pay differentials that arise under these swap agreements are recognized in interest expense over the term of the contracts. These interest rate swap agreements were considered to be fully effective in hedging the variable rate risk associated with the two mortgages. The following summarizes the notional value and fair value of the Company's interest swap contracts. The notional value at September 30, 2001 provides an indication of the extent of the Company's involvement in these contracts but does not represent exposure to credit, interest rate or market risks. Approximate Notional Fixed Contract Cumulative Liability at Amount Rate Maturity Cash Paid, Net September 30, 2001 (1) --------------------------------------------------------------------------------------------- $23,017,078 5.55% July 1, 2002 $25,334 $283,345 7,347,967 5.55% July 1, 2002 8,088 90,455 --------------------------------------------------------------------------------------------- $30,365,045 $33,422 $373,800 ================================================================================================
To determine the fair values of derivative instruments in accordance with SFAS 133, the Company uses the discounted cash flow method, which requires the use of assumptions about market conditions and risks existing at the balance sheet date. Considerable judgment is required in interpreting market data to develop estimates of market value. Accordingly, estimated fair value is a general approximation of value, and such value may or may not actually be realized. At September 30, 2001, $373,800 is included in other liabilities and accumulated other comprehensive loss, a stockholders' equity account, reflecting the estimated market value of the swap contract obligations at that date. (1) Represents the approximate amount which the Company would have paid as of September 30, 2001 if the swap contracts were terminated. Note 5. Segment Disclosure The Company has five reportable segments organized by the region in which they operate: Northern California (Northern California and Nevada), Southwest (Arizona and greater Austin, Texas), Southern California, Northwest (greater Portland, Oregon and greater Seattle, Washington) and Colorado. During the year ended December 31, 2000, the Midwest portfolio (greater Kansas City, Kansas/Missouri, and greater Dallas, Texas) was sold; therefore, the Midwest segment is not reported for the nine months ended September 30, 2001. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based upon income from real estate from the combined properties in each segment. For the nine months ended September 30, 2001 (in thousands, except percentages) --------------------------------------------------------------------------------------------- Northern Southern Corporate California Southwest California Northwest Colorado & Other Consolidated ------------------------------------------------------------------------------------------------ Rental income $ 26,396 $ 12,598 $ 10,619 $ 13,903 $ 11,118 $ - $ 74,634 Operating expenses and real estate taxes 5,531 3,540 2,004 4,018 3,952 - 19,045 Depreciation and amortization 3,598 2,248 1,446 2,726 1,664 - 11,682 ------------------------------------------------------------------------------------------------ Income from property operations 17,267 6,810 7,169 7,159 5,502 - 43,907 Percent of income from property operations 39% 16% 16% 16% 13% 0% 100% General and administrative expenses - - - - - (3,114) (3,114) Interest income (1) 20 - - 9 - 131 160 Interest expense - - - - - (17,373) (17,373) ------------------------------------------------------------------------------------------------ Income (loss) before minority interest 17,287 6,810 7,169 7,168 5,502 (20,356) 23,580 Minority interest - - - - - (108) (108) ------------------------------------------------------------------------------------------------ Net income (loss) $ 17,287 $ 6,810 $ 7,169 $ 7,168 $ 5,502 $(20,464) $ 23,472 ================================================================================================ Real estate investments $ 204,411 $ 117,662 $ 98,608 $131,645 $ 111,664 $ - $ 663,990 ================================================================================================ Additions of real estate investments $ 3,670 $ 657 $ 2,407 $ 796 $ 9,072 $ - $ 16,602 ================================================================================================ Total assets $ 219,187 $ 110,534 $ 108,628 $116,175 $ 80,747 $ 6,581 $641,852 ================================================================================================
(1) The interest income in the Northern California and Northwest segments represents interest earned from tenant notes receivable. 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 - - - - - - (18,975) (18,975) --------------------------------------------------------------------------------------------------------- Income before gain (loss) on sales and minority interest 16,045 8,339 6,849 7,523 2,504 3,355 (21,344) 23,271 Gain (loss) on sales of real estate investments, net 26,019 (493) (6) 5,558 4,349 - - 35,427 Minority interest - - - - - - (101) (101) --------------------------------------------------------------------------------------------------------- Net income $ 42,064 $ 7,846 $ 6,843 $ 13,081 $ 6,853 $ 3,355 $(21,445) $ 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. Note 6. Earnings per Share Following is a reconciliation of earnings per share: (in thousands, except share and per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 Basic: Net income $ 8,094 $ 27,854 $ 23,472 $ 58,597 ============================================================================= Weighted average number of shares - basic 16,571,487 18,074,925 16,948,064 18,537,680 ============================================================================= Earnings per share - basic $ 0.49 $ 1.54 $ 1.38 $ 3.16 ============================================================================= Diluted: Net income $ 8,094 $ 27,854 $ 23,472 $ 58,597 Add: minority interest 38 35 108 101 ----------------------------------------------------------------------------- Net income for diluted earnings per share $ 8,132 $ 27,889 $ 23,580 $ 58,698 ============================================================================= Weighted average number of shares - basic 16,571,487 18,074,925 16,948,064 18,537,680 Weighted average shares of dilutive stock options using average period stock price under the treasury stock method 96,796 79,174 61,375 49,488 Weighted average shares issuable upon the conversion of operating partnership units 77,992 77,992 77,992 77,992 Weighted average shares of non-vested restricted stock using average period stock price under the treasury stock method 260,178 164,270 227,179 118,891 ----------------------------------------------------------------------------- Weighted average number of shares - diluted 17,006,453 18,396,361 17,314,610 18,784,051 ============================================================================= Earnings per share - diluted $ 0.48 $ 1.52 $ 1.36 $ 3.12 =============================================================================
Note 7. Related Party Transactions The Company's activities relating to the development and 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 property for acquisitions and dispositions, up to 1 1/2% of any loans arranged by BAI, plus 7% of development project costs, or (ii) an amount equal to (a) the aggregate amount of approved expenses funded by BAI through the time of such acquisition, disposition, loan or development minus (b) the aggregate amount of fees previously paid to BAI pursuant to such arrangement. In no event will the aggregate amount of fees paid to BAI exceed the aggregate amount of costs funded by BAI. The agreement with BAI has a term of one year and expires on December 31, 2001. The agreement is to be automatically extended for an additional term of one year unless either party gives notice of its intent to terminate the agreement by October 31, 2001. For the nine months ended September 30, 2001 and 2000, the Company paid BAI $2,339,000 and $2,104,000, respectively, for activities performed pursuant to the foregoing arrangements. The Company believes that the fees charged under the foregoing arrangements have been and continue to be comparable to those charged by other sponsors of real estate investment entities or other third party service providers. Such fees have been and continue to be charged only for completed transactions and development services provided. Such fees are properly accounted for as costs of acquired assets or originated debt to which they relate, or as selling costs with respect to dispositions. Note 8. Commitments and Contingencies As of September 30, 2001, the Company has contractual construction commitments relating to its properties under development of approximately $20 million of which $17 million has been paid. From time to time, the Company is subject to legal claims in the ordinary course of business. The Company currently is not aware of any such legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, prospects, financial condition or operating results. Note 9. Subsequent Events Under the terms of the amended contract with Bedford Acquisitions, Inc., the agreement described in Note 7 has been automatically extended for an additional term of one year. In October 2001, the Company sold three industrial properties at a net sales price totaling $15,050,000, which resulted in an aggregate net gain of approximately $4,872,000. The properties were located in Denver, Colorado and Tempe, Arizona. Proceeds from the sales were used to pay down a portion of the outstanding balance on the Company's $150 million line of credit. In November 2001, the Company sold an office property in Tucson, Arizona for a net sale price of $5,100,000, which resulted in a gain of approximately $1,055,000. Proceeds from the sale were used to pay down a portion of the outstanding balance on the Company's $150 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. Variances in revenues, expenses, net income and cash flows for the nine months ended September 30, 2001 when compared with the same period in 2000 were due primarily to the acquisition, development, and sale of operating properties during the following periods: Activities from January 1, 2000 Activities from October 1, 2000 to September 30, 2000 to September 30, 2001 Number of Square Number of Square Operating Properties Feet Operating Properties Feet ---------------------------------------------------------------------- Acquisitions Office - - 1 165,191 ---------------------------------------------------------------------- - - 1 165,191 ====================================================================== Development Industrial 5 283,243 3 134,653 Office 5 271,437 4 184,689 ---------------------------------------------------------------------- 10 554,680 7 319,342 ====================================================================== Sales Industrial 14 848,521 1 68,580 Office 3 211,356 2 102,848 ---------------------------------------------------------------------- 17 1,059,877 3 171,428 ======================================================================
Three Months Ended September 30, 2001 Compared with Three Months Ended September 30, 2000 Income from Property Operations Income from property operations (defined as rental income less rental expenses) decreased $90,000 or less than 1% in 2001 compared with 2000. This is due to increases in operating expenses and real estate taxes of $258,000 and depreciation and amortization of $381,000, offset by an increase in rental income of $549,000. The increases in rental income and rental expenses (which include operating expenses, real estate taxes, and depreciation and amortization) are primarily attributable to development activities during 2000 and 2001, as well as the acquisition and sales of properties during the year 2000. Development and acquisitions activities increased rental income and rental expenses in 2001 by $1,778,000 and $1,188,000, respectively, as compared to 2000. These increases were offset by the sale of fifteen industrial properties and five office properties in 2000 which resulted in a reduction in rental income and rental expenses in 2001 of $2,494,000 and $992,000, respectively, as compared to 2000. The remaining increase in rental income of $1,265,000 is due to an increase in rental rates and expense recovery income. The remaining increase in rental expenses of $443,000 is primarily due to an increase in real estate taxes and electricity costs. Expenses Interest expense, which includes amortization of loan fees, decreased $940,000 or 14% in 2001 compared with 2000. The decrease is attributable to lower interest rates on the Company's variable rate debt and a lower weighted average outstanding debt balance in 2001 as compared to the same period in 2000. The amortization of loan fees was $471,000 and $432,000 in 2001 and 2000, respectively. General and administrative expense increased $261,000 or 31% in 2001 compared with 2000, primarily as a result of increased compensation and legal costs. Gain (loss) on sales of real estate investments, net 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 acquired a property located in Englewood, Colorado. Dividends Common stock dividends to stockholders and distributions to Operating Partnership (OP) Unitholders declared for the third quarter of 2001 and 2000 were $0.48 and $0.45 per share or OP Unit, respectively. Consistent with the Company's policy, dividends and distributions were paid in the quarter after the quarter in which they were declared. Nine Months Ended September 30, 2001 Compared with Nine Months Ended September 30, 2000 Income from Property Operations Income from property operations (defined as rental income less rental expenses) decreased $685,000 or 2% in 2001 compared with 2000. This is due to a decrease in operating expenses and real estate taxes of $314,000, and an increase in depreciation and amortization of $1,622,000, offset by an increase in rental income of $623,000. The increases in rental income and rental expenses (which include operating expenses, real estate taxes, and depreciation and amortization) are primarily attributable to development activities in 2000 and 2001, as well as the acquisition and sales of properties during the year 2000. Development and acquisitions activities increased rental income and rental expenses in 2001 by $5,832,000 and $3,777,000, respectively, as compared to 2000. These increases were offset by the sale of fifteen industrial properties and five office properties in 2000 which resulted in a reduction in rental income and rental expenses in 2001 of $9,014,000 and $3,012,000, respectively, as compared to 2000. The remaining increase in rental income of $3,805,000 is due to an increase in rental rates and expense recovery income. The balance of the increase in rental expenses of $543,000 is mainly due to increased utility costs. Expenses Interest expense, which includes amortization of loan fees, decreased $1,602,000 or 8% in 2001 compared with 2000. The decrease is attributable to lower interest rates on the Company's variable rate debt and a lower weighted average outstanding debt balance in 2001 as compared to the same period in 2000. The amortization of loan fees was $1,603,000 and $1,210,000 in the first nine months of 2001 and 2000, respectively. General and administrative expense increased $458,000 or 17% in 2001 compared with 2000, primarily as a result of increased compensation costs. Gain (loss) on sales of real estate investments, net In the first quarter 2000, the Company sold an industrial property in San Jose, California and two industrial properties in Beaverton, Oregon for net sale prices totaling $36,339,000, 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 acquired a property located in Englewood, Colorado. Dividends Common stock dividends to stockholders and distributions to Operating Partnership (OP) Unitholders declared per share or OP unit were $0.45 for the first and second quarters of 2001, and $0.48 for the third quarter of 2001. Common stock dividends to stockholders and distributions to OP Unitholders declared per share or OP unit were $0.42 for the first and second quarters of 2000, and $0.45 for the third quarter of 2000. Consistent with the Company's policy, dividends and distributions were paid in the quarter after the quarter in which they were declared. Liquidity and Capital Resources In May 2001, the Company renewed its revolving credit facility with a bank group led by Bank of America. The facility, which matures on June 1, 2004, consists of a $150 million secured line with an accordion feature to expand the facility to $175 million, if needed. Interest on the facility is at a floating rate equal to either the lender's published "reference rate" or LIBOR plus a margin ranging from 1.35% to 1.55% depending on the Company's leverage level. As of September 30, 2001, the facility had an outstanding balance of $96,323,000 and an effective interest rate of 5.68%. The Company was in compliance with the covenants and requirements of its various debt financings during the quarter ended September 30, 2001. The Company anticipates that the cash flow generated by its real estate investments and funds available under the above credit facility will be sufficient to meet its short-term liquidity requirements. As of September 30, 2001, the Company has contractual construction commitments relating to its properties under development of approximately $20 million of which $17 million has been paid. During the nine months ended September 30, 2001, the Company's operating activities provided cash flow of $32,125,000. Investing activities utilized cash of $18,918,000 for real estate investments and development. Financing activities utilized net cash flow of $15,401,000 consisting of the net proceeds from bank borrowings and mortgage loans of $59,610,000 and net proceeds from the issuance of common stock of $993,000, offset by repayment of bank borrowings and mortgage loans of $28,303,000, payment of dividends and distributions of $23,748,000, and the repurchase of 1,231,818 shares of common stock for $23,953,000. 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 reasonable commercial rates. Potential Factors Affecting Future Operating Results Many factors affect the Company's actual financial performance and may cause the Company's future results to be markedly outside of the Company's current expectations. These factors include the following: Interest Rate Fluctuations At the present time, borrowings under the Company's credit facility, the $4.6 million mortgage loan from Union Bank, the $30.89 million mortgage loans from Security Life of Denver Insurance Company, and the $18 million mortgage loan from Washington Mutual bear interest at floating rates. The floating interest rate on the $30.89 million mortgage loans has been fixed for a period of 1 year with interest swap agreements which expire on July 1, 2002. The Company recognizes that its results from operations may be negatively impacted by future increases in interest rates and substantial additional borrowings to finance property acquisitions, development projects and share repurchases. Lease Renewals While the Company historically has been successful in renewing and reletting space, the Company is subject to the risk that certain leases expiring in 2001 and beyond may not be renewed, or the terms of renewal may be less favorable to the Company than current lease terms. The Company expects to incur costs in making improvements or repairs to its portfolio of properties required by new or renewing tenants and expects to incur expenses associated with brokerage commissions payable in connection with the reletting of space. Inflation Most of the leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. Inflation, including escalations in electricity costs in California and neighboring states, however, could result in an increase in the Company's borrowings 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. Recent Accounting Pronouncements In July 2001, The Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," which requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. The Company will adopt SFAS No. 141 effective January 1, 2002. The Company has determined that the adoption of SFAS No. 141 will not have a material impact on the Company's financial statements. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets." The Company will adopt SFAS No. 142 effective January 1, 2002. The Company has determined that the adoption of SFAS No. 142 will not have a material impact on the Company's financial statements. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 applies to all long-lived assets (including discontinued operations) and consequently amends APB Opinion No. 30, "Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 develops one accounting model for long- lived assets that are to be disposed of by sale. It requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. The Company will adopt SFAS No. 144 effective January 1, 2002. The Company has determined that the adoption of SFAS No. 144 will not have a material impact on the Company's financial statements. 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, 2001 was $12,050,000 and $35,262,000, respectively. During the same periods in 2000, FFO was $11,226,000 and $33,331,000, respectively. FFO is used by financial analysts in evaluating REITs and can be one measure of a REIT's ability to make cash distributions. Presentation of this information provides the reader with an additional measure to compare the performance of REITs. FFO is generally defined by the National Association of Real Estate Investment Trusts as net income (loss) (computed in accordance with accounting principles generally accepted in the United States of America), excluding extraordinary items such as gains (losses) from debt restructurings and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO was computed by the Company in accordance with this definition. FFO does not represent cash generated by operating activities in accordance with 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, 2001 2000 2001 2000 ------------------------------------------------------ Funds From Operations (in thousands, except share amounts): Net income $ 8,094 $27,854 $23,472 $58,597 Add: Depreciation and amortization 3,918 3,537 11,682 10,060 Minority interest 38 35 108 101 (Gain) loss on sales of real estate investments, net - (20,200) - (35,427) ------------------------------------------------------ Funds From Operations $12,050 $11,226 $35,262 $33,331 ====================================================== Weighted average number of shares - diluted 17,006,453 18,396,361 17,314,610 18,784,051 ======================================================
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. While the Company has entered into interest swap agreements to minimize its exposure to interest rate fluctuations, the Company does not enter into derivative or interest rate transactions for speculative purposes. The Company's interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts, weighted average annual 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 2002 2003 2004 2005 2006 Thereafter Total Value ----------------------------------------------------------------------- Variable rate LIBOR debt $ 591 $ 1,225 $97,625 $32,936 $ 530 $15,691 $148,598 $148,598 Average interest rate 7.09% 6.08% 5.69% 5.18% 7.92% 7.92% 5.83% 5.83% Fixed rate debt $17,908 $ 21,322 $ 3,297 $27,799 $27,368 $89,278 $186,972 $190,558 Average interest rate 7.40% 7.07% 7.35% 7.19% 7.47% 7.34% 7.31% 7.00%
As the table incorporates only those exposures that existed as of September 30, 2001, it does not consider those exposures or positions which could arise after that date. Moreover, because firm commitments are not presented in the table above, the information presented therein has limited predictive value. As a result, the Company's ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, the Company's hedging strategies at that time, and interest rates. On June 18, 2001, the Company entered into interest swap agreements with United California Bank. The swap agreements allow the Company to hedge its exposure to variable interest rates on two mortgages with remaining principal balances totaling $30,365,000 by effectively paying a fixed rate of interest over the term of the swap agreement. Interest rate pay differentials that arise under these swap agreements are recognized in interest expense over the term of the contracts. These interest rate swap agreements were considered to be fully effective in hedging the variable rate risk associated with the two mortgages. The following summarizes the notional value and fair value of the Company's interest swap contracts. The notional value at September 30, 2001 provides an indication of the extent of the Company's involvement in these contracts but does not represent exposure to credit, interest rate or market risks. Notional Fixed Contract Cumulative Approximate Liability Amount(1) Rate Maturity Cash Paid, Net at September 30, 2001 (2) --------------------------------------------------------------------------------------------- $23,017,078 5.55% July 1, 2002 $25,334 $283,345 7,347,967 5.55% July 1, 2002 8,088 90,455 --------------------------------------------------------------------------------------------- $30,365,045 $33,422 $373,800 =============================================================================================
(1) The notional amount is included in the table of qualitative and quantitative disclosure about market risk as variable rate LIBOR debt and fixed rate debt, as applicable. (2) Represents the approximate amount which the Company would have paid as of September 30, 2001 if the swap contracts were terminated. To determine the fair values of derivative instruments in accordance with SFAS 133, the Company uses the discounted cash flow method, which requires the use of assumptions about market conditions and risks existing at the balance sheet date. Considerable judgment is required in interpreting market data to develop estimates of market value. Accordingly, estimated fair value is a general approximation of value, and such value may or may not actually be realized. At September 30, 2001, $373,800 is included in other liabilities and accumulated other comprehensive loss, a stockholders' equity account, reflecting the estimated market value of the swap contracts at that date. 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(a) Articles of Incorporation of Bedford Property Investors, Inc. is incorporated herein by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-2 (File No. 333-00921) filed on February 14, 1996. 3.1(b) Charter of the Company, as amended, is incorporated herein by reference to Exhibit 4.2 of the Company's Amendment No. 1 to its Registration Statement on Form S-2 (File No. 333-00921) filed on March 29, 1996. 3.1(c) Articles of Amendment of Charter of Bedford Property Investors, Inc. is incorporated herein by reference to Exhibit 3.1 to the Company's Form 10-Q for the quarter ended June 30, 1997. 3.2 Amended and Restated Bylaws of the Company is incorporated herein by reference to Exhibit 3.2 to the Company's Form 10-K for the year ended December 31, 2000. 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 13, 2001 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 and Controller
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