-----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, PacYI8F/8yrL4IpH/qNlDapusqrARopF3M/UpZGs5eeTg6yiMpHj5hMKBFzTLRl1 WUZDMYakaWXlWd6jszkWsw== 0000910079-96-000020.txt : 19960326 0000910079-96-000020.hdr.sgml : 19960326 ACCESSION NUMBER: 0000910079-96-000020 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960325 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEDFORD PROPERTY INVESTORS INC/MD CENTRAL INDEX KEY: 0000910079 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 680306514 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12222 FILM NUMBER: 96538063 BUSINESS ADDRESS: STREET 1: 270 LAFAYETTE CIRCLE STREET 2: P. O. BOX 1058 CITY: LAFAYETTE STATE: CA ZIP: 94549 BUSINESS PHONE: 510-283-8910 10-K 1 10K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1995 Commission file number 1-12222 BEDFORD PROPERTY INVESTORS, INC. (Exact name of Registrant as specified in its charter) MARYLAND 68-0306514 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 270 Lafayette Circle, Lafayette, CA 94549 (Address of principal executive offices) Registrant's telephone number, including area code (510) 283-8910 Securities Registered Pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, par value $0.01 per share New York Stock Exchange Pacific Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of Registrant as of March 15, 1996 was approximately $31,812,000. The number of shares of Registrant's Common Stock, par value $0.01 per share, outstanding as of March 15, 1996 was 6,090,650. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement to be mailed to stockholders in connection with the Registrant's annual meeting of stockholders, scheduled to be held on May 16, 1996, are incorporated by reference in Part III of this report. Except as expressly incorporated by reference, the Registrant's Proxy Statement shall not be deemed to be part of this report. PART I ITEM 1. BUSINESS Bedford Property Investors, Inc. is a self-administered and self-managed equity REIT engaged in the business of owning, managing, acquiring and, when appropriate, developing industrial and suburban office properties proximate to metropolitan areas primarily in the Western United States. As of December 31, 1995 the Company owned and operated, either directly or through one of its wholly-owned subsidiaries, 30 properties, aggregating approximately 2.6 million rentable square feet and comprised of 24 industrial properties (the "Industrial Properties"), five suburban office properties (the "Suburban Office Properties") and one retail property (the "Retail Property"). The Industrial Properties, the Suburban Office Properties and the Retail Property are hereinafter referred to individually as a "Property" and collectively as the "Properties." As of February 29, 1996, the Properties were approximately 96% occupied by over 300 tenants. The Company's strategy is to own, manage, acquire and, when appropriate, develop industrial and suburban office properties in markets proximate to metropolitan areas primarily in the Western United States which are experiencing, or are expected by the Company to experience, economic growth and, if possible, are subject to limitations on the development of similar properties. The Company believes that employment growth is a reliable indicator of future demand for both industrial and suburban office space and that increased industrial production and consumer spending are reliable indicators of demand for industrial space. In addition, the Company believes that certain supply-side constraints, such as limited availability of undeveloped land in a market and of financing for speculative real estate construction, increase a market's potential for higher average rents over time. The Company is currently targeting selected suburban markets in the Western United States that are experiencing, or are expected by the Company to experience, economic growth, increased spending or production and supply-side constraints. The Company believes that due to improvements in the regional economy and reduced availability of financing for new construction, an investment in industrial and suburban office properties in the Western United States provides the potential for attractive returns. The Company also believes that further improvement in economic conditions in the Western United States could favorably affect occupancy levels, rents and real estate values, although there can be no assurance that this will in fact occur. The Company seeks to grow its asset base through the acquisition of individual industrial and suburban office properties and portfolios of such properties, as well as through the development of new industrial and suburban office properties, when appropriate. The Company was formerly a Delaware corporation, incorporated in November 1984 under the name of ICM Property Investors Incorporated. On July 1, 1993, the Company was reincorporated in the state of Maryland under a new name, Bedford Property Investors, Inc. Business Objective The Company's business objectives are (i) to increase funds available for distribution to stockholders and (ii) to increase stockholders' long term total return through the appreciation in value of the Company's Common Stock. To achieve these objectives, the Company will seek to (i) increase cash flow from the Properties, (ii) acquire quality industrial and suburban office properties and/or portfolios of such properties and (iii) when appropriate, develop new industrial and suburban office properties. In pursuing its business objective and growth plans, the Company intends to: Capitalize on its experienced management team, whose senior officers have on average over 17 years of experience in the ownership, management, acquisition and development of industrial and suburban office properties in the Western United States; Focus its acquisition efforts in the Western United States; Pursue a market driven strategy which is based upon an analysis of the regional factors which the Company believes impact the supply of, and demand for, industrial and suburban office properties; Plan for future anticipated expenses associated with tenant turnover by budgeting for tenant improvements, lease commissions, and lost income due to vacancy or construction down-time; Concentrate on acquiring general purpose, flexible properties which are suitable for a diverse range of tenants; Utilize its in-house asset and property management personnel in order to reduce its overhead costs and increase its responsiveness to its tenants' needs; Cooperate with local real estate brokers in order to more effectively attract and retain tenants; and Maintain a conservative capital structure by limiting total consolidated indebtedness to no more than 50% of its total market capitalization (defined as the aggregate market value of the outstanding Common Stock, plus the outstanding balance of Series A Convertible Preferred Stock plus the total consolidated indebtedness of the Company). Transactions During 1995 Convertible Preferred Stock On September 18, 1995 the Company completed the sale of $50,000,000 of Series A convertible preferred stock (the "Convertible Preferred Stock") to an entity beneficially owned by an investment fund managed by Aldrich Eastman Waltch. The Company issued 8,333,334 shares of the Convertible Preferred Stock for $6.00 per share. Holders of the Convertible Preferred Stock are entitled to receive, when and as authorized by the Board of Directors, to cumulative quarterly dividends in cash in an amount equal to the greater of (i) $0.135 per share or (ii) the dividends payable on the Common Stock into which the Convertible Preferred Stock is convertible. The shares of Convertible Preferred Stock are convertible at any time after September 18, 1997 into an equal number of common shares. The conversion rate may be adjusted under certain conditions. Amended and Restated Credit Facility A portion of the net cash proceeds from the Convertible Preferred Stock sale was used to pay off the outstanding borrowings of $22,400,000 under the $23 million credit facility with Bank of America. The facility, obtained in December 1993 for $20 million and increased to $23 million in August 1994, was restated and amended to $60 million on September 18, 1995. The amended facility, which matures on September 1, 1998, bears interest at a floating rate equal to either the lender's published "reference rate" plus 0.50% or its "offshore rate" (similar to LIBOR) plus 2.25%. The facility is secured by mortgages on 23 properties (which collectively accounted for approximately 81% of the Company's annualized base rent as of December 31, 1995), together with the rental proceeds from such properties. At December 31, 1995, the Company had outstanding borrowings of $43,250,000 and letters of credit aggregating $3,875,000 (including letters of credit totalling $875,000 expiring in March 1996 and a letter of credit of $3,000,000 securing a payable due in December 1996 relating to the acquisition of the Landsing Pacific Portfolio). The facility contains various restrictive covenants including among other things, a covenant limiting quarterly dividends to 90% of average funds from operations for the immediately preceding two fiscal quarters. Acquisitions From September 1995 through December 1995, the Company acquired 20 properties consisting of approximately 1,546,000 square feet and comprised of 18 industrial properties, one suburban office property and one retail property. The total cost of these Properties, including estimated capital expenditures and due diligence costs, was $84.1 million. At acquisition, it was estimated that these Properties would provide an initial weighted average unleveraged return on cost (computed as annualized property net operating income divided by total acquisition cost) of 10.5%, assuming no further lease-up. With expected 1996 leasing activity, the Company anticipates achieving a weighted average unleveraged return on cost of 11.4%. The cost of these Properties has been financed with the proceeds of the $50 million sale of the Convertible Preferred Stock and borrowings and letters of credit under the credit facility. The following is a brief description of the Properties acquired in 1995. In September 1995, the Company acquired 350 East Plumeria Drive, a research and development building consisting of approximately 142,700 rentable square feet, in San Jose, California, which is located in the South Bay market of San Francisco approximately 37 miles south of downtown San Francisco. The Company paid $8.33 million, or approximately $58 per rentable square foot, for 350 East Plumeria Drive. In September 1995, the Company acquired Lackman Business Center, a two- building industrial property consisting of approximately 45,956 rentable square feet, in Lenexa, Kansas, which is located approximately eight miles southeast of Kansas City. The Company paid $2.25 million, or approximately $49 per rentable square foot, for Lackman Business Center. In September 1995, the Company acquired Ninety-Ninth Street #1, a single- story industrial building consisting of approximately 35,516 rentable square feet, in Lenexa, Kansas, which is located approximately eight miles southeast of Kansas City. The Company paid $1.95 million, or approximately $55 per rentable square foot, for Ninety-Ninth Street #1. In September 1995, the Company acquired Ninety-Ninth Street #2, a single- story industrial building consisting of approximately 12,974 rentable square feet, in Lenexa, Kansas, which is located approximately eight miles southeast of Kansas City. The Company paid $735,000, or approximately $57 per rentable square foot, for Ninety-Ninth Street #2. In October 1995, the Company acquired 6600 College Boulevard, a single- story office building consisting of approximately 79,316 rentable square feet, in Overland Park, Kansas, which is located approximately ten miles southeast of Kansas City. The Company paid $6.36 million, or approximately $80 per rentable square foot, for 6600 College Boulevard. In December 1995, the Company acquired the Landsing Pacific Portfolio, which comprised substantially all of the real estate assets of the Landsing Pacific Fund, Inc., a publicly-traded REIT based in San Mateo, California. The Landsing Pacific Portfolio consists of thirteen industrial properties and one retail property aggregating approximately 1.0 million rentable square feet located in Northern California, Colorado, Minnesota and Oregon. The Company paid $49.7 million, or approximately $50 per rentable square foot, for the Landsing Pacific Portfolio. In December 1995, the Company acquired 3002 Dow Business Center, a five- building industrial property consisting of approximately 192,215 rentable square feet, in Tustin, California, which is located in Orange County approximately 37 miles south of downtown Los Angeles. The Company paid $11.5 million, or approximately $60 per rentable square foot, for 3002 Dow Business Center. Development During 1995, the Company commenced the development of a 3.1 acre parcel located on the Company's Milpitas Town Center property in Milpitas, California on an unleased ("speculative") basis. The development will consist of a single-story research and development facility with approximately 45,090 rentable square feet. The Company estimates that it will incur total development costs of approximately $2.7 million with an expected completion date in April 1996. The Company has recently signed a five-year lease commencing on May 1, 1996 with Fujitsu PC Corporation who will occupy the entire building. The Company also owns 3.6 acres of entitled land adjacent to its Suburban Office Property in Salt Lake City, Utah. Dispositions In September 1995, the Company sold Cody Street Park, Building 6 an industrial property located in Overland Park, Kansas, consisting of approximately 37,856 rentable square feet, to The Realty Associated Fund III, L.P. for $1.5 million. The proceeds from the sale of Cody Street Park, Building 6 were applied toward the purchase of Ninety-Ninth Street #1 and Ninety-Ninth Street #2, which were purchased from The Realty Associates Fund III, L.P. and closed concurrently with the sale of Cody Street Park, Building 6. In October 1995, the Company sold the IBM Building, a suburban office building located in Jackson, Mississippi, consisting of approximately 88,000 rentable square feet, to The Parkway Company for $6.5 million. The sale of the IBM Building completed the Company's asset repositioning that was commenced in late 1992. Acquisition Analysis The Company seeks to acquire quality industrial and suburban office properties and/or portfolios of such properties. The Company believes that (i) the experience of its management team, (ii) its conservative capital structure and its credit facility, (iii) its relationships with private and institutional real estate owners, (iv) its strong relationships with real estate brokers and (v) its integrated asset management program have enhanced, and will continue to enhance its ability to identify and capitalize on acquisition opportunities. Each acquisition opportunity is reviewed to evaluate whether it meets the following criteria: (i) potential for higher occupancy levels and/or rents as well as for lower turnover and/or operating expenses; (ii) ability to generate returns in excess of the Company's weighted average cost of capital, taking into account the estimated costs associated with tenant turnover (i.e. tenant improvements, leasing commissions and the loss of income due to vacancy); and (iii) availability for purchase at a price at or below estimated replacement cost. Anticipated Expenses Associated with Tenant Turnover The cash flow of a real estate asset can vary significantly from year to year depending on tenant turnover. When a lease expires and a tenant renews or vacates its space, costs associated with tenant improvements, lease commissions and lost income due to vacancy or construction down-time can significantly reduce the cash flow from a property. Due to the capital intensive nature of suburban office properties and, to a lesser degree, industrial properties, management believes that planning and budgeting for future costs associated with tenant turnover is a prudent component of evaluating investment yields and managing the cash flow of properties. For its existing portfolio, the Company estimates the future costs for tenant improvements, lease commissions and lost income due to vacancy and construction down-time on a property by property basis. Although these future costs are not accrued for financial reporting purposes, the Company incorporates these estimates in its annual cash budgets and long-term cash forecasts. The Company believes that its ability to fund tenant improvements and pay lease commissions helps to retain and attract tenants. Dividends The Company has made regular quarterly distributions to the holders of the Common Stock in each quarter since the second quarter of 1993, having increased the dividend six times since that time from $.05 per share in the second quarter of 1993 to $.105 per share in each of the second, third and fourth quarters of 1995. In March 1996, the Company declared a dividend distribution for the first quarter 1996 to its stockholders in the amount of $.12 per share of Common Stock, payable 30 days after the quarter-end. The Company paid dividends to the holders of the Convertible Preferred Stock in an amount of approximately $.02 per share of Convertible Preferred Stock for the partial dividend period commencing September 18, 1995 and ended September 30, 1995 and $.135 per share of Convertible Preferred Stock for the fourth quarter of 1995. In March 1996, the Company declared a dividend distribution for the first quarter 1996 to the holders of the Convertible Preferred Stock in an amount of $.135 per share of Convertible Preferred Stock, payable 45 days after the quarter- end. Dividends may be authorized, declared and paid on shares of Common Stock in any fiscal quarter only if full cumulative dividends have been paid on, or authorized and set apart on, all shares of Convertible Preferred Stock for all prior dividend periods through and including the end of such quarter. Holders of the Convertible Preferred Stock are entitled to receive in each calendar quarter, when and as authorized and declared by the Board of Directors, cumulative dividends in cash in an amount equal to the greater of (i) an amount per share of $.135 or (ii) the dividends payable with respect to such quarter on each share of the Common Stock into which each share of the Convertible Preferred Stock is convertible, plus, in both cases, the accumulated but unpaid dividends on the Convertible Preferred Stock. Distributions on the Common Stock by the Company to the extent of its current and accumulated earnings and profits for federal income tax purposes generally will be taxable to stockholders as ordinary income. Distributions in excess of such earnings and profits generally will be treated as a non-taxable reduction in the stockholder's basis in its stock to the extent of such basis, and thereafter as gain from the sale of such stock. For purposes of determining whether distributions are out of current or accumulated earnings and profits, the earning and profits of the Company will be allocated first to the Convertible Preferred Stock, and then allocated to the Common Stock. All dividend distributions made in the years 1993, 1994 and 1995 were classified as a return of capital stock for federal income tax purposes. However, it is likely that a substantial portion of the Company's dividend distributions in 1996 will be taxable as ordinary income. The Company currently intends to continue paying regular quarterly dividends and to distribute amounts sufficient to maintain its status as a REIT. Dividends on the Common Stock by the Company are made at the discretion of the Board of Directors and depend on the Board of Directors' evaluation of the Company's results of operations, financial condition and capital requirements, restrictions under the Convertible Preferred Stock, the Credit Facility, and other debt instruments. Tenants Based on rentable square feet, as of December 31, 1995, the Suburban Office Properties and Industrial Properties were approximately 96% and 95% occupied, respectively, by a total of 291 tenants of which 71 were Suburban Office Property tenants and 220 were Industrial Property tenants. As of December 31, 1995, the Retail Property was 99% occupied by 15 tenants. The Company's tenants include local, regional, national and international companies engaged in a wide variety of businesses. Financing The Company expects cash flow from operations to be sufficient to pay operating expenses, real estate taxes, general and administrative expenses, and interest on indebtedness and to make distributions to stockholders required to maintain the Company's REIT qualification. The Company expects to fund the cost of acquisitions, capital expenditures, costs associated with lease renewals and reletting of space, repayment of indebtedness, and development of properties from (i) cash flow from operations, (ii) borrowings under the credit facility and, if available, other indebtedness (which may include indebtedness assumed in acquisitions), (iii) the sale of real estate investments, and (iv) the sale of equity securities and, possibly, the issuance of equity securities in connection with acquisitions. The Company does not anticipate that cash flow from operations will be sufficient to enable it to repay amounts outstanding under the credit facility when they become due in 1998. The Company expects to make such payment by refinancing or extending the credit facility or by raising funds through the sale of equity securities or properties. Insurance The Company carries commercial general liability coverage with primary limits of $1 million per occurrence and $2 million in the aggregate, as well as a $10 million umbrella liability policy. This coverage protects the Company against liability claims as well as the cost of defense. The Company carries property insurance on a replacement value basis covering both the cost of direct physical damage and the loss of rental income. Separate flood and earthquake insurance is provided with an annual aggregate limit of $10 million subject to a deductible of 7.5% to 25% of total insurable value per building with respect to the earthquake coverage. The Company also carries director and officer liability insurance with an aggregate limit of $10 million. This coverage protects the Company's directors and officers against liability claims as well as the cost of defense. Competition, Regulation, and Other Factors The success of the Company depends upon, among other factors, general economic conditions and trends, including real estate trends, interest rates, government regulations and legislation, income tax laws and zoning laws. The Company's real estate investments are located in markets in which they face significant competition for the rental revenues they generate. Many of the Company's investments, particularly the office buildings, are located in markets which have a significant supply of available space, resulting in intense competition for tenants and low rents. Government Regulations The properties are subject to various federal, state and local regulatory requirements such as local building codes and other similar regulations. The Company believes that the Properties are currently in substantial compliance with all applicable regulatory requirements, although expenditures at Properties owned by the Company 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. All of the Company's properties have had Phase I environmental site assessments (which involve inspection without soil sampling or groundwater analysis) by independent environmental consultants and have been inspected for hazardous materials as part of the Company's acquisition inspections. None of these Phase I assessments has revealed any environmental conditions requiring material expenditures for remediation. The Phase I assessment for Milpitas Town Center indicates that the ground water under the property either has been or may in the future be impacted by the migration of contaminants originating off-site. According to information available to the Company, the responsible party for this off-site source has been identified and has begun remediation pursuant to a clean-up program mandated by a California environmental authority and the clean-up program is backed by an insurance policy from CIGNA up to $10 million. The Company does not believe that this environmental matter will impair the future value of Milpitas Town Center in any significant respect. The Company believes that it is in compliance in all material respects with all federal, state and local laws regarding hazardous or toxic substances, and the Company has not been notified by any governmental authority of any non-compliance or other claim in connection with any of its present or former properties. The Company does not anticipate that compliance with federal, state and local environmental protection regulations will have any material adverse impact on the financial position, results of operations or liquidity of the Company. Other Information The Company currently employs eighteen full time employees and one part- time employee. The Company is not dependent upon a single tenant or a limited number of tenants. ITEM 2. PROPERTIES Real Estate Summary As of December 31, 1995, the Company's real estate investments (net of accumulated depreciation) were diversified by property type as follows: Number of Investment Properties Amount % of Total Industrial Buildings 24 93,710,000 73 Office Buildings 5 $28,996,000 22 Retail Buildings 1 6,258,000 5 Total 30 $128,964,000 100 As of December 31, 1995, the Company's real estate investments (net of accumulated depreciation) were diversified by geographic region as follows: Number of Investment Properties Amount % of Total San Francisco Bay Area, California 13 $45,745,000 35 Greater Los Angeles Area, California 4 34,902,000 27 Kansas City, Kansas 5 13,764,000 11 Denver Metropolitan Area, Colorado 3 11,245,000 9 Greater Portland Area, Oregon 2 10,424,000 8 Salt Lake City, Utah 1 6,718,000 5 Minneapolis/St. Paul, Minnesota 2 6,166,000 5 Total 30 $128,964,000 100 Percentage Leased and 10% Tenants
The following table sets forth the occupancy rates for each of the last five years, the number of tenants occupying 10% or more of the developed square feet at the Property as of the end of the year and the principal business of the tenants in the Company's properties at December 31, 1995. Percentage Occupied/Number of Tenants Occupying 10% or more 1991 1992 1993 1994 1995 Property % # % # % # % # % # Principal Business at December 31, 1995 INDUSTRIAL Greater San Francisco Bay Area, California Building 3 Contra Costa Diablo Ind. Park, Concord 100% 1 100% 1 100% 1 100% 1 100% 1 Production and assembly of robotic parts and machines. Building 8 Contra Costa Diablo Ind. Park, Concord 100% 1 100% 1 100% 1 100% 1 100% 1 Warehouse and storage of medical supplies. Building 18 Mason Ind. Park, Concord 87% 2 83% 2 100% 2 90% 2 83% 2 Warehouse of scaffolding materials and construction supplies. Milpitas Town Center, Milpitas N/A N/A N/A 100% 4 100% 4 Manufacturing of blood glucose meters, assembly and repair of accelerator systems, light manufacturing of OEM's and assembly and manufacturing of vacuum components. Auburn Court, Fremont N/A N/A N/A N/A 100% 4 Manufacturing of computer equipment, assembly of cable items, lab engineering, and marketing design. Westinghouse Drive, Fremont N/A N/A N/A N/A 100% 1 Electronic personal computer board assembly. 350 East Plumeria Drive, San Jose N/A N/A N/A N/A 100% 1 Developer of data transmission technology. 301 East Grand, South San Francisco N/A N/A N/A N/A 71% 2 Freight forwarding and furniture wholesale. 342 Allerton, South San Francisco N/A N/A N/A N/A 100% 4 Freight forwarding. 400 Grandview, South San Francisco N/A N/A N/A N/A 100% 5 Radiology research and development, freight forwarding, packaging and distribution of video products. 410 Allerton, South San Francisco N/A N/A N/A N/A 100% 1 Candy manufacturing and distribution. 417 Eccles, South San Francisco N/A N/A N/A N/A 100% 2 Storage/distribution of food products and publishing/binding business. Greater Los Angeles Area, California Dupont Industrial Center, Ontario N/A N/A N/A 91% 1 100% 1 Warehousing and distribution of retail goods. 3002 Dow Business Center, Tustin N/A N/A N/A N/A 83% 0 N/A Denver, Colorado Bryant Street Annex, Denver N/A N/A N/A N/A 100% 2 Materials management for hospital and automotive paint distributor. Bryant Street Quad, Denver N/A N/A N/A N/A 97% 3 Auto parts, photo processing lab, and radiator coating plant/distributor. Minneapolis/St. Paul, Minnesota St. Paul Business Center East, Maplewood N/A N/A N/A N/A 90% 3 Inner ocular lens manufacturing and railroad company. St. Paul Business Center West, Maplewood N/A N/A N/A N/A 81% 1 Corporate offices of testing and engineering. Greater Portland Area, Oregon Twin Oaks Technology Center, Beaverton N/A N/A N/A N/A 81% 2 Software developer and telecommunications. Twin Oaks Business Park, Beaverton N/A N/A N/A N/A 94% 3 Laser cutting, electronic equipment assembly, and postal service. Kansas City, Kansas Ninety-Ninth Street #1, Lenexa N/A N/A N/A N/A 100% 2 Tool distribution and surgical instrument manufacturing. Ninety-Ninth Street #2, Lenexa N/A N/A N/A N/A 100% 1 Drug testing clinic. Ninety-Ninth Street #3, Lenexa 100% 2 100% 2 100% 2 100% 2 100% 2 Distribution of medical products and storage of corporate records/supplies. Lackman Business Center, Lenexa N/A N/A N/A N/A 98% 2 Telemarketing and environmental testing and survey. SUBURBAN OFFICE PROPERTIES Greater Los Angeles Area, California 1000 Town Center Drive, Oxnard N/A N/A 42% 1 98% 2 93% 2 Law offices, photocopying and printing services. Mariner Court, Torrance N/A N/A N/A 96% 2 97% 1 Insurance brokers. Salt Lake City, Utah Woodlands Tower II, Salt Lake City N/A N/A 96% 2 98% 2 95% 2 Insurance services and health care staffing. Kansas City, Kansas 6600 College Blvd., Overland Park N/A N/A N/A N/A 100% 1 Telecommunication. Greater San Francisco Bay Area, California Village Green, Lafayette N/A N/A N/A 82% 3 100% 2 Software development. RETAIL Academy Place Shopping Center, Colorado Springs N/A N/A N/A N/A 99% 2 Discount clothing store and restaurant.
Lease Expirations - Real Estate Portfolio The following table sets forth for all of the Company's Properties for each of the ten years beginning January 1, 1996 (i) the number of leases that expire in each year, (ii) the square feet covered by such expiring leases, (iii) the annualized base rent (the "Annualized Base Rent(1)") represented by such expiring leases and (iv) the percentage of total Annual Base Rent for expiring leases. Number of Leases Total Annualized Percentage of Year Expiring Square Feet Base Rent Annualized Base Rent 1996 84 378,738 $2,529,036 14% 1997 85 722,837 4,771,404 26% 1998 71 538,713 3,989,868 21% 1999 34 328,374 2,357,772 13% 2000 33 240,803 2,287,236 12% 2001 6 201,782 1,974,396 11% 2002 2 17,540 391,356 2% 2003 2 10,279 158,352 1% 2004 1 2,770 27,168 - 2005 and thereafter 2 6,191 94,812 - Total 320 2,448,027 $18,581,400 100% Lease Expirations - Significant Properties The following tables show, as of December 31, 1995, tenant lease expirations for the next ten years at Properties representing approximately 10% or more of the Company's total 1995 rental income or approximately 10% or more of the total Company's gross land and building assets. The tables set forth for each property specified below for each of the ten years beginning January 1, 1996 (i) the number of leases that expire in that year, (ii) the square feet covered by such expiring leases, (iii) the Annualized Base Rent represented by such expiring leases, and (iv) percentage of total Annual Base Rent for leases based on December 31, 1995 rents. Number of Leases Total Annualized Percentage of Year Expiring Square Feet Base Rent Annualized Base Rent Mariner Court 1996 9 15,030 $259,476 14% 1997 8 19,890 377,796 21% 1998 11 33,752 524,604 29% 1999 3 4,458 70,608 4% 2000 5 12,114 192,168 11% 2001 1 3,734 30,828 2% 2002 1 13,615 334,932 19% 2003 - - - - 2004 - - - - 2005 and thereafter - - - - Total 38 102,593 $1,790,412 100% (1) Annualized Base Rent means, for any property and at any date, the product of (i) the monthly base rent in effect with respect to such property at such date or, if such monthly base rent has been reduced by a temporary rent concession, the monthly base rent that would have been in effect at such date in the absence of such concession, multiplied by (ii) 12. Annualized Base Rent does not reflect any increases or decreases in monthly rental rates or lease expirations which are scheduled to occur or which may occur after the date of calculation or the cost of any leasing commissions or tenant improvements. Lease Expirations - Significant Properties (Continued) Number of Leases Total Annualized Percentage of Year Expiring Square Feet Base Rent Annualized Base Rent 1000 Town Center Drive 1996 - - $ - - 1997 1 2,637 45,504 3% 1998 - - - - 1999 2 10,174 157,668 9% 2000 4 35,012 798,300 45% 2001 2 42,186 625,152 35% 2002 - - - - 2003 1 7,390 115,284 6% 2004 1 2,770 27,168 2% 2005 and thereafter - - - - Total 11 100,169 $1,769,076 100% Woodlands Tower II 1996 1 3,641 $ 50,976 3% 1997 4 57,110 787,728 51% 1998 3 35,311 511,008 33% 1999 1 5,625 92,940 6% 2000 1 2,661 43,908 3% 2001 - - - - 2002 1 3,925 56,424 4% 2003 - - - - 2004 - - - - 2005 and thereafter - - - - Total 11 108,273 $1,542,984 100% Dupont Industrial Center 1996 6 101,137 $ 369,504 26% 1997 4 232,916 670,260 47% 1998 4 49,171 185,484 13% 1999 2 47,088 143,148 10% 2000 1 20,880 62,640 4% 2001 - - - - 2002 - - - - 2003 - - - - 2004 - - - - 2005 and thereafter - - - - Total 17 451,192 $1,431,036 100% Principal Provisions of Leases of the Properties
The following table sets forth the principal provisions of leases which represent more than 10% of the gross leasable area (GLA) of each of the Company's Properties and the realty tax rate for each property for 1995. Annual # of Tenants Square Feet Contract Rent Realty with 10% or Project of Each ($/Sq/Yr) Lease Renewal Property Taxes/Rate More of GLA Square Feet Tenant At End of Year Expiration Options INDUSTRIAL Greater San Francisco Bay Area, California Building 3, Contra Costa Diablo $26,738 1 21,840 21,840 $4.95 Aug. 98 None Ind. Park, Concord $1.04/100 Building 8, Contra Costa Diablo $41,287 1 31,800 31,800 $6.00 Dec. 00 2-5 yr. Ind. Park, Concord $1.04/100 Building 18, Mason Industrial Park, $20,455 2 28,850 7,225 $6.48 Nov. 98 None Concord $1.04/100 Milpitas Town Center, $85,341 4 102,620 23,924 $7.80 Jul. 98 None Milpitas $1.06/100 24,426 $8.24 Apr. 97 None 30,840 $7.20 Jul. 98 1-5 yr. 23,430 $6.15 Jan. 00 1-5 yr. Auburn Court, Fremont $41,415 4 68,030 15,755 $5.58 Oct. 98 1-5 yr. $1.07/100 16,095 $5.16 Sep. 98 1-5 yr. 12,060 $9.00 Apr. 98 None 12,060 $7.20 Jul. 00 None Westinghouse Drive, Fremont $15,651 1 24,030 24,030 $5.52 Sep. 97 1-3 yr. $1.07/100 350 East Plumeria Drive, $133,862 1 142,700 142,700 $7.80 Dec. 01 1-5 yr. San Jose $1.05/100 301 East Grand, $28,873 2 57,846 26,240 $6.24 Jun. 98 None South San Francisco $1.00/100 14,400 $5.34 Oct. 99 None 342 Allerton, $45,456 4 69,312 19,751 $6.72 Mar. 97 None South San Francisco $1.00/100 9,720 $7.80 Mar. 97 1-5 yr. 30,953 $6.60 Feb. 99 None 8,888 $7.20 Aug. 97 None 400 Grandview, $72,657 5 107,004 21,841 $6.72 Dec. 96 None South San Francisco $1.00/100 26,800 $8.75 Jun. 97 None 20,710 $8.56 Aug. 97 1-3 yr. 18,789 $6.32 May 99 1-5 yr. 18,864 $6.60 Jan. 97 1-5 yr. 410 Allerton, $17,280 1 46,050 46,050 $5.16 Apr. 98 None South San Francisco $1.00/100 417 Eccles, $12,503 2 24,624 12,960 $6.00 Dec. 97 1-5 yr. South San Francisco $1.00/100 11,664 $5.39 Aug. 97 1-5 yr. Greater Los Angeles Area, California Dupont Industrial Center, $212,254 1 451,192 183,244 $2.64 Mar. 97 None Ontario $1.01/100 3002 Dow Business Center, $205,352 0 192,125 N/A N/A N/A N/A Tustin $1.02/100 Denver, Colorado Bryant Street Annex, Denver $20,816 2 55,000 42,148 $3.95 Mar. 99 1-1 yr. $8.12/100 12,852 $4.25 Apr. 98 1-2 yr. Bryant Street Quad, Denver $77,807 3 155,536 17,440 $2.65 Mar. 97 1-3 yr. $8.12/100 20,726 $2.12 Feb. 96 None 16,055 $2.80 Feb. 96 1-3 yr. Minneapolis/St. Paul, Minnesota St. Paul Business Center East, $139,758 3 77,000 12,300 $6.31 Aug. 98 None Maplewood $6.62/100 19,000 $6.80 Oct. 98 None 10,200 $8.25 Nov. 97 1-5 yr. St. Paul Business Center West, $198,672 1 108,750 11,770 $6.55 Oct. 97 1-3 yr. Maplewood $6.62/100 Greater Portland Area, Oregon Twin Oaks Technology Center, $57,597 2 94,177 10,780 $7.65 Aug. 97 None Beaverton $1.34/100 12,240 $7.68 Dec. 96 None Twin Oaks Business Park, $41,540 3 65,238 9,409 $4.87 May 99 None Beaverton $1.34/100 9,236 $7.62 May 96 None 14,522 $10.84 Jul. 96 1-3 yr. Kansas City, Kansas Building 3, Ninety- Ninth Street, $61,423 2 50,000 18,750 $6.66 Mar. 96 None Lenexa $12.65/100 31,250 $5.38 May 98 None Building 1, Ninety- Ninth Street, $46,907 2 35,516 19,019 $7.59 Sep. 98 1-5 yr. Lenexa $12.65/100 13,305 $8.60 Oct. 97 None Building 2, Ninety- Ninth Street, $21,417 1 12,974 12,974 $7.56 Oct. 99 None Lenexa $12.65/100 Lackman Business Center, $64,431 2 45,956 5,510 $9.80 Jan. 97 None Lenexa $12.65/100 5,132 $9.68 May 98 None SUBURBAN OFFICE PROPERTIES Greater Los Angeles Area, California 1000 Town Center Drive, $170,058 2 107,653 29,837 $23.71 May 00 2-5 yr. Oxnard $1.04/100 45,119 $15.45 Aug. 01 1-5 yr. Mariner Court, Torrance $87,834 1 105,436 13,615 $24.60 Dec. 02 None $1.00/100 Salt Lake City, Utah Woodlands Tower II, $111,842 2 114,352 42,590 $14.12 Feb. 97 None Salt Lake City $1.43/100 22,599 $15.00 Jan. 98 None Kansas City, Kansas 6600 College Blvd., $147,294 1 79,316 62,441 $11.80 Dec. 99 None Overland Park $13.15/100 Greater San Francisco Bay Area, California Village Green, Lafayette $24,113 2 16,895 1,798 $18.00 Apr. 98 1-5 yr. $1.08/100 2,119 $18.60 Aug. 96 1-3 yr. RETAIL Academy Place Shopping Center, $63,113 2 84,347 38,703 $8.00 Jan. 00 1-5 yr. Colorado Springs $6.19/100 10,826 $15.71 Dec. 01 1-5 yr.
Average Effective Rent The following table sets forth for each of the Properties the average rent at the end of each year for the last five years. Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year INDUSTRIAL BUILDINGS: Greater San Francisco Bay Area, California Building 3, Contra Costa Diablo Westinghouse Drive 1991 $7.95 1991 N/A 1992 $8.35 1992 N/A 1993 $8.35 1993 N/A 1994 $8.35 1994 N/A 1995 $4.95 1995 $5.52 Building 8, Contra Costa Diablo 350 East Plumeria Drive 1991 $7.08 1991 N/A 1992 $7.08 1992 N/A 1993 $7.43 1993 N/A 1994 $7.81 1994 N/A 1995 $6.00 1995 $7.80 Building 18, Mason Industrial 301 East Grand Park 1991 $7.47 1991 N/A 1992 $6.28 1992 N/A 1993 $7.03 1993 N/A 1994 $6.95 1994 N/A 1995 $6.63 1995 $5.92 Milpitas Town Center 342 Allerton 1991 N/A 1991 N/A 1992 N/A 1992 N/A 1993 N/A 1993 N/A 1994 $7.11 1994 N/A 1995 $7.35 1995 $6.88 Auburn Court 400 Grandview 1991 N/A 1991 N/A 1992 N/A 1992 N/A 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $6.54 1995 $7.49 Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year INDUSTRIAL BUILDINGS: Greater San Francisco Bay Area, California (continued) 410 Allerton 417 Eccles 1991 N/A 1991 N/A 1992 N/A 1992 N/A 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $5.16 1995 $5.71 Greater Los Angeles Area, California Dupont Industrial Center 3002 Dow Business Center 1991 N/A 1991 N/A 1992 N/A 1992 N/A 1993 N/A 1993 N/A 1994 $3.07 1994 N/A 1995 $3.17 1995 $8.88 Denver, Colorado Bryant Street Annex Bryant Street Quad 1991 N/A 1991 N/A 1992 N/A 1992 N/A 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $4.02 1995 $3.09 Minneapolis/St. Paul, Minnesota St. Paul Business Center - East St. Paul Business Center - West 1991 N/A 1991 N/A 1992 N/A 1992 N/A 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $7.01 1995 $5.41 Greater Portland Area, Oregon Twin Oaks Technology Center Twin Oaks Business Park 1991 N/A 1991 N/A 1992 N/A 1992 N/A 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $7.27 1995 $7.75 Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year INDUSTRIAL BUILDINGS (continued): Kansas City, Kansas Building 3, Ninety-Ninth Street Building 2, Ninety-Ninth Street 1991 $5.86 1991 N/A 1992 $5.86 1992 N/A 1993 $5.86 1993 N/A 1994 $5.86 1994 N/A 1995 $5.86 1995 $7.56 Building 1, Ninety-Ninth Street Lackman Business Center 1991 N/A 1991 N/A 1992 N/A 1992 N/A 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $7.96 1995 $8.36 SUBURBAN OFFICE PROPERTIES Greater Los Angeles Area, California 1000 Town Center Drive Mariner Court 1991 N/A 1991 N/A 1992 N/A 1992 N/A 1993 $20.84 1993 N/A 1994 $17.11 1994 $19.32 1995 $17.66 1995 $17.67 Salt Lake City, Utah Woodlands Tower II 6600 College Boulevard 1991 N/A 1991 N/A 1992 N/A 1992 N/A 1993 $13.02 1993 N/A 1994 $14.47 1994 N/A 1995 $14.25 1995 $12.01 Greater San Francisco Bay Area, California Village Green 1991 N/A 1992 N/A 1993 N/A 1994 $20.85 1995 $18.23 Net Effective Rent ($/Sq/Yr) Properties At End of Year RETAIL PROPERTIES: Academy Place Shopping Center 1991 N/A 1992 N/A 1993 N/A 1994 N/A 1995 $10.08 Tax Information
The following table sets forth for each of the Company's Properties tax information as follows: (i) Federal tax basis, (ii) annual rate of depreciation, (iii) method of depreciation, and (iv) life claimed, with respect to each property or component thereof for purposes of depreciation. Federal Annual Rate of Depreciation Life Property Tax Basis Depreciation Method In Years INDUSTRIAL Greater San Francisco Bay Area, California Building 3, Contra Costa Diablo, Concord Building and Improvements $1,116,128 3.18% Straight Line 31.5 Building and Improvements 62,228 2.56% Straight Line 39 Total Depreciable Assets $1,178,356 Building 8, Contra Costa Diablo, Concord Building and Improvements 1,461,739 3.18% Straight Line 31.5 Building 18, Mason Industrial Park, Concord Building and Improvements 1,210,962 3.18% Straight Line 31.5 Building and Improvements 31,725 2.56% Straight Line 39 Total Depreciable Assets 1,242,687 Milpitas Town Center, Milpitas Building and Improvements 4,504,839 2.56% Straight Line 39 Auburn Court, Fremont Building and Improvements 2,506,537 2.56% Straight Line 39 Westinghouse Drive, Fremont Building and Improvements 905,694 2.56% Straight Line 39 350 East Plumeria Drive, San Jose Building and Improvements 4,783,430 2.56% Straight Line 39 301 East Grand, South San Francisco Building and Improvements 971,347 2.56% Straight Line 39 342 Allerton, South San Francisco Building and Improvements 1,562,551 2.56% Straight Line 39 400 Grandview, South San Francisco Building and Improvements 3,563,230 2.56% Straight Line 39 410 Allerton, South San Francisco Building and Improvements 901,053 2.56% Straight Line 39 417 Eccles, South San Francisco Building and Improvements 517,606 2.56% Straight Line 39 Greater Los Angeles Area, California Dupont Industrial Park, Ontario Building and Improvements 6,083,259 2.56% Straight Line 39 3002 Dow Business Center, Tustin Building and Improvements 7,450,790 2.56% Straight Line 39 Denver, Colorado Bryant Street Annex, Denver Building and Improvements 876,566 2.56% Straight Line 39 Bryant Street Quad, Denver Building and Improvements 2,207,894 2.56% Straight Line 39 Minneapolis/St. Paul, Minnesota St. Paul Business Center, East, Maplewood Building and Improvements 1,782,642 2.56% Straight Line 39 St. Paul Business Center, West, Maplewood Building and Improvements 2,391,224 2.56% Straight Line 39 Greater Portland Area, Oregon Twin Oaks Technology Center, Beaverton Building and Improvements 4,901,645 2.56% Straight Line 39 Twin Oaks Business Park, Beaverton Building and Improvements 2,886,085 2.56% Straight Line 39 Kansas City, Kansas Building 3, Ninety-Ninth Street, Lenexa Building and Improvements 2,131,840 3.18% Straight Line 31.5 Building and Improvements 4,200 2.56% Straight Line 39 Total Depreciable Assets 2,136,040 Ninety-Ninth Street #1, Lenexa Building and Improvements 1,570,898 2.56% Straight Line 39 Ninety-Ninth Street #2, Lenexa Building and Improvements 564,583 2.56% Straight Line 39 Lackman Business Center, Lenexa Building and Improvements 1,662,259 2.56% Straight Line 39 SUBURBAN OFFICE PROPERTIES Greater Los Angeles Area, California 1000 Town Center Drive, Oxnard Building and Improvements 4,712,185 2.56% Straight Line 39 Mariner Court, Torrance Building and Improvements 4,463,766 2.56% Straight Line 39 Salt Lake City, Utah Woodlands Tower II, Salt Lake City Building and Improvements 6,093,228 2.56% Straight Line 39 Kansas City, Kansas 6600 College Boulevard, Overland Park Building and Improvements 3,981,947 2.56% Straight Line 39 Greater San Francisco Bay Area, California Village Green, Lafayette Building and Improvements 1,411,700 2.56% Straight Line 39 RETAIL Academy Place Shopping Center, Colorado Springs Building and Improvements 3,381,215 2.56% Straight Line 39 Total Depreciable Assets $82,656,995
For additional information on the Company's real estate portfolio, see Note 2 to the Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any material pending legal proceedings other than routine litigation incidental to its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of the Stockholders of the Company originally convened on September 13, 1995 and was reconvened on September 27, October 12 and November 2, 1995 in order to obtain all votes from the stockholders to amend the Company's charter to delete in its entirety Article VIII thereof, relating to certain business combinations. Approximately 4,587,766 votes were cast for, 162,859 votes were cast against, 45,815 votes abstained and there were 1,294,210 broker non- votes on this proposal. Since the Company did not obtain the required affirmative vote of 80% of the outstanding Common Stock on this proposal, the proposal will be reconsidered in a special stockholders meeting to be held on March 28, 1996. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock of Bedford Property Investors, Inc. is listed for trading on the New York Stock Exchange and the Pacific Stock Exchange under the symbol "BED". Prior to July 1, 1993, the Company's stock was traded on the same exchanges under the symbol "ICM". As of March 15, 1996, the Company had 462 stockholders of record. A significant number of these stockholders are also nominees holding stock in street name for individuals. The following table shows the high and low sale prices as traded on the New York Stock Exchange and the dividends declared per share for each quarter for the past two years. Dividend High Low Per Share 1994 First Quarter $7.250 $5.000 $0.080 Second Quarter $7.000 $5.750 $0.090 Third Quarter $7.000 $5.750 $0.090 Fourth Quarter $6.125 $4.875 $0.095 1995 First Quarter $6.375 $5.375 $0.095 Second Quarter $5.875 $5.125 $0.105 Third Quarter $6.750 $5.625 $0.105 Fourth Quarter $7.625 $6.375 $0.105 ITEM 6. SELECTED FINANCIAL DATA Following is a table of selected financial data of the Company for the last five years (which should be read in conjunction with the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto contained herein):
(in thousands of dollars, except per share data) 1995 1994 1993 1992 1991 Operating Data: Rental income $ 11,695 $ 9,154 $ 7,207 $ 9,056 $ 8,675 Income (loss) before extraordinary item 2,895 3,609 3,147 (21,943) (5,454) Net income (loss) 2,895 3,609 3,147 (18,125) (5,454) Net income (loss) applicable to common stockholders 1,607 3,609 3,147 (18,125) (5,454) Income (loss) before extraordinary item per common share $ 0.26 $ 0.59 $ 0.53 $ (3.67) $ (0.91) Net income (loss) per common share $ 0.26 $ 0.59 $ 0.53 $ (3.03) $ (0.91) Balance Sheet Data: Real estate investments $ 128,964 $ 55,053 $ 35,962 $ 45,553 $ 76,310 Total assets 133,478 62,294 43,007 47,509 78,324 Mortgage loans payable - - - 5,113 18,413 Bank loan payable 43,250 22,400 3,621 4,400 3,000 Redeemable preferred shares 50,000 - - - - Common and other stockholders' equity 32,435 36,932 35,441 33,370 51,495 Other Data: Net cash provided by operating activities $ 4,898 $ 2,716 $ 1,220 $ 198 $ 1,795 Net cash provided (used) by investing activities (73,259) (19,720) 10,085 (1,750) (1,190) Net cash provided (used) by financing activities 64,655 16,807 (6,550) 1,400 (609) Funds from operations (2) 5,021 3,622 1,964 879 836 Dividends declared per share $ 0.41 $ 0.355 $ 0.18 $ - $ 0.12
(2) Management considers Funds From Operations to be one measure of the performance of an equity REIT. Funds From Operations generally is defined by NAREIT as net income (loss) (computed in accordance with generally accepted accounting principles), excluding gains (losses) from debt restructurings and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Funds From Operations was computed by the Company in accordance with this definition. Funds From Operations does not represent cash generated by operating activities in accordance with the 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. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Selected Financial Data set forth above and the Consolidated Financial Statements and Notes thereto contained herein. When used in the following discussion, the words "believes," "anticipates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected, including, but not limited to, those set forth in the section entitled "Potential Factors Affecting Future Operating Results," below. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Results of Operations - 1995 Compared to 1994 Income from Property Operations Income from property operations (defined as rental income less rental expenses) increased $1,738,000, or 38%, in 1995 compared with 1994. This is due primarily to an increase in rental income of $2,541,000 offset by an increase in rental expenses (which include operating expenses, real estate taxes, and depreciation and amortization) of $803,000. The increase in rental income and expenses is primarily attributable to an increase in real estate investments. The Company acquired the Landsing Pacific Portfolio and 3002 Dow Business Center in December 1995; 6600 College Boulevard in October 1995; 350 East Plumeria Drive, Lackman Business Center, Ninety-Ninth Street #1 and Ninety-Ninth Street #2 in September 1995; Village Green and Milpitas Town Center in the middle of the third quarter of 1994; and Dupont Industrial Center in May 1994. These acquisitions increased rental income and rental expenses by $2,832,000 and $938,000, respectively. Additionally, 1000 Town Center Drive (acquired December 30, 1993) had an increase in rental income and rental expenses of $553,000 and $304,000, respectively, resulting from a 49% increase in occupancy from August 1994 to December 1995. The effect of these acquisitions was partially offset by the sales of the IBM Building and Cody Street Park, Building 6, and vacancies at Contra Costa Diablo Buildings 3 and 8, generating a reduction in 1995 rental income and rental expenses of approximately $683,000 and $204,000, respectively. Expenses Interest expense, which includes amortization of loan fees, increased $639,000, or 67%, in 1995 compared with 1994. The increase is attributable to the Company's higher level of borrowing on its credit facility to finance the acquisition of properties in 1994 and the Landsing Pacific Portfolio in December 1995. The loan fee amortization expense for 1995 and 1994 was $277,000 and $231,000, respectively. General and administrative expenses remained relatively unchanged in 1995 compared with 1994. In 1995, the increase of $363,000 in personnel costs associated with a larger real estate portfolio was offset by the reversal of a $245,000 income tax liability assessed in 1993 by the state of New Jersey and the decrease of $62,000 in directors and officers (D & O) insurance expense. D & O insurance was renewed at a lower premium due to the Company's improved operating performance in the recent years. Gain (Loss) on Sale On January 14, 1994, the Company sold its investment in the Texas Bank North Building for $8,500,000 and recorded a gain of $1,193,000. The gain on the sale of the Texas Bank North Building primarily resulted from an improvement in the local real estate economy subsequent to a 1992 write down of this asset by $3,631,000. On September 20, 1995, the Company sold its investment in Cody Street Park, Building 6 for $1,500,000, resulting in a loss of $12,000. On October 2, 1995, the Company sold its investment in the IBM Building for $6,500,000, resulting in a loss of $630,000. In anticipation of such sale, the Company recorded a provision for possible loss of $630,000 in the third quarter of 1995. Dividends Dividends declared for the four quarters of 1995 totaled $0.41 per share. Consistent with the Company's policy, the dividend declared for the last quarter of 1995 was paid in 1996; as a result, the Company's statement of cash flows for the year ended December 31, 1995 reflects dividends declared for the fourth quarter of 1994 and the first three quarters of 1995. The dividends declared for the fourth quarter of 1995 and 1994 were $0.105 and $0.095 per share, respectively. Dividends of $163,000 and $1,125,000 were declared on the $50,000,000 Convertible Preferred Stock for the third and fourth quarters of 1995, respectively. The declared dividends were paid 45 days after each quarter ended. Government Regulations The Properties are subject to various federal, state and local regulatory requirements such as local building codes and other similar regulations. The Company believes that the Properties are currently in substantial compliance with all applicable regulatory requirements, although expenditures at Properties may be required to comply with changes in these laws. No material expenditures are contemplated at this time in order to comply with any such laws or regulations. Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances released on, above, under, or in such property. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of such removal or remediation could be substantial. Additionally, the presence of such substances or the failure to properly remediate such substances may adversely affect the owner's ability to borrow using such real estate as collateral. All of the Properties have had Phase I environmental site assessments (which involve inspection without soil sampling or groundwater analysis) by independent environmental consultants and have been inspected for hazardous materials as part of the Company's acquisition inspections. None of these Phase I assessments has revealed any environmental conditions requiring material expenditures for remediation. The Phase I assessment for Milpitas Town Center indicates that the ground water under the property either has been or may in the future be impacted by the migration of contaminants originating off-site. According to information available to the Company, the responsible party for this off-site source has been identified and has begun remediation pursuant to a clean-up program mandated by a California environmental authority and the clean-up program is backed by an insurance policy from CIGNA up to $10 million. The Company does not believe that this environmental matter will impair the future value of Milpitas Town Center in any significant respect. The Company believes that it is in compliance in all material respects with all federal, state and local laws regarding hazardous or toxic substances, and the Company has not been notified by any governmental authority of any non-compliance or other claim in connection with any of its present or former properties. The Company does not anticipate that compliance with federal, state and local environmental protection regulations will have any material adverse impact on the financial position, results of operations or liquidity of the Company. Results of Operations - 1994 Compared to 1993 Income from Property Operations Income from property operations increased $3,027,000, or 190%, in 1994 compared with 1993. This was due to an increase of rental income of $1,947,000 combined with a decrease in rental expenses of $1,080,000. The increase in rental income is primarily attributable to acquisitions of real estate investments. The major acquisitions occurring in late 1993 and in 1994 were Woodlands II, 1000 Town Center Drive, Dupont Industrial Center, Mariner Court, and Milpitas Town Center. These acquisitions increased 1994 rental income by approximately $4,000,000. This increase was partially offset by the sales of Point West Place and University Tower in 1993, generating a reduction in 1994 rental income of approximately $2,500,000. The decrease in rental expenses is primarily attributable to the decrease in the amortization of leasing commissions and tenant improvements. The newly acquired buildings have not yet incurred significant leasing commissions and tenant improvement costs. Since leasing commissions and tenant improvement costs are amortized over the life of the lease (generally three to five years), the impact of having the portfolio consisting primarily of newly acquired buildings has been a significant reduction in amortization expense. Expenses Interest expense, which includes amortization of loan fees, increased $239,000, or 33%, in 1994 compared with 1993. The increase is attributable to the Company's higher level of borrowing on its credit facility combined with the increase in interest rates and amortization expense of loan fees. The higher level of borrowing was attributable to the acquisition of real estate in late 1993 and 1994. General and administrative expenses remained relatively unchanged in 1994 compared with 1993. Gains on Sales In 1992, management and the board of directors decided to revise the investment strategy and geographic focus of investments from a continental-wide basis to a Western United States focus. This was done because of the value growth advantage perceived in the Western United States, new management's knowledge and experience in real estate in the Western United States and, in part, because greater management effectiveness and cost efficiencies can be achieved by operating in a smaller geographic region. Certain properties in the real estate portfolio were identified for disposition. Those properties were individually evaluated and written down to management's best estimate of net realizable value. Such properties continued to be depreciated during the holding period prior to disposition. In writing down the properties, the Company relied on studies performed by outside appraisers and consultants. The three methods used, discounted cash flows, NOI capitalization and comparable sales, indicated that current market values of these properties were below their book value. On May 1, 1993, the Company sold its interest in the Edison Square partnerships, which were unconsolidated joint ventures, and recorded a gain of $2,686,000; this gain was due primarily to the book value of those partnerships having been reduced to negative $2,686,000 as the result of partnership losses. In August 1993, the Company sold its investment in University Tower for $15,200,000 and recorded a gain of $407,000. In October 1993, the Company sold its investment in Point West Place for $7,180,000 and recorded a gain of $493,000. On January 14, 1994, the Company sold its investment in the Texas Bank North Building for $8,500,000 and recorded a gain of $1,193,000. The gains on the sales of University Tower and Point West Place related primarily to the depreciation of those properties during the holding period. The gain from the sale of Texas Bank North was due to improvements in 1993 in the local real estate market. The significant number of property sales occurring in 1993 and 1994 were attributable to management's decision to refocus the real estate portfolio on suburban office and industrial buildings located in the Western United States. The Company does not expect this level of property sales to occur in the future. Dividends Dividends declared for the four quarters of 1994 totaled $0.355 per share. Consistent with the Company's policy, the dividend declared for the last quarter of 1994 was paid in 1995; as a result, the Company's statement of cash flows for the year ended December 31, 1994 reflects dividends declared for the fourth quarter of 1993 and the first three quarters of 1994. The dividends declared for the fourth quarter of 1994 and 1993 were $0.095 and $0.07 per share respectively. Financial Condition Total assets of the Company at December 31, 1995 increased by $71,184,000 compared with December 31, 1994, primarily as a result of an increase in real estate investments (net of depreciation) of $73,911,000. During 1995, the Company acquired 20 properties and sold 2 properties. Total liabilities at December 31, 1995 increased by $25,681,000 compared with December 31, 1994, primarily as a result of increased borrowings under the Company's credit facility in order to finance the purchase of the Landsing Pacific Portfolio. Liquidity and Capital Resources During the year ended December 31, 1995, the Company's operating activities provided net cash flow of $4,898,000. Its investing activities provided cash flow of $7,914,000 from the sale of the IBM Building and Cody Street, Building 6 and utilized $81,173,000 of cash to acquire real estate investments. The financing activities provided cash flow of $64,655,000, primarily from the Convertible Preferred Stock sale of $50,000,000 less issuance costs of $3,631,000, and bank borrowings of $47,100,000, offset by repayment of bank loan of $26,250,000 and payment of dividends of $2,568,000. On September 18, 1995, the Company completed the sale of $50,000,000 of the Convertible Preferred Stock to an entity beneficially owned by an investment fund managed by Aldrich Eastman Waltch. The Convertible Preferred Stock contains financial covenants and conditions that if the Company fails to maintain or achieve, its holders have the right to cause the Company to redeem all of the outstanding shares of Convertible Preferred Stock at a redemption price of $6.00 per share plus all accrued dividends payable. In that case, the Company could experience substantial difficulty in financing such redemption and may be required to liquidate a substantial portion of its properties. A portion of net cash proceeds from the Convertible Preferred Stock sale was used to pay off outstanding borrowings under the Company's $23 million credit facility. The facility, obtained in December 1993 for $20 million and increased to $23 million in August 1994, was restated and amended to $60 million on September 18, 1995. The amended facility, which matures on September 1, 1998, bears interest at a floating rate equal to either the lender's published "reference rate" plus 0.50% or its "Offshore rate" (similar to LIBOR) plus 2.25%. The credit facility contains various restrictive covenants including, among other things, a covenant limiting quarterly dividends to 90% of average Funds From Operations for the immediately preceding two fiscal quarters. The facility was used, in part, to finance the acquisitions of Mariner Court, Dupont Industrial Center, Village Green, and Milpitas Town Center in 1994 and the Landsing Pacific Portfolio in 1995. At September 30, 1995, the Company was in compliance with the covenants and requirements of the credit facility. The Company and the lender under the credit facility have agreed, in principle, to amend the credit facility, subject to the final approval of the lender and negotiation of definitive documentation. There can be no assurance, however, that an agreement between the lender and the Company will actually be finalized. If finalized, the Company believes that the amendment will increase the commitment from $60 million to $100 million and reduce the interest rates. The amendment of the credit facility will be conditioned upon the Company's receipt of net proceeds from its currently proposed public offering of not less than $45 million. In addition, the Company has obtained a commitment from a major financial institution for loans which would be secured by mortgages on three to four of the Company's properties. The mortgage loans are subject to the negotiation of definitive documentation and there can be no assurance that an agreement between the mortgage lender and the Company will actually be finalized. If finalized, the Company believes that the principal amount of the loan would be approximately $20 to $25 million and the loan would mature in 2003. The Company anticipates that the cash flow generated by its real estate investments will be sufficient to meet its short-term liquidity requirements. The Company expects to fund the cost of acquisitions, capital expenditures, costs associated with lease renewals and reletting of space, repayment of indebtedness, and development of properties from (i) cash flow from operations, (ii) borrowings under the credit facility and, if available, other indebtedness (which may include indebtedness assumed in acquisitions), (iii) the sale of real estate investments, and (iv) the sale of equity securities and, possibly, the issuance of equity securities in connection with acquisitions. The ability to obtain mortgage loans on income-producing property is dependent upon the ability to attract and retain tenants and the economics of the various markets in which the properties are located, as well as the willingness of mortgage-lending institutions to make loans secured by real property. The ability to sell real estate investments is partially dependent upon the ability of purchasers to obtain financing at commercially reasonable rates. Potential Factors Affecting Future Operating Results For the years ended December 31, 1993 and 1994, net income has been positively affected by gains on sales of real estate investments and joint venture partnerships. The Company does not anticipate that its 1996 net income will be materially impacted by such gains on sales. At the present time, borrowings under the Company's credit facility bear interest at a floating rate. The Company anticipates that its results from operations in 1996 may be negatively impacted by future increases in interest rates and substantial borrowings to finance property acquisitions. While the Company has historically been successful in renewing and releasing space, the Company will be subject to the risk that certain leases expiring in 1996 may not be renewed or the terms of renewal may be less favorable than current lease terms. However, the Company expects to release the vacant spaces without any material adverse impact on 1996 operations. In addition, the Company expects to incur costs in making improvements or repairs to its portfolio of properties required by new or renewing tenants and expenses associated with brokerage commissions payable in connection with the reletting of space. Many other factors affect the Company's actual financial performance and may cause the Company's future results to be markedly outside of the Company's current expectations. Accounting Developments The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of (FAS 121) and Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (FAS 123). The Company has adopted FAS 121 effective January 1, 1996 and believes that adoption will not have a material impact on the Company's 1996 financial statements. The Company will adopt the disclosure requirements of FAS 123 in 1996 but continue to account for its stock option plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees as permitted under FAS 123. 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 increases in the Company's borrowing costs. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements and Schedules Covered by Reports of Independent Public Accountants Report of Independent Public Accountants 36 Consolidated Balance Sheets as of December 31, 1995 and 1994 37 For Years Ended December 31, 1995, 1994 and 1993 - Consolidated Statements of Income 38 - Consolidated Statements of Stockholders' Equity 39 - Consolidated Statements of Cash Flows 40 - Notes to Consolidated Financial Statements 41-49 Financial Statement Schedule: - Schedule III - Real Estate and Accumulated Depreciation 50-53 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The information required by Items 10 through 13 of Part III is incorporated by reference from the Registrant's Proxy Statement which will be mailed to stockholders in connection with the Registrant's annual meeting of stockholders scheduled to be held on May 16, 1996. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements Report of independent public accountants. The following consolidated financial statements of the Company and its subsidiaries are included in Item 8 of this report: Consolidated Balance Sheets as of December 31, 1995 and 1994. Consolidated Statements of Income for the years ended December 31, 1995, 1994, and 1993. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993. Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993. Notes to Consolidated Financial Statements. 2. Financial Statement Schedules Schedule III - Real Estate and Accumulated Depreciation All other schedules have been omitted as they are not applicable, or not required or because the information is given in the Consolidated Financial Statements or related Notes to Consolidated Financial Statements. 3. Exhibits Exhibit No. List of Exhibits 4.1 Charter of the Company, as amended, is incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-2, Registration No. 333-921. 4.2 Amended and Restated Bylaws of the Company are incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.1 The Company's Automatic Dividend Reinvestment and Share Purchase Plan, as adopted by the Company, is incorporated herein by reference to Exhibit 4.1 to Amendment No. 2 to Registration Statement No. 2-94354 of ICM Property Investors Incorporated. 10.2 The Company's Employee Stock Option Plan, as amended and restated, is incorporated herein by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-2, Registration No. 333-921. 10.3 The Company's 1992 Directors' Stock Option Plan, as amended and restated, is incorporated herein by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-2, Registration No. 333-921. 10.4 Amended and Restated Credit Agreement for $60 million revolving line of credit dated as of September 14, 1995, by and between the Company, as Borrower, and Bank of America National Trust and Savings Association is incorporated herein by reference to Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.5 Sale and Option Agreement dated as of August 26, 1995, by and between Kemper Investors Life Insurance Company, on behalf of itself and Participants (as defined therein), as Lender, the Company, as Purchaser, and Tustin Properties, as Owner, for 3002 Dow Business Center is incorporated herein by reference to Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.6 BPIA Agreement dated as of January 1, 1995, by and between Westminster Holdings, Inc., a California corporation and the Company is incorporated herein by reference to Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.7 Employment Agreement made as of February 17, 1993, by and between ICM Property Investors Incorporated and Peter B. Bedford is incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as amended by Form 10-K/A filed on May 1, 1995, and Form 10-K/A-2 filed on August 8, 1995. 10.8 Amendment No. 1 to Employment Agreement dated as of September 18, 1995, by and between Peter B. Bedford and the Company is incorporated herein by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.9 Series A Convertible Preferred Stock Purchase Agreement, among the Company, AEW Partners, L.P. and Peter B. Bedford dated as of May 18, 1995, is incorporated herein by reference to Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. 10.10 Amendment No. 1 to the Series A Convertible Preferred Stock Purchase Agreement dated September 11, 1995, among the Company, AEW Partners, L.P. and Peter B. Bedford, is incorporated herein by reference to Exhibit 10.12 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.11 Standstill Agreement dated as of September 18, 1995, by and between the Company and Peter B. Bedford is incorporated herein by reference to Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.12 Purchase and Sale Agreement dated as of October 19, 1995, between Landsing Pacific Fund, Inc., a Maryland corporation as Seller, and the Company, the Buyer, as amended, is incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on December 27, 1995. 21.1* Subsidiaries of the Company. 23.1* Consent of KPMG Peat Marwick LLP, independent auditors. *Filed herewith. (b) Reports on Form 8-K During the quarter ended December 31, 1995, the Company filed on October 2, 1995, a report on Form 8-K dated September 19, 1995, reporting Items 2 and 7 and announcing the acquisitions of 350 East Plumeria Drive, Lackman Business Center and Ninety-Ninth Street Buildings 1 and 2, and the sale of Cody Street Park, Building 6. During the quarter ended December 31, 1995, the Company filed on November 30, 1995, a report on Form 8-K/A dated September 19, 1995 which supplemented Item 7 reported on Form 8-K dated September 19, 1995, regarding the acquisition of 350 East Plumeria Drive, Lackman Business Center and Ninety-Ninth Street Buildings 1 and 2, and the sale of Cody Street Park, Building 6. The following financial statements were filed: (i) Historical Summary of Gross Income and Direct Operating Expenses of 350 East Plumeria Drive for the year ended December 31, 1994 and (ii) pro forma financial statements showing the effect resulting from the acquisitions of 350 East Plumeria Drive, Lackman Business Center, Ninety-Ninth Street #1 and #2 and the sale of Cody Street Park, Building 6. During the quarter ended December 31, 1995, the Company filed on October 16, 1995, a report on Form 8-K dated October 2, 1995, reporting Items 2 and 7 and announcing the sale of the IBM Building. Pro forma financial statements showing the effect resulting from the sale of the IBM Building were filed. During the quarter ended December 31, 1995, the Company filed on October 17, 1995, a report on Form 8-K dated October 6, 1995, reporting Items 2 and 7 and announcing the acquisition of 6600 College Boulevard. During the quarter ended December 31, 1995, the Company filed on December 15, 1995, a report on Form 8-K/A dated October 6, 1995 which supplemented Item 7 on Form 8-K dated October 6, 1995, regarding the acquisition of 6600 College Boulevard. The following financial statements were filed: (i) Historical Summary of Gross Income and Direct Operating Expenses of 6600 College Boulevard for the year ended December 31, 1994 and (ii) pro forma financial statements showing the effect resulting from the acquisition of 6600 College Boulevard. During the quarter ended December 31, 1995, the Company filed on November 10, 1995 a report on Form 8-K/A-2 dated December 30, 1993 which amended Item 7 on Form 8/K-A regarding the acquisition of Mariner Court. Pro forma financial statements showing the effect resulting from the acquisition of Mariner Court were filed. During the quarter ended December 31, 1995, the Company filed on November 10, 1995, a report on Form 8-K/A-2 dated May 24, 1994 which amended Item 7 on Form 8/K-A regarding the acquisition of Dupont Industrial Center. Pro forma financial statements showing the effect resulting from the acquisition of Dupont Industrial Center were filed. During the quarter ended December 31, 1995, the Company filed on November 10, 1995, a report on Form 8-K/A-2 dated August 11, 1994 which amended Item 7 on Form 8/K-A regarding the acquisition of Milpitas Town Center. Pro forma financial statements showing the effect resulting from the acquisition of Milpitas Town Center were filed. During the quarter ended December 31, 1995, the Company filed on November 10, 1995, a report on Form 8-K/A dated January 14, 1994 which amended Item 7 on Form 8-K regarding the sale of Texas Bank North. Pro forma financial statements showing the effect resulting from the acquisition of Texas Bank North were filed. During the quarter ended December 31, 1995, the Company filed on December 19, 1995, a report on Form 8-K dated December 5, 1995, reporting Items 2 and 7 and announcing the acquisition of 3002 Dow Business Center. During the quarter ended December 31, 1995, the Company filed on December 27, 1995, a report on Form 8-K dated December 14, 1995, reporting Items 2 and 7 and announcing the acquisition of the Landsing Pacific Portfolio. Report of Independent Public Accountants To the Stockholders and the Board of Directors of Bedford Property Investors, Inc.: We have audited the consolidated financial statements of Bedford Property Investors, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bedford Property Investors, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth herein. San Francisco, California KPMG Peat Marwick LLP February 6, 1996 BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1994 (in thousands, except share and per share amounts) 1995 1994 Assets: Real estate investments: Industrial buildings $ 94,897 $26,253 Office buildings - held for investment 30,025 23,022 Office buildings - held for sale - 8,928 Retail buildings 6,261 - 131,183 58,203 Less accumulated depreciation 2,219 3,150 128,964 55,053 Cash 1,027 4,733 Other assets 3,487 2,508 Total assets $133,478 $62,294 Liabilities and Stockholders' Equity: Bank loan payable 43,250 22,400 Accounts payable and accrued expenses 1,451 850 Dividend payable 1,765 568 Acquisition payable 3,000 600 Other liabilities 1,577 944 Total liabilities 51,043 25,362 Redeemable preferred stock: Series A convertible preferred stock, par value $0.01 per share; authorized 10,000,000 shares, issued and outstanding 8,333,334 shares in 1995; aggregate redemption amount $50,000; aggregate liquidation preference $52,500. 50,000 - Common stock and other stockholders' equity: Common stock, par value $0.01 per share; authorized 30,000,000 shares, issued and outstanding 6,090,650 shares in 1995, 5,976,900 shares in 1994 61 60 Additional paid-in capital 107,214 107,151 Accumulated losses and distributions in excess of net income (74,840) (70,279) Total common stock and other stockholders' equity 32,435 36,932 Total liabilities and stockholders' equity $133,478 $62,294 See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993 (in thousands, except share and per share amounts) 1995 1994 1993 Property operations: Rental income $11,695 $9,154 $7,207 Rental expenses: Operating expenses 2,744 2,408 2,520 Real estate taxes 1,105 916 840 Depreciation and amortization 1,484 1,206 2,250 Income from property operations 6,362 4,624 1,597 General and administrative expenses (1,457) (1,309) (1,303) Interest income 226 56 136 Interest expense (1,594) (955) (716) Income from joint ventures - - 2,533 Income before gain (loss) on sales of real estate investments 3,537 2,416 2,247 Gain (loss) on sales of real estate investments (642) 1,193 900 Net income $2,895 $3,609 $3,147 Net income applicable to common stockholders3 $1,607 $3,609 $3,147 Net income per common and common equivalent share3: $ 0.26 $ 0.59 $ 0.53 Weighted average number of common and common equivalent shares outstanding 6,179,098 6,147,664 5,975,900 See accompanying notes to consolidated financial statements. 3 Reflects net income reduced by dividends of $1,288 for the third and fourth quarters of 1995 on $50,000 of Series A Convertible Preferred Stock issued on September 18, 1995. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (in thousands, except share and per share amounts) Total Accumulated common losses and stock and Additional distributions other stock- Common paid-in in excess of holders' stock capital net income equity Balance, December 31, 1992 $ 60 $107,147 $(73,837) $33,370 Net income - - 3,147 3,147 Dividends to common stockholders ($0.18 per share) - - (1,076) (1,076) Balance, December 31, 1993 60 107,147 (71,766) 35,441 Issuance of common stock - 4 - 4 Net income - - 3,609 3,609 Dividends to common stockholders ($0.355 per share) - - (2,122) (2,122) Balance, December 31, 1994 60 107,151 (70,279) 36,932 Issuance of common stock 1 63 - 64 Costs of issuance of preferred stock - - (3,631) (3,631) Redemption of rights - - (60) (60) Net income - - 2,895 2,895 Dividends to common stockholders ($0.41 per share) - - (2,477) (2,477) Dividends to preferred stockholders (9%) - - (1,288) (1,288) Balance, December 31, 1995 $61 $107,214 $(74,840) $32,435 See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (in thousands) 1995 1994 1993 Operating Activities: Net income $2,895 $3,609 $3,147 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,806 1,463 2,349 Loss (gain) on sale of real estate investments 642 (1,193) (900) Gain on sale of joint venture partnership operations - - (2,686) Equity in joint venture partnership operations (including depreciation of $191 in 1993) - - 153 Change in other assets (1,679) (930) (777) Change in accounts payable and accrued expenses 601 (615) (252) Change in other liabilities 633 382 186 Net cash provided by operating activities 4,898 2,716 1,220 Investing Activities: Investments in real estate (81,173) (28,009) (11,552) Proceeds from sales of real estate investments 7,914 8,289 21,637 Net cash provided (used) by investing activities (73,259) (19,720) 10,085 Financing Activities: Proceeds from bank loan 47,100 36,138 5,221 Repayment of bank loan (26,250) (17,359) (6,000) Issuance of common stock 64 - - Net proceeds from sale of preferred stock 46,369 - - Redemption of rights (60) - - Repayment of mortgage loan - - (5,113) Payment of dividends (2,568) (1,972) (658) Net cash provided (used) by financing activities 64,655 16,807 (6,550) Net increase (decrease) in cash (3,706) (197) 4,755 Cash at beginning of year 4,733 4,930 175 Cash at end of year $1,027 $4,733 $4,930 Supplemental disclosure of cash flow information a) Non-cash investing and financing activities: Debt incurred in connection with real estate acquired $3,000 $600 $1,500 b) Cash paid during the year for interest $1,283 $585 $ 656 See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies The Company Bedford Property Investors Inc. (the Company) is an equity real estate investment trust with investments primarily in industrial and suburban office properties concentrated in the Western United States. On July 1, 1993, the Company (formerly known as ICM Property Investors Incorporated) reincorporated from the state of Delaware to the state of Maryland under a new name, Bedford Property Investors, Inc. As of July 1, 1993 the Company's Common Stock traded under the symbol "BED" on both the New York and Pacific Stock Exchanges. Concurrent with the reincorporation, the number of authorized shares of Convertible Preferred Stock was increased from 1,000,000 shares to 10,000,000 shares and the number of authorized shares of Common Stock was increased from 10,000,000 to 30,000,000 shares. Also, the par value of both the Preferred and Common Stock was reduced from $1.00 to $0.01 per share and Treasury Stock was eliminated. Principles of Consolidation The consolidated financial statements include the accounts of Bedford Property Investors, Inc., and its wholly-owned subsidiaries. As of May 31, 1993, the Company no longer had investments in unconsolidated joint venture partnerships. All significant inter-entity balances have been eliminated in consolidation. The preparation of these financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Federal Income Taxes The Company has qualified as a real estate investment trust under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended ("the Code"). A real estate investment trust is generally not subject to Federal income tax on that portion of its real estate investment trust taxable income ("Taxable Income") which is distributed to its stockholders, provided that at least 95% of Taxable Income is distributed. No provision for Federal income taxes has been made in the consolidated financial statements, as the Company believes it is in compliance with the Code. Taxable income differs from net income for financial reporting purposes primarily because of the different methods of accounting for depreciation. As of December 31, 1995, for Federal income tax purposes, the Company had an ordinary loss carry forward of approximately $39,720,000 and a capital loss carry forward of approximately $15,195,000. All dividend distributions made for 1995 were classified as return of capital for Federal income tax purposes. Real Estate Investments Buildings and improvements are carried at cost less accumulated depreciation. Buildings are depreciated on a straight-line basis over 45 years. Upon the acquisition of an investment by the Company, acquisition related costs are added to the carrying cost of that investment. These costs are being depreciated over the useful lives of the buildings. Leasing commissions and improvements to tenants' space incurred subsequent to the acquisition are amortized over the terms of the respective leases. Expenditures for repairs and maintenance, which do not add to the value or prolong the useful life of a property, are expensed as incurred. When the Company concludes that the recovery of the carrying value of a real estate investment is permanently impaired, it reduces such carrying value to the amount deemed recoverable. Investments which have been classified as offered for sale are written down to estimated net realizable value if net realizable value is less than the carrying amount of the investment. The Company has adopted, effective January 1, 1996, Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of (FAS 121). The Company believes that adoption of FAS 121 will not have a material impact on the Company's 1996 financial statements. Income Recognition Rental income from operating leases is recognized in income on a straight-line basis over the period of the related lease agreement. The aggregate rental income exceeded contractual rentals by $377,000 and $238,000 for 1995 and 1994, respectively. Per Share Data Per share data are based on the weighted average number of common and common equivalent shares outstanding during the year. Stock options issued under the Company's stock option plans are considered Common Stock equivalents and are included in the calculation of per share data if, upon exercise, they would have a dilutive effect. Dividends accrued on the $50,000,000, Series A Convertible Preferred Stock are deducted from net income for purposes of determining net income applicable to common stockholders. Note 2 - Real Estate Investments The following table sets forth the Company's real estate investments as of December 31, 1995 (in thousands): Less Accumulated Land Building Depreciation Total INDUSTRIAL Greater San Francisco Bay Area, California Building 3 Contra Costa Diablo Industrial Park, Concord $ 495 $ 1,230 $ 138 $ 1,587 Building 8 Contra Costa Diablo Industrial Park, Concord 877 1,551 175 2,253 Building 18 Mason Industrial Park, Concord 610 1,305 155 1,760 Milpitas Town Center, Milpitas 1,935 5,284 139 7,080 Auburn Court, Fremont 1,410 2,506 2 3,914 Westinghouse Drive, Fremont 270 906 1 1,175 350 E. Plumeria Drive, San Jose 3,683 4,783 27 8,439 301 East Grand, South San Francisco 2,064 971 1 3,034 342 Allerton, South San Francisco 2,549 1,563 1 4,111 400 Grandview, South San Francisco 3,289 3,563 3 6,849 410 Allerton, South San Francisco 1,352 901 1 2,252 417 Eccles, South San Francisco 659 517 - 1,176 Subtotal 19,193 25,080 643 43,630 Greater Los Angeles Area, California Dupont Industrial Center, Ontario 3,588 6,142 251 9,479 3002 Dow Business Center, Tustin 4,301 7,451 14 11,738 Subtotal 7,889 13,593 265 21,217 Denver, Colorado Bryant St. Annex, Denver 493 877 1 1,369 Bryant St. Quad, Denver 1,412 2,208 2 3,618 Subtotal 1,905 3,085 3 4,987 Minneapolis/St. Paul, Minnesota St. Paul Business Center - East, Maplewood 764 1,783 2 2,545 St. Paul Business Center - West, Maplewood 1,232 2,391 2 3,621 Subtotal 1,996 4,174 4 6,166 Greater Portland Area, Oregon Twin Oaks Tech. Center, Beaverton 1,464 4,902 4 6,362 Twin Oaks Business Park, Beaverton 1,179 2,886 3 4,062 Subtotal 2,643 7,788 7 10,424 Kansas City, Kansas Ninety-Ninth Street #3, Lenexa 360 2,172 244 2,288 Ninety-Ninth Street #1, Lenexa 410 1,571 9 1,972 Ninety-Ninth Street #2, Lenexa 183 564 3 744 Lackman Business Center, Lenexa 628 1,663 9 2,282 Subtotal 1,581 5,970 265 7,286 Total Industrial $35,207 $59,690 $1,187 $93,710 Less Accumulated Land Building Depreciation Total SUBURBAN OFFICE Greater Los Angeles Area, California 1000 Town Center Drive, Oxnard $ 1,785 $4,743 $ 373 $ 6,155 Mariner Court, Torrance 3,221 4,528 219 7,530 Subtotal 5,006 9,271 592 13,685 Salt Lake City, Utah Woodlands Tower II, Salt Lake City 945 6,137 364 6,718 Kansas City, Kansas 6600 College Blvd., Overland Park 2,518 3,982 22 6,478 Greater San Francisco Bay Area, California Village Green, Lafayette 743 1,423 51 2,115 Total Suburban Office 9,212 20,813 1,029 28,996 RETAIL Academy Place Shopping Center, Colorado Springs 2,880 3,381 3 6,258 Total $47,299 $83,884 $2,219 $128,964 University Tower During the third quarter of 1992, the Company decided to offer University Tower for sale. In anticipation of such sale, the Company wrote down its investment in this property by $3,200,000 in 1992. On August 18, 1993, the property was sold for a cash price of $15,200,000 which includes the reimbursement of tenant relocation costs of $300,000, resulting in a gain of $407,000. Point West Place During the fourth quarter of 1992, the Company decided to offer Point West Place for sale. In anticipation of such sale, the Company wrote down its investment in this property by $9,290,000 in 1992. On October 1, 1993, the property was sold for a cash price of $7,180,000, resulting in a gain of $493,000. Texas Bank North Building During the fourth quarter of 1992, the Company decided to offer the Texas Bank North Building for sale. In anticipation of such sale, the Company wrote down its investment in this property by $3,631,000. In December, 1993, the Company entered into a contract to sell the Texas Bank North Building for a cash sale price of $8,500,000. The sale was completed on January 14, 1994 and resulted in a gain of $1,193,000. Mariner Court The property, a suburban three-story office building located in Torrance, California, was purchased for $7,500,000 or $71 per square foot on January 5, 1994. The Company recorded acquisition costs of $113,000 paid to Peter B. Bedford, Chairman of the Board and Chief Executive Officer of the Company (see Note 5). Dupont Industrial Center The property, a three-building industrial complex located in Ontario, California, was purchased for $9,750,000 or $22 per square foot on May 24, 1994. The Company recorded acquisition costs of $146,000 paid to Mr. Bedford. Because the property was only 68% leased at the time of purchase, the purchase contract established a rental income guarantee fund of $400,000 which was disbursed to the Company until at least 90% of the space was leased. At December 31, 1994, the rental income guarantee fund was terminated since the property was 91% leased. The Company had received $264,000 of the rental income guarantee fund. This amount has been accounted for as a reduction in the cost of the property. Village Green The property, a suburban three-building office complex located in Lafayette, California, was purchased for $1,792,000 or $106 per square foot on July 7, 1994. The Company recorded acquisition costs of $27,000 paid to Mr. Bedford. Milpitas Town Center The property, a suburban two-building research and development complex located in Milpitas, California, was purchased for $6,320,000 or $62 per square foot on August 11, 1994. The Company recorded acquisition costs of $95,000 paid to Mr. Bedford. The property includes a 3.1 acre parcel of land on which the Company is developing a 45,090 square foot research and development facility. 350 East Plumeria Drive The property, a suburban research and development facility located in San Jose, California, was purchased for $8,325,000 or $58 per square foot on September 19, 1995. The Company also recorded acquisition costs of $125,000 paid to Bedford Acquisitions, Inc. ("BAI"), a company wholly-owned by Mr. Bedford (see Note 5). Lackman Business Center The property, a single-story service center industrial project located in Lenexa, Kansas, was purchased for $2,250,000 or $49 per square foot on September 19, 1995. The Company also recorded acquisition costs of $34,000 paid to BAI. Ninety-Ninth Street Buildings 1 and 2 The properties, two service industrial buildings located in Lenexa, Kansas, were purchased for $2,685,000 or $55 per square foot on September 20, 1995. The Company also recorded acquisition costs of $40,000 paid to BAI. Cody Street Park, Building 6 In the third quarter 1995, the Company decided to sell the Cody Street Park, Building 6. The sale was completed on September 20, 1995, and resulted in a loss of $12,000. 6600 College Boulevard The property, a suburban service center industrial complex located in Overland Park, Kansas, was purchased for $6,360,000 or $80 per square foot, on October 6, 1995. The property was acquired from AEW #25 Trust, an affiliate of BED Preferred No. 1 Limited Partnership which recently purchased $50 million of the Company's Series A Convertible Preferred Stock. The directors of the Company who are affiliated with BED Preferred No. 1 Limited Partnership, however, played no role in this acquisition. The Company also recorded acquisition costs of $95,000 paid to BAI. IBM Building During 1995, the Company continued to offer for sale the IBM Building located in Jackson, Mississippi. This property was first offered for sale in 1991, at which time the Company's investment in the property was written down by $2,113,000. On October 2, 1995, the Company completed the sale of the IBM Building for a cash sale price of $6,500,000, resulting in a loss of $630,000. 3002 Dow Business Center The property, a five-building industrial project located in Tustin, California, was purchased for $11,500,000 or $60 per square foot on December 5, 1995. The Company also recorded acquisition costs of $172,500 paid to BAI. The Landsing Pacific Portfolio On December 14, 1995, the Company acquired the Landsing Pacific Portfolio which consists of thirteen industrial properties and one retail property aggregating approximately one million rentable square feet located in Maplewood, Minnesota; Denver and Colorado Springs, Colorado; South San Francisco and Fremont, California; and Beaverton, Oregon. The Company paid $49,700,000 for the Landsing Pacific Portfolio or $50 per square foot. The acquisition was financed with $4,000,000 cash, borrowings of $42,700,000 under the Company's credit facility and a $3,000,000 payable secured by a letter of credit due one year from the date of issuance. The Company also recorded acquisition costs of $594,000 paid to BAI. The Landsing Pacific Portfolio comprised substantially all of the real estate assets of the Landsing Pacific Fund, Inc., a publicly-traded REIT based in San Mateo, California. At all times relevant to the transaction, Martin I. Zankel, a director and stockholder of the Company, was Chairman of the Board of Directors, Chief Executive Officer and President of the Landsing Pacific Fund, Inc. Mr. Zankel had no role on behalf of the Company in this acquisition. The Company internally manages the majority of its properties and maintains centralized financial record-keeping. For all the properties located outside of California, the Company has subcontracted on-site maintenance to local firms. Note 3 - Unconsolidated Joint Venture Partnerships Edison Square On May 31, 1993, the Company sold its partnership interests in the three Edison Square properties in exchange for a note receivable of $300,000 with an interest rate of 8% payable quarterly in July, October, January, and April until May 31, 1998, at which time the note matures. The sale of the Company's interest in the three unconsolidated joint venture partnerships resulted in a gain of $2,686,000. Note 4 - Leases Minimum future rental receipts outstanding at December 31, 1995 are as follows (in thousands): 1996 $17,475 1997 13,963 1998 9,893 1999 7,112 2000 4,146 Thereafter 3,448 The total minimum future rental payments shown above do not include tenants' obligations for reimbursement of operating expenses or taxes as provided by the terms of certain leases. Note 5 - Related Party Transactions Due to the Company's limited financial resources, its activities relating to the acquisition of new properties and debt and equity financings are currently performed by BAI pursuant to a written contract dated January 1, 1995. The contract provides that BAI is obligated to provide services to the Company with respect to the Company's acquisition and financing activities, and that BAI is responsible for the payment of its expenses incurred in connection therewith. The contract provides that BAI is to be paid a fee in an amount equal to the lesser of (i) 1- 1/2% of the gross amount raised in financings or the aggregated purchase price of the property for acquisitions, or (ii) an amount equal to (a) the aggregate amount of expenses funded by BAI through the time of such acquisition or financing minus (b) the aggregate amount of fees previously paid to BAI pursuant to such arrangement. In no event will the aggregate amount of fees paid to BAI exceed the aggregate amount of costs funded by BAI. The agreement with BAI has a term of one year, is renewable at the option of the Company for additional one-year terms, and will expire no later than January 1, 1998. From February 1993 through December 1994, the Company's activities relating to debt and equity financings and the acquisition of new properties were handled under arrangements similar to the current arrangement with BAI through BPI Acquisitions, a separate division within the Company. This division operated under an arrangement with Mr. Bedford whereby he provided acquisitions and financing personnel, allocable overhead costs and the costs of all due diligence conducted prior to an acquisition. Upon the completion of a financing or the acquisition of a property, Mr. Bedford was paid a fee by the Company substantially identical to that described above. In no event could the aggregate amount of fees paid to Mr. Bedford exceed the aggregate amount of costs funded by Mr. Bedford. As of December 31, 1995, the Company had paid Mr. Bedford and BAI an aggregate of $3,046,000 for acquisition and financing activities performed since February 1993 pursuant to the foregoing arrangements. The Company believes that since the fees charged under the foregoing arrangements (i) have been and continue to be comparable to those charged by other sponsors of real estate investment entities or other third party service providers and (ii) have been and continue to be charged only for services on acquired properties or completed financings, such fees were and continue to be properly includable in direct acquisition costs and capitalized as part of the asset or financing activities. The Company is leasing 2,400 square feet of industrial space on a month-to-month basis at a market rental rate of $1,288 per month to a company wholly-owned by Mr. Bedford. Note 6 - Stock Option Plans A total of 1,800,000 shares of the Company's Common Stock have been reserved for issuance under the Employee Stock Option Plan (the "Employee Plan"). The Employee Plan expires by its own terms in 2003. The Employee Plan provides for non-qualified stock options, incentive stock options and stock appreciation rights. Stock appreciation rights may only be granted in conjunction with stock options and entitle the holder to receive the difference between the fair market value and the exercise price of the Common Stock which would be receivable upon exercise of the underlying option. The exercise of a stock appreciation right results in the termination of the related option on a share-for-share basis. The Employee Plan is administered by the Compensation Committee of the Board of Directors, which determines the terms of options granted, including the exercise price, the number of shares subject to the option, and the exercisability of the options. Options granted to employees are immediately exercisable upon vesting, but typically vest over a four-year period. The Employee Plan requires that the exercise price of incentive stock options be at least equal to the fair market value of such shares on the date of grant and that the exercise price of non-qualified stock options be equal to at least 85% of the fair market value of such shares on the date of the grant. The maximum term of options granted is ten years. At December 31, 1995, options issued under the Employee Plan to purchase 187,500 shares were outstanding at a weighted average exercise price of $6.39 per share, of which 51,750 options were exercisable. Options to purchase 113,750 shares were exercised in 1995, at a weighted average exercise price of $5.57. At December 31, 1995 1,404,750 shares were available for issuance under the Employee Plan. Stock appreciation rights were outstanding in connection with options to purchase an aggregate of 10,000 shares. A total of 500,000 shares of the Company's Common Stock have been reserved for issuance under the Directors' Stock Option Plan (the "Directors' Plan"). The Directors' Plan expires by its own terms in 2002. The Directors' Plan provides for the grant of non-qualified stock options to directors of the Company. The Directors' Plan contains an automatic grant feature whereby a director receives a one-time "initial option" to purchase 50,000 shares upon a director's appointment to the Board of Directors and thereafter receives automatic annual grants of options to purchase 10,000 shares upon re-election to the Board of Directors. Options granted are generally exercisable six months from the date of grant. The Directors' Plan requires that the exercise price of options be equal to the fair market value of the underlying shares on the date of grant. The maximum term of options granted is five years. At December 31, 1995, options issued under the Director's Plan to purchase 500,000 shares were outstanding at a weighted average exercise price of $3.38 per share, of which 350,000 options were exercisable. No options had been exercised under the Directors' Plan. In September 1995, the Company established a Management Stock Acquisition program. Under the program, options exercised by key members of management within thirty days of the grant date may be exercised either in cash or with a note payable to the Company. Such note bears interest at 7.5% or the Applicable Federal Rate as defined by the Internal Revenue Service, whichever is higher. The note is due in five years or within ninety days from termination of employment, with interest payable quarterly. During 1995, options for 100,000 shares of Common Stock were exercised in exchange for two notes payable to the Company. The notes, of $287,500 each, bear interest at 7.5%. The unpaid balance of the notes is included in the accompanying consolidated balance sheet as a reduction of additional paid-in capital. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (FAS 123). The Company will adopt the disclosure requirements of FAS 123 in 1996 but continue to account for its stock option plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees as permitted under FAS 123. Note 7 - Stockholder Rights Plan On July 18, 1989, the Company's Board of Directors adopted a Stockholder Rights Plan and declared a dividend distribution of one Right for each share of the Company's Common Stock outstanding on July 31, 1989. On September 29, 1995, the Rights were redeemed by the Company at a price of $0.01 per Right. Note 8 - Bank Loan Payable In December 1993, the Company concluded an agreement with Bank of America for a $20 million revolving line of credit for real estate acquisitions. In August 1994, the maximum commitment amount of the facility was increased from $20 million to $23 million. On September 18, 1995, outstanding borrowings under the facility were repaid and the facility was amended and restated to $60 million. The amended facility, which matures on September 1, 1998, bears interest at a floating rate equal to either the lender's published "reference rate" plus 0.50% or its "offshore rate" (similar to LIBOR) plus 2.25%. The credit facility is secured by mortgages on 23 properties (which Properties collectively accounted for approximately 81% of the Company's Annualized Base Rent as of December 31, 1995), together with the rental proceeds from such properties. As of December 31, 1995, these properties comprised approximately 76% of the Company's total assets. At December 31, 1995, the Company had outstanding borrowings of $43,250,000 and letters of credit aggregating $3,875,000 (including letters of credit totalling $875,000 expiring in March 1996, and a letter of credit of $3,000,000 securing a payable due December 1996 relating to the acquisition of the Landsing Pacific Portfolio). The credit facility contains various restrictive covenants including, among other things, a covenant limiting quarterly dividends to 90% of average Funds From Operations for the immediately preceding two fiscal quarters. The daily weighted average amount owing to the bank was $15,003,000 and $8,954,000 in 1995 and 1994, respectively. The weighted average interest rates in these periods were 8.65% and 8.1%, respectively. The effective interest rate at December 31, 1995 was 8.14%. The carrying amount of the above loan approximates fair value as the loan is at current market rates. Note 9 - Redeemable Preferred Stock On September 18, 1995, the Company issued and sold 8,333,334 shares of Series A Convertible Preferred Stock (the "Convertible Preferred Stock") for $6.00 per share. Holders of the Convertible Preferred Stock are entitled to cumulative quarterly dividends in cash in an amount equal to the greater of (i) $0.135 per share or (ii) the dividends payable in such quarter on the Common Stock into which the Convertible Preferred Stock is convertible plus, in both cases, the accumulated but unpaid dividends on the Convertible Preferred Stock. Dividends may be declared and paid on shares of Common Stock only if full cumulative dividends have been paid or authorized and set apart on all shares of Convertible Preferred Stock. The shares of Convertible Preferred Stock are convertible at any time after September 18, 1997 into an equal number of common shares. The conversion rate may be adjusted under certain conditions. The Convertible Preferred Stock is redeemable at the option of the Company: (i) after September 18, 1997 but before September 18, 2000, in whole at a redemption price providing an internal rate of return to the holder of Convertible Preferred Stock of 25% per annum for the period from September 18, 1995 to September 18, 1997 and 20% per annum from and after September 18, 1997 until the date of redemption, but not beyond September 18, 2000; (ii) after September 18, 2000, in whole or in part at a redemption price of $6.30 per share, declining $0.06 per share per year for each of the next five years. Prior to any redemption by the Company, the holders of the Convertible Preferred Stock may convert their shares of the Convertible Preferred Stock to shares of Common Stock. Redemption of the preferred stock is required, at the option of the preferred shareholders, after one year at a redemption price of $6.00 per share plus accrued and unpaid dividends upon the occurrence of any of the following: failure to pay preferred dividends for two consecutive quarters; default on payment of certain debt; failure to obtain certain required consents of the preferred shareholders; or failure to meet certain financial targets. In the event of liquidation, the holders of the preferred stock are entitled to receive $6.30 per share plus any accrued and unpaid dividends. Note 10 - Quarterly Financial Data-Unaudited The following is a summary of quarterly results of operations for 1995 and 1994 (in thousands of dollars, except per share data): 1995 Quarters Ended 3/31 6/30 9/30 12/31 Rental revenues $2,662 $2,616 $2,774 $3,643 Income from property operations 1,427 1,366 1,369(4) 2,200 Income before loss on sale 606 616 669(5) 1,646 Net income $ 606 $ 616 $ 27 $1,646 Net income (loss) applicable to common stockholders (4) $ 606 $ 616 $ (133) $ 518 Net income (loss) per common and common equivalent share (4): $ 0.10 $ 0.10 $(0.02) $ 0.08 1994 Quarters Ended 3/31 6/30 9/30 12/31 Rental revenues $1,856 $1,976 $2,473 $2,849 Income from property operations 742 995 1,237 1,650 Income before gain on sale 396 565 549 906 Net income $1,589 $ 565 $ 549 $ 906 Net income per common and common equivalent share: $ 0.26 $ 0.09 $ 0.09 $ 0.15 (4) Reflects dividends of $160 and $1,128 for the third and fourth quarters of 1995, respectively, on $50,000 of Series A Convertible Preferred Stock issued on September 18, 1995. (5) These amounts were reported in the third quarter of 1995, net of a provision for loss on sale of real estate investment of $630.
BEDFORD PROPERTY INVESTORS, INC. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1995 (in thousands of dollars) Cost Gross Amount Initial Cost Capitalized Carried Accumu- to Company Subsequent at Close lated Date Depreciable Buildings & to of Period Depre- Con- Date Life Description Land Improvement Acquisition Land Building Total ciation structed Acquired (Years) INDUSTRIAL BUILDINGS: Greater San Fran- cisco Area, CA Building 3 Contra Costa Diablo Indus. Park, Concord $ 495 $1,159 $ 71 $495 $1,230 $1,725 $138 1983 12/90 45 Building 8 Contra Costa Diablo Indus. Park, Concord 877 1,548 3 877 1,551 2,428 175 1981 12/90 45 Building 18 Mason Indus. Park, Concord 610 1,265 40 610 1,305 1,915 155 1984 12/90 45 Milpitas Town Center, Milpitas 1,899 4,421 899 1,935 5,284 7,219 139 1983 8/94 45 Auburn Court, Fremont 1,391 2,473 52 1,410 2,506 3,916 2 1983 12/95 45 Westinghouse Drive, Fremont 267 893 16 270 906 1,176 1 1982 12/95 45 350 E. Plumeria Drive, San Jose 3,621 4,704 141 3,683 4,783 8,466 27 1983 9/95 45 301 East Grand, South San Francisco 2,036 959 40 2,064 971 3,035 1 1974 12/95 45 342 Allerton, South San Francisco 2,516 1,542 54 2,549 1,563 4,112 1 1969 12/95 45 400 Grandview, South San Francisco 3,246 3,517 89 3,289 3,563 6,852 3 1976 12/95 45 410 Allerton, South San Francisco 1,333 889 31 1,352 901 2,253 1 1970 12/95 45 417 Eccles, South San Francisco 649 510 17 659 517 1,176 - 1964 12/95 45 Greater Los Angeles Area, California Dupont Industrial Center, Ontario 3,588 6,162 (20)(F) 3,588 6,142 9,730 251 1989 5/94 45 3002 Dow Business Center, Tustin 4,209 7,291 252 4,301 7,451 11,752 14 1987-89 12/95 45 Denver, Colorado Bryant Street Annex, Denver 487 866 17 493 877 1,370 1 1968 12/95 45 Bryant Street Quad, Denver 1,394 2,181 45 1,412 2,208 3,620 2 1971-73 12/95 45 Minneapolis/ St. Paul, Minnesota St. Paul Business Center - East, Maplewood 754 1,758 35 764 1,783 2,547 2 1984 12/95 45 St. Paul Business Center - West, Maplewood 1,215 2,359 49 1,232 2,391 3,623 2 1981 12/95 45 Greater Portland Area, Oregon Twin Oaks Tech. Center, Beaverton 1,444 4,836 86 1,464 4,902 6,366 4 1984 12/95 45 Twin Oaks Business Park, Beaverton 1,163 2,847 55 1,179 2,886 4,065 3 1984 12/95 45 Kansas City, Kansas Building 3 Ninety-Ninth Street Park, Lenexa 360 2,167 5 360 2,172 2,532 244 1990 12/90 45 Building 1 Ninety-Ninth Street Park, Lenexa 404 1,547 30 410 1,571 1,981 9 1988 9/95 45 Building 2 Ninety-Ninth Street Park, Lenexa 180 555 12 183 564 747 3 1988 9/95 45 Lackman Business Center, Lenexa 619 1,631 41 628 1,663 2,291 9 1985 9/95 45 SUBURBAN OFFICE PROPERTIES Greater Los Angeles Area, California 1000 Town Center Drive, Oxnard 1,785 3,315 1,428 1,785 4,743 6,528 373 1990 12/93 45 Mariner Court, Torrance 3,221 4,279 249 3,221 4,528 7,749 219 1989 1/94 45 Salt Lake City, Utah Woodlands Tower II, Salt Lake City 945 5,805 332 945 6,137 7,082 364 1990 8/93 45 Kansas City, Kansas 6600 College Blvd., Overland Park 2,480 3,880 140 2,518 3,982 6,500 22 1982-83 10/95 45 Greater San Francisco Bay Area, Calif. Village Green, Lafayette, CA 547 1,245 374 743 1,423 2,166 51 1983 7/94 45 RETAIL PROPERTIES Academy Place Shopping Center, Colorado Springs, CO 2,844 3,339 78 2,880 3,381 6,261 3 1980-82 12/95 45 $46,579 $79,943 $4,661 $47,299 $83,884 $131,183 $2,219 (A) (B)
NOTES TO SCHEDULE III (in thousands of dollars)
(A) An analysis of the activity in real estate for the years ended December 31, 1995, 1994 and 1993 is presented below: Investment Accumulated Depreciation 1995 1994 1993 1995 1994 1993 BALANCE AT BEGINNING OF PERIOD $ 58,203 $41,225 $53,874 $3,150 $5,263 $8,321 Add (deduct): Sale of University Tower (C) - - (15,946) - - (1,470) Acquisition of Woodlands Tower II - - 6,884 - - - Sale of Point West Place (E) - - (9,505) - - (3,037) Acquisition of 1000 Town Center Drive - - 5,190 - - - Sale of Texas Bank North (D) - (10,131) - - (3,035) - Acquisition of Mariner Court - 7,500 - - - - Acquisition of Dupont Industrial Center - 9,750 - - - - Acquisition of Village Green - 1,792 - - - - Acquisition of Milpitas Town Center - 6,320 - - - - Acquisition of Lackman Business Center 2,250 - - - - - Acquisition of 350 E. Plumeria Drive 8,325 - - - - - Sale of Cody Street Park, Building 6 (G) (1,639) - - (203) - - Acquisition of Ninety-Ninth Street, Building 1 1,951 - - - - - Acquisition of Ninety-Ninth Street, Building 2 735 - - - - - Sale of IBM Building (H) (8,325) - - (2,024) - - Acquisition of 6600 College Boulevard 6,360 - - - - - Acquisition of 3002 Dow Business Center 11,500 - - - - - Acquisition of Landsing Pacific Portfolio 49,708 - - - - - Capitalized costs 2,115 1,747 728 - - - Depreciation - - - 1,296 922 1,449 BALANCE AT END OF PERIOD $131,183 $58,203 $41,225 $2,219 $3,150 $5,263
(B) The aggregate cost for Federal income tax purposes is $131,168,000. (C) On October 2, 1991, the Company acquired its partner's interest in the University Tower property. As a result of this transaction, the University Tower investment became wholly owned. In anticipation of proposed sale, the Company provided a $3,200,000 provision for possible loss related to this investment in 1992. The property was sold on August 18, 1993. (D) During 1992, it was decided to offer the Texas Bank North Building for sale. In anticipation of such sale, the Company wrote down its investment in this property by $3,631,000 in 1992. The property was sold on January 14, 1994. (E) During 1992, it was decided to offer Point West Place for sale. In anticipation of such sale, the Company wrote down its investment in this property by $9,290,000 in 1992. The property was sold on October 1, 1993. (F) Rental income guarantee in the amount of $264,000 was received from the seller and accounted for as a reduction of the cost of the property. (G) In the third quarter 1995, the Company decided to sell the Cody Street Park, Building 6. The property was sold on September 20, 1995. (H) During 1995, the Company continued to offer for sale the IBM Building located in Jackson, Mississippi. This property was first offered for sale in 1991, at which time the Company's investment in the property was written down by $2,113,000. The property sold on October 2, 1995. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BEDFORD PROPERTY INVESTORS, INC. By: /s/Peter B. Bedford Peter B. Bedford Chairman of the Board and Chief Executive Officer Dated: March 25, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Peter B. Bedford March 25, 1996 Peter B. Bedford, Chairman of the Board and Chief Executive Officer /s/ Claude M. Ballard March 25, 1996 Claude M. Ballard, Director /s/ Anthony Downs March 25, 1996 Anthony Downs, Director /s/ Anthony M. Frank March 25, 1996 Anthony M. Frank, Director /s/ Martin I. Zankel, Esq. March 25, 1996 Martin I. Zankel, Director /s/Thomas H. Nolan, Jr. March 25, 1996 Thomas H. Nolan, Jr., Director /s/Thomas G. Eastman March 25, 1996 Thomas G. Eastman, Director /s/Donald A. Lorenz March 25, 1996 Donald A. Lorenz, Executive Vice President and Chief Financial Officer /s/ Hanh Kihara March 25, 1996 Hanh Kihara, Controller Exhibit 21.1* Subsidiaries of Bedford Property Investors, Inc. State of Name Under Subsidiary Incor- Which Subsidiary is Name poration doing Business 1. ICMPI (Concord Diablo 3), Inc. Delaware ICMPI (Concord Diablo 3), Inc. 2. ICMPI (Concord Diablo 8), Inc. Delaware ICMPI (Concord Diablo 8), Inc. 3. ICMPI (Concord Mason 18), Inc. Delaware ICMPI (Concord Mason 18), Inc. 4. ICMPI (Overland Park), Inc. Delaware ICMPI (Overland Park), Inc. 5. ICMPI (Lenexa), Inc. Delaware ICMPI (Lenexa), Inc. 6. ICMPI (Jackson), Inc. Delaware ICMPI (Jackson), Inc. CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors Bedford Property Investors, Inc.: We consent to incorporation by reference in the registration statements on Form S-8 of Bedford Property Investors, Inc. of our report dated February 6, 1996, relating to the consolidated balance sheets of Bedford Property Investors, Inc. as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995, and the related financial statement schedule as of December 31, 1995, which report appears in the December 31, 1995 annual report on form 10-K of Bedford Property Investors, Inc. San Francisco, California KPMG Peat Marwick LLP March 25, 1996 -----END PRIVACY-ENHANCED MESSAGE-----