UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
COMMISSION FILE NUMBER 1-8383
Mission West Properties, Inc.
(Exact name of registrant as specified in its charter)
Maryland 95-2635431
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
10050 Bandley Drive
Cupertino, California 95014-2188
(Address of principal executive offices)
Registrant's telephone number, including area code is (408) 725-0700
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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
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
Common stock as of the latest practicable date:
17,025,365 shares outstanding as of August 11, 2000
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Mission West Properties, Inc.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
INDEX
Page
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PART I Financial Information
Item 1 Financial Statements (unaudited):
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999.....................................................3
Consolidated Statements of Operations for the three
and six months ended June 30, 2000 and 1999...............................4
Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 and 1999...................................5
Notes to Consolidated Financial Statements................................6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................10
Item 3 Quantitative and Qualitative Disclosures About Market Risk...............18
Item 4 Submission of Matters to a Vote of Security Holders......................19
PART II Other Information
Item 5 Other Information........................................................20
Item 6 Exhibits and Reports on Form 8-K.........................................20
SIGNATURES.............................................................................21
</TABLE>
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PART I - Financial Information
Item 1 CONSOLIDATED FINANCIAL STATEMENTS
MISSION WEST PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
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June 30, 2000 December 31, 1999
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(Unaudited)
ASSETS
<S> <C> <C>
Real estate assets, at cost
Land $173,339 $149,416
Building 622,193 566,766
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795,532 716,182
Less accumulated depreciation (26,061) (18,566)
---------------------- ----------------------
Net real estate assets 769,471 697,616
Cash and cash equivalents 6,777 6,553
Deferred rent 7,290 5,964
Other assets 3,973 2,571
---------------------- ----------------------
Total assets $787,511 $712,704
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit (related parties) 43,323 -
Mortgage notes payable 133,021 133,952
Mortgage notes payable (related parties) 11,771 31,193
Interest payable 1,005 1,005
Security deposits 3,997 2,335
Prepaid rental income 12,653 7,802
Dividends/distributions payable 16,697 14,019
Refundable option payment 21,564 21,564
Accounts payable and accrued expenses 5,265 3,342
---------------------- ----------------------
Total liabilities 249,296 215,212
Commitments and contingencies (Note 7)
Minority interest 437,028 396,810
Stockholders' equity:
Preferred stock, $.001 par value, 20,000,000 shares
authorized, none issued and outstanding - -
Common stock, $.001 par value, 200,000,000 shares
authorized, 17,025,365 and 16,972,374 shares issued and
outstanding at June 30, 2000 and December 31, 1999,
respectively 17 17
Paid-in-capital 123,136 122,746
Accumulated (deficit) (21,966) (22,081)
---------------------- ----------------------
Total stockholders' equity 101,187 100,682
---------------------- ----------------------
Total liabilities and stockholders' equity $787,511 $712,704
====================== ======================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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MISSION WEST PROPERTIES, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)
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<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues:
Rental revenues from real estate $23,899 $18,376 $45,134 $32,403
Tenant reimbursements 2,930 2,159 6,443 4,395
Other income, including interest and
gain on sale of securities 643 293 829 442
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Total 27,472 20,828 52,406 37,240
------------------- -------------------- -------------------- -------------------
Expenses:
Operating expenses 1,403 937 2,496 1,719
Real estate taxes 2,065 1,300 4,439 2,829
Depreciation of real estate 3,863 3,399 7,495 6,102
General and administrative 206 346 570 752
Interest 2,246 3,721 4,503 6,692
Interest (related parties) 1,134 573 1,885 989
------------------- -------------------- -------------------- -------------------
Total expenses 10,917 10,276 21,388 19,083
------------------- -------------------- -------------------- -------------------
Income before minority interest 16,555 10,552 31,018 18,157
Minority interest 13,625 9,487 25,457 16,211
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Net income $ 2,930 $ 1,065 $ 5,561 $ 1,946
=================== ==================== ==================== ===================
Basic net income per share $ 0.17 $ 0.13 $ 0.33 $ 0.24
=================== ==================== ==================== ===================
Diluted net income per share $ 0.17 $ 0.13 $ 0.33 $ 0.23
=================== ==================== ==================== ===================
Weighted average number of
common shares outstanding (basic) 17,025,365 8,166,977 17,007,859 8,196,952
=================== ==================== ==================== ===================
Weighted average number of
common shares outstanding (diluted) 17,113,346 8,305,603 17,081,696 8,314,757
=================== ==================== ==================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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MISSION WEST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
(unaudited)
Six months ended June 30,
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2000 1999
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Cash flows from operating activities:
Net income $ 5,561 $ 1,946
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest 25,457 16,211
Gain from sale of securities 501 -
Depreciation 7,495 6,102
Other 17 -
Changes in assets and liabilities:
Deferred rent (1,326) (1,656)
Other assets (1,025) 331
Interest payable - 284
Interest payable (related parties) - 591
Security deposits 1,313 (29)
Prepaid rental income 4,419 1,930
Accounts payable and accrued expenses 579 (704)
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Net cash provided by operating activities 42,991 25,006
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Cash flows used in investing activities:
Improvements to real estate assets (1,148) (241)
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Cash flows from financing activities:
Net repayments on line of credit - 14,670
Principal payments on mortgage notes payable (931) (1,074)
Principal payments on mortgage notes payable (related parties) - (35,455)
Net advances under line of credit (related parties) (34,984) -
Payments on receivable from private placements - 372
Net proceeds from issuance of common stock - 699
Proceeds from stock options exercised 290 (8)
Minority interest distributions (896) (341)
Dividends paid (5,098) (988)
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Net cash used in financing activities (41,619) (22,125)
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Net increase in cash and cash equivalents 224 2,640
Cash and cash equivalents, beginning 6,553 246
------------------ ------------------
Cash and cash equivalents, ending $ 6,777 $ 2,886
================== ==================
Supplemental information:
Cash paid for interest $ 6,344 $ 6,806
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Supplemental schedule of non-cash investing and financing activities:
Cancellation of note receivable in connection with repurchase of common stock - 528
================== ==================
Advances under line of credit (related parties) $ 21,983 -
================== ==================
Assumption of debt in connection with property acquisitions $ 36,068 $ 28,525
================== ==================
Assumption of other liabilities in connection with property acquisitions $ 2,372 $ 32,145
================== ==================
Issuance of limited partnership units in connection with property acquisitions $ 40,587 $ 103,995
================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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MISSION WEST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share, square footage and limited
partnership unit amounts)
(unaudited)
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1. Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Mission West Properties, Inc. and its controlled subsidiaries, including a
50% joint venture and the operating partnerships (the "Company"). All
significant intercompany balances have been eliminated in consolidation.
Minority interest represents the separate private ownership of the
operating partnerships by the Berg Group (defined as Carl E. Berg, his
brother Clyde J. Berg, members of their respective immediate families, and
certain entities they control) and other non-affiliate interests, including
other unrelated partners in a joint venture. In total, these interests
account for approximately 83% of the ownership interests in the real estate
operations of the Company as of June 30, 2000. Minority interest in
earnings has been calculated by taking the net income of the operating
partnerships (on a stand-alone basis) multiplied by the respective minority
interest ownership percentage.
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applicable to interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with GAAP have been condensed or omitted pursuant to such rules
and regulations. However, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation have been included. The Company presumes that users of the
interim financial information herein have read or have access to the
audited financial statements for the preceding fiscal year and that the
adequacy of additional disclosure needed for a fair presentation may be
determined in that context. The results of operations for the three and six
months ended June 30, 2000 are not necessarily indicative of the results to
be expected for the entire year.
The Company intends to qualify and elect to be taxed as a real estate
investment trust under the Internal Revenue Code of 1986, as amended,
commencing with the taxable year ended December 31, 1999. Accordingly, no
provision has been made for income taxes for the three and six months ended
June 30, 2000. The Company has not yet filed its December 31, 1999 tax
return, but has filed an extension.
2. Real Estate
PENDING PROJECTS ACQUISITION AGREEMENT
The Company has entered into a Pending Projects Acquisition Agreement under
which the Company has acquired or will acquire approximately one million
rentable square feet of R&D properties upon the completion and leasing of a
number of pending development projects owned by certain members of the Berg
Group and other sellers. The agreement fixes the acquisition value to be
received by the sellers based upon the capitalized rental value of the
property when fully leased. During the first six months of 2000, the
Company acquired two additional properties under the Pending Projects
Acquisition Agreement, representing 141,740 rentable square feet (see
Property Acquisitions below). At June 30, 2000, there was one remaining
project comprising approximately 110,000 rentable square feet, which the
Company expects to acquire under the Pending Projects Acquisition
Agreement. The sellers of the pending development projects may elect to
receive cash or limited partnership units ("O.P. Units") at a value of
$4.50 per unit, which was set in May 1998 based on the $4.50 per share
price of the Company's common stock paid in private placement transactions
at that time. As the current market value price of a share of common stock
exceeds the $4.50 price, this valuation represents a substantial discount
from the current market value of the common stock that may be issued in
exchange for these O.P. Units. Under GAAP, the acquisition cost in the form
of O.P. Units issued will be valued based upon the current market value of
the Company's common stock on the date the acquisition closes.
Consequently, the Company's actual cost of these future acquisitions will
depend in large part on the percentage of the fixed acquisition value paid
for by the issuance of O.P. Units and the price of the Company's common
stock on the closing date of the acquisition.
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BERG LAND HOLDINGS OPTION AGREEMENT
Through the operating partnerships, the Company currently has the option to
acquire any future R&D, office and industrial property developed by the
Berg Group on land currently owned or optioned, or acquired for these
purposes in the future, directly or indirectly by certain members of the
Berg Group. At present, there are approximately 374 acres of Silicon Valley
land owned directly or under 50% joint venture by certain members of the
Berg Group under the terms of the Berg Land Holdings Option Agreement. The
owners of the future R&D property developments may obtain cash or, at their
option, O.P. Units valued at the average closing price of shares of common
stock over the 30-trading-day period preceding the acquisition date. As of
June 30, 2000, the Company had completed six acquisitions under the Berg
Land Holdings Option Agreement representing approximately 685,000 rentable
square feet. Upon the Company's exercise of an option to purchase any of
the future R&D property developments, the acquisition price will equal the
sum of (a) the full construction cost of the building; (b) 10% of the full
construction cost of the building; (c) the acquisition value of the parcel
as defined in the agreement upon which the improvements are constructed
(currently ranging from $8.00 to $20.00 per square foot); (d) 10% per annum
of the acquisition value of the parcel for the period from January 1, 1998
to the close of escrow; and (e) interest at LIBOR (London Interbank Offer
Rate) plus 1.65% per annum on the full construction costs of the building
for the period from the date funds were disbursed by the developer to the
close of escrow; less (f) any debt encumbering the property or a lesser
amount as approved by the independent directors committee.
No estimate can be given at this time as to the total cost to the Company
to acquire projects under the Berg Land Holdings Agreement, or the timing
as to when the Company will acquire such projects. However, the Berg Group
currently has 16 properties under development with a total of approximately
1,426,536 rentable square feet of R&D properties that the Company has the
right to acquire under this agreement. As of June 30, 2000, the estimated
acquisition price to the operating partnerships for these 16 projects is
approximately $165,500. The final acquisition price of these 16 properties
could differ significantly from this estimate. In addition to projects
currently under development, the Berg Land Holdings Option Agreement gives
the Company the right to acquire future developments by the Berg Group on
up to 288 additional acres of land currently controlled by the Berg Group
or under 50% joint venture, which could support approximately 4.53 million
square feet of new developments. Under the Berg Land Holdings Option
Agreement the Company also has an option to purchase all land acquired,
directly or indirectly, by Carl E. Berg or Clyde J. Berg that has not been
improved with completed buildings and which is zoned for, intended for or
appropriate for research and development, office and/or industrial
development or use in the states of California, Oregon, and Washington.
PROPERTY ACQUISITIONS
Effective January 5, 2000, the Company acquired a newly constructed R&D
property located at 1756 Automation Parkway in San Jose, California. This
acquisition added approximately 80,640 square feet of rentable space and
was acquired from the Berg Group under the Pending Projects Acquisition
Agreement. The total acquisition price for this property was $14,594. The
Company acquired this property by increasing its debt to the Berg Group
under the line of credit by $5,000, issuing 1,346,480 O.P. Units to various
members of the Berg Group, and assuming other liabilities of $100.
Effective March 1, 2000, the Company acquired an approximately 239,000
square foot R&D building located at 800 Branham Lane East in San Jose,
California from the Berg Group under the Berg Land Holdings Option
Agreement. The total acquisition price for this property was $18,359. The
Company acquired this property by increasing its debt to the Berg Group
under the line of credit by $5,000, issuing 1,438,066 O.P. Units to various
members of the Berg Group, and assuming other liabilities of $1,331.
Effective April 1, 2000, the Company acquired a newly constructed R&D
property located at 1762 Automation Parkway in San Jose, California. This
acquisition added approximately 61,100 square feet of rentable space and
was acquired from the Berg Group under the Pending Projects Acquisition
Agreement. The total acquisition price for this property was $16,014. The
Company acquired this property by increasing its debt to the Berg Group
under the line of credit by $7,444 and issuing 1,001,213 O.P. Units to
various members of the Berg Group.
Effective April 1, 2000, the Company acquired an approximately 98,500
square foot R&D building located at 255 Caspian Way in Sunnyvale,
California from the Berg Group under the Berg Land Holdings Option
Agreement. The total acquisition price for this property was $11,637. The
Company acquired this property by
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increasing its debt to the Berg Group under the line of credit by $6,832,
issuing 550,079 O.P. Units to various members of the Berg Group, and
assuming other liabilities of $167.
Effective May 15, 2000, the Company acquired two R&D buildings of
approximately 160,000 square feet located at 5300 and 5350 Hellyer Avenue
in San Jose, California from the Berg Group under the Berg Land Holdings
Option Agreement. These properties are operated, managed, and owned by a
partnership in which the Company owns a 50% interest. The total acquisition
price for these properties was $17,184. The Company acquired these
properties by increasing its debt to the Berg Group through a mortgage note
(related parties) by $11,792, issuing 659,223 O.P. Units to various members
of the Berg Group, and assuming other liabilities of $774.
REFUNDABLE OPTION PAYMENT
During the third quarter of 1999, the Company entered into a new lease
agreement for 2001 Logic Drive with Xilinx, Incorporated ("Xilinx"). The
lease agreement includes an option granted to Xilinx to purchase the
building at a predetermined price. In September 1999, in accordance with
the option provisions of the lease agreement, Xilinx paid the Company a
deposit of $21,564 to secure its option right. Upon exercise of the option,
the Company will refund the remaining deposit amount and Xilinx will
deposit into escrow funds equal to the purchase price. In July 2000, Xilinx
and the Company agreed to extend the option period for one year until July
31, 2001. Xilinx and the Company further agreed to reduce the deposit by
$167 per month commencing August 1, 2000 until the later of: (1) the
transfer of title to the property to Xilinx or (2) July 31, 2001. In the
event Xilinx does not exercise its option, the Company must refund the
remaining deposit to Xilinx, without interest.
3. Stock Transactions
During the six months ended June 30, 2000, options were exercised for a
total of 52,991 shares; options to purchase 39,237 shares were exercised at
$4.50 per share, and options to purchase 13,754 shares were exercised at
$8.25 per share. Total proceeds to the Company were $290. No employee stock
options were exercised during the second quarter of 2000.
4. Other Income
In May 2000, the Company entered into a ten-year lease with ONI Systems
Corporate ("ONI") for 444,500 square feet of space to be constructed by the
Berg Group on land that is subject to the Berg Land Holdings Option
Agreement. As partial consideration for the lease, the Company was granted
an option to purchase 100,000 shares of ONI common stock in its initial
public offering. The Company realized net proceeds of $6,257. Of this
amount, the Company recognized $501 during the second quarter with the
balance deferred as prepaid rent to be amortized over the ten-year lease
term.
5. Net Income Per Share
Basic net income per share is computed by dividing net income by the
weighted-average number of common shares outstanding for the period.
Diluted net income per share is computed by dividing net income by the sum
of the weighted-average number of common shares outstanding for the period
plus the assumed exercise of all dilutive securities.
The computation for weighted average shares is detailed below:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
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2000 1999 2000 1999
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Weighted average shares outstanding (basic) 17,025,365 8,166,977 17,007,859 8,196,952
Incremental shares from assumed option exercise 87,981 138,626 73,837 117,805
-------------- -------------- -------------- -------------
Weighted average shares outstanding (diluted) 17,113,346 8,305,603 17,081,696 8,314,757
============== ============= ============== =============
</TABLE>
The outstanding O.P. Units, which are exchangeable at the unit holder's
option for shares of common stock on a one-for-one basis, have been
excluded from the diluted net income per share calculation, as there would
be no
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effect on the amounts because the minority interests' share of income would
also be added back to net income. The total number of O.P. Units
outstanding at June 30, 2000 was 81,200,850.
6. Related Party Transactions
As of June 30, 2000, the Berg Group owned 76,880,248 O.P. Units. Along with
the Company's common shares owned by the Berg Group, the Berg Group's
ownership as of June 30, 2000 represented approximately 78% of the equity
interests of the Company, assuming conversion of the 81,200,850 O.P. Units
into the common stock of the Company.
As of June 30, 2000, debt in the amount of $43,323 was due the Berg Group
under the line of credit established March 1, 2000. The $50,000 Wells Fargo
line of credit expired on February 29, 2000 and was repaid with proceeds
from and replaced by a $50,000 line of credit from the Berg Group. The
$50,000 line of credit from the Berg Group was increased to $75,000
effective April 1, 2000. The Berg Group line of credit is currently
collateralized by seven properties, bears interest at LIBOR plus 1.30
percent, and matures in February 2001. The Company believes that the terms
of the Berg Group line of credit were more favorable than those available
from Wells Fargo or similar lenders. As of June 30, 2000, debt in the
amount of $11,771 was due the Berg Group under a mortgage note established
May 15, 2000 in connection with the Company's acquisition of a 50% interest
in a Hellyer Avenue Limited Partnership, the obligor under the mortgage
note. The mortgage note bears interest at 7.65%, and is due in ten years
with principal payments amortized over twenty years. During the first six
months of 2000, the Company increased its borrowings by $36,068 in
connection with property acquisitions, including the Berg Group line of
credit and mortgage note. Interest expense incurred in connection with debt
due the Berg Group was $1,134 and $573 for the three months ended June 30,
2000 and 1999, respectively, and $1,885 and $989 for the six months ended
June 30, 2000 and 1999, respectively.
Carl E. Berg has a substantial financial interest in one company that
leases space from the operating partnerships. This company occupies 5,862
square feet at $0.93 per square foot per month. This lease was in effect
prior to the Company's acquisition of its general partnership interests in
July 1998. The lease expires in 2001.
The Company currently leases office space owned by Berg & Berg Enterprises,
Inc., an affiliate of Carl E. Berg and Clyde J. Berg. Rental amounts and
overhead reimbursements paid to Berg & Berg Enterprises, Inc. were $20 for
the three months ended June 30, 2000 and 1999, respectively, and $40 for
the six months ended June 30, 2000 and 1999, respectively.
7. Subsequent Events
On June 13, 2000, the Company declared a $0.17 per share dividend on its
common stock. The dividend was paid on July 7, 2000 to all common
stockholders of record as of June 28, 2000. On the same date, the operating
partnerships paid a distribution of $0.17 per O.P. Unit. The amount of this
distribution payable to members of the Berg Group of $13,070 on July 7,
2000 was considered an advance on the Berg Group line of credit.
8. Commitments and Contingencies
The Company and the operating partnerships, from time to time, are parties
to litigation arising out of the normal course of business. Management does
not expect that such matters would have a material adverse effect on the
consolidated financial position, results of operations or cash flows of the
Company.
Insurance policies currently maintained by the Company do not cover seismic
activity, although they do cover losses from fires after an earthquake.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the accompanying consolidated
financial statements and notes thereto contained herein and the Company's
consolidated financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K as of and for the year ended December 31, 1999. The
results for the three and six months ended June 30, 2000 are not necessarily
indicative of the results to be expected for the entire fiscal year ending
December 31, 2000. The following discussion includes forward-looking statements,
including but not limited to statements with respect to the Company's future
financial performance, operating results, plans and objectives. Actual results
may differ materially from those currently anticipated depending upon a variety
of factors, including those described below under the sub-heading,
"Forward-Looking Information."
OVERVIEW
In May 1998, Mission West Properties, Inc. (the "Company"), the members of the
Berg Group, John Kontrabecki and certain other persons entered into an
acquisition agreement providing, among other things, for the Company's
acquisition of interests as the sole general partner of four separate
partnerships (the "operating partnerships"). At the time, the operating
partnerships held approximately 4.34 million rentable square feet of R&D
property located in the Silicon Valley. The agreement also provided for the
parties to enter into the Pending Projects Acquisition Agreement and the Berg
Land Holdings Option Agreement with the Berg Group and the exchange rights
agreement with all limited partners in the operating partnerships, following
stockholder approval. Effective July 1, 1998, the Company consummated its
acquisition of the general partnership interests in the operating partnerships.
The Company effected its purchase of the general partnership interests by
issuing to each of the operating partnerships a demand note bearing interest at
7.25% per annum, aggregating approximately $35.2 million of principal payable no
later than July 1, 2000.
Effective July 1, 1998, all limited partnership interests in the operating
partnerships were converted into 59,479,633 operating partnership units ("O.P.
Units"), representing ownership of approximately 87.89% of the operating
partnerships, upon consummation of the acquisition. Under the terms of the
exchange rights agreement, after December 29, 1999 each O.P. Unit may be
exchanged for one share of common stock, subject to certain conditions. The O.P.
Units represent the minority ownership interests. At June 30, 2000, the Company
owned a 17% general partnership interest in the operating partnerships, taken as
a whole, on a weighted average basis.
In December 1998, the Company sold 6,495,058 shares of common stock at a price
of $4.50 per share to a number of accredited investors to complete its May 1998
private placements. The aggregate proceeds, net of fees and offering costs, of
approximately $27.8 million were used to pay down amounts outstanding under the
demand notes due to the operating partnerships. Also, as of December 29, 1998,
the Company and the limited partners in the operating partnerships entered into
the exchange rights agreement, and the Company entered into the Pending Projects
Acquisition Agreement and the Berg Land Holdings Option Agreement with the Berg
Group and other sellers.
In July 1999, the Company completed a public offering of 8,680,000 shares of
common stock at $8.25 per share. The net proceeds from this offering, after
deducting underwriting discounts and other offering costs, were approximately
$66.9 million and were used primarily to repay indebtedness.
At June 30, 2000, the outstanding balance under the demand notes that the
Company owes to the operating partnerships was approximately $1.14 million. The
principal of the demand notes, along with the interest expense, which is
interest income to the operating partnerships, is eliminated in consolidation
and is not included in the corresponding line items within the consolidated
financial statements. However, the interest income earned on this debt by the
operating partnerships, which is interest expense to the Company, is included in
the calculation of minority interest as reported on the consolidated statements
of operations, thereby reducing net income by this same amount. At present, the
Company's only means for repayment of this debt, be it in this form or
refinanced with another lender, is through distributions that the Company
receives from the operating partnerships in excess of the amount of dividends to
be paid to the Company's stockholders.
The Company intends to elect as part of the Company's 1999 income tax return to
qualify to be taxed as a REIT commencing with the taxable year ended December
31, 1999.
The Company has two wholly owned subsidiaries, MIT Realty, Inc. and Mission West
Executive Aircraft Center. Both corporations are inactive.
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RESULTS OF OPERATIONS
Comparison of the three and six months ended June 30, 2000 to the three and six
months ended June 30, 1999.
As of June 30, 2000, the Company, through its controlling interests in the
operating partnerships, owned 86 properties totaling approximately 5.93 million
square feet compared to 77 properties totaling approximately 5.09 million square
feet owned by the Company as of June 30, 1999. This represents an increase of
approximately 17% in total rentable square footage from one year ago. The
increase resulted from the following acquisitions:
<TABLE>
<CAPTION>
Date of Rentable Square
Acquisition Address Footage
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<S> <C> <C>
7/99 1750 Automation Parkway 80,640
8/99 1700 Richard Avenue 58,783
10/99 5749 Fontanosa Way 77,700
1/00 1756 Automation Parkway 80,640
3/00 800 Branham Lane East 239,000
4/00 1762 Automation Parkway 61,100
4/00 255 Caspian Way 98,500
5/00 5300 & 5350 Hellyer Avenue 160,000
--------------------------------------------------------------------------------
856,363
</TABLE>
The following tables reflect the increase in the Company's rental revenues for
the three and six months ended June 30, 2000 over rental revenues for the
comparable three and six months in 1999:
<TABLE>
<CAPTION>
Three months ended June 30,
-------------------------------------------------------------------
2000 1999 $ Change % Change
------------- ------------- ------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Same Property (1) $14,758 $13,219 $ 1,539 11.6%
1998 Acquisitions 586 586 - -
1999 Acquisitions 5,718 4,571 1,147 25.1%
2000 Acquisitions 2,836 - 2,836 -
------------- ------------- -------------
$23,899 $18,376 $ 5,523 30.1%
============= ============= =============
Six months ended June 30,
-------------------------------------------------------------------
2000 1999 $ Change % Change
------------- ------------- ------------- ---------------
(Dollars in thousands)
Same Property (1) $28,420 $26,576 $ 1,844 7.0%
1998 Acquisitions 1,171 1,171 - -
1999 Acquisitions 11,939 4,656 7,283 156.4%
2000 Acquisitions 3,604 - 3,604 -
------------- ------------- -------------
$45,134 $32,403 $ 12,731 39.3%
============= ============= =============
</TABLE>
(1) "Same Property" is defined as properties owned as of July 1, 1998 and still
owned as of June 30, 2000.
For the quarter ended June 30, 2000, rental revenues increased by $5.5 million
from $18.4 million for the three months ended June 30, 1999 to $23.9 million for
the same period of 2000. Of the $5.5 million increase in rental revenues, $1.5
million was generated by the Company's "Same Property" portfolio, $1.2 million
was generated by properties acquired in 1999, and $2.8 million was generated by
properties acquired in 2000. Rental revenues increased by $12.7 million from
$32.4 million for the six months ended June 30, 1999 to $45.1 million for the
same period of 2000. Of the $12.7 million increase in rental revenues, $1.8
million was generated by the Company's "Same Property" portfolio, $7.3 million
was generated by properties acquired in 1999, and $3.6 million was generated by
properties acquired in 2000.
Tenant reimbursements increased by $0.7 million or 32%, from $2.2 million for
the three months ended June 30, 1999 to $2.9 million for the three months ended
June 30, 2000. Operating expenses and real estate taxes, on a combined basis,
increased by $1.2 million or 55%, from $2.2 million to $3.4 million for the
three months ended June 30, 1999 and 2000, respectively. Tenant reimbursements
increased by $2.0 million or 45%, from $4.4 million for the six months ended
June 30, 1999 to $6.4 million for the six months ended June 30, 2000. Operating
expenses and real estate taxes, on a combined basis, increased by $2.4 million
or 53%, from $4.5 million to $6.9 million for the six months ended June 30, 1999
and 2000,
- 11 -
<PAGE>
respectively. The increases resulted primarily from the growth in the total
rentable square footage during the periods presented.
Depreciation expense increased by $464 and $1,393 for the three and six-month
period ended June 30, 2000, respectively, over the same period a year ago. The
increase was attributable to the acquisitions of nine properties since June 30,
1999.
Interest expense decreased by $1.5 million or 41% from $3.7 million for the
three months ended June 30, 1999 to $2.2 million for the three months ended June
30, 2000. Interest expense (related parties) increased by $561 or 98% from $573
for the three months ended June 30, 1999 to $1.1 million for the three months
ended June 30, 2000. Interest expense decreased by $2.2 million or 33% from $6.7
million for the six months ended June 30, 1999 to $4.5 million for the six
months ended June 30, 2000. Interest expense (related parties) increased by $896
or 91% from $989 for the six months ended June 30, 1999 to $1.9 million for the
six months ended June 30, 2000. On a net basis, interest expense (including
amounts to related parties) has decreased given the decrease in overall debt
levels. As a result of proceeds received from the July 1999 public offering,
receipt of a refundable option payment, as well as cash generated from
operations, debt outstanding, including amounts due related parties, has
decreased by $30.6 million or 14.0% from $218.7 million as of June 30, 1999 to
$188.1 million as of June 30, 2000.
The minority interest portion of income was $13.6 million, resulting in net
income to stockholders of $2.9 million for the three months ended June 30, 2000.
Minority interest represents the limited partners' ownership interest in the
operating partnerships, which was 83% as of June 30, 2000, taken as a whole.
CHANGES IN FINANCIAL CONDITION
During the first six months of 2000, the Company acquired six additional
properties representing 639,240 rentable square feet of newly constructed R&D
properties located in Silicon Valley. These properties were acquired from the
Berg Group under the Pending Projects Acquisition Agreement and the Berg Land
Holdings Option Agreement. The aggregate acquisition price for these properties
was $77.8 million. The Company financed these acquisitions by a) increasing $36
million of debt due the Berg Group; b) assumption by the Company of other
liabilities of $2.4 million; c) and the issuance of 4,995,061 O.P. Units.
During the six months ended June 30, 2000, employee stock options were exercised
to purchase a total of 52,991 shares of common stock, consisting of 39,237
shares exercised at $4.50 per share and 13,754 shares exercised at $8.25 per
share. Total proceeds to the Company were approximately $290. No employee stock
options were exercised during the second quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects its principal sources of liquidity for distributions to
stockholders, debt service, leasing commissions and recurring capital
expenditures to be Funds from Operations ("FFO"), or the Berg Group line of
credit. The Company expects these sources of liquidity to be adequate to meet
projected distributions to stockholders and other presently anticipated
liquidity requirements in 2000. The Company expects to meet its long-term
liquidity requirements for the funding of property development, property
acquisitions and other material non-recurring capital improvements through
long-term secured and unsecured indebtedness and the issuance of additional
equity securities by the Company. The Company has the ability to meet any
short-term obligations or other liquidity needs based on the line of credit
(related parties).
The Company's $50 million line of credit with Wells Fargo Bank expired on
February 29, 2000 and was repaid with proceeds from and replaced by a $50
million line of credit from the Berg Group. The Berg Group line of credit is
currently collateralized by seven properties, bears interest at LIBOR plus 1.30
percent, and matures in February 2001. The Company is currently evaluating
alternative sources of credit. There can be no assurance that the Company will
be able to obtain a line of credit with terms similar to the Berg Group line of
credit, and its cost of borrowing could increase substantially. The Company
believes that the terms of the Berg Group line of credit were more favorable
than those available from Wells Fargo or similar lenders. On April 1, 2000, the
$50 million credit line with the Berg Group was increased to $75 million with
all other terms remaining the same.
At June 30, 2000, the Company had total indebtedness of $188.1 million including
$133.0 million of fixed rate mortgage debt, $11.8 million under the Berg Group
mortgage note (related parties), and $43.3 million under the Berg Group line of
credit (related parties).
As of June 30, 2000, the Debt to Total Market Capitalization ratio, which is
computed as the Company's total debt outstanding divided by the sum of total
debt outstanding plus the market value of common stock (based upon the closing
- 12 -
<PAGE>
price of $10.50 per share on June 30, 2000) on a fully diluted basis, including
the conversion of all O.P. Units into common stock, was approximately 15.4%
based upon an estimated Total Market Capitalization of approximately $1.22
billion.
MORTGAGE DEBT
The following table sets forth certain information regarding debt outstanding as
of June 30, 2000:
<TABLE>
<CAPTION>
Maturity Interest
Debt Description Collateral Properties Balance Date Rate
------------------------------------------ -------------------------------- --------------- ----------- -----------
($ in thousands)
<S> <C> <C> <C> <C>
Line of Credit (related parties):
2033-2043 Samaritan Drive, San Jose, CA 43,323 2/01 (1)
2133 Samaritan Drive, San Jose, CA
2233-2243 Samaritan Drive, San Jose, CA
1310-1450 McCandless Drive, Milpitas, CA
1315-1375 McCandless Drive, Milpitas, CA
1650-1690 McCandless Drive, Milpitas, CA
1795-1845 McCandless Drive, Milpitas, CA
Mortgage Notes Payable (related parties): 5300 & 5350 Hellyer Avenue, San Jose, CA 11,771 6/20 7.65%
Mortgage Notes Payable:
Prudential Capital Group 20400 Mariani, Cupertino, CA 1,831 3/09 8.75%
New York Life Insurance Company 10440 Bubb Road, Cupertino, CA 392 8/09 9.625%
Home Savings & Loan Association 10460 Bubb Road, Cupertino, CA 450 1/07 9.50%
Mellon Mortgage Company 3530 Bassett, Santa Clara, CA 2,795 6/01 8.125%
Prudential Insurance Company of America 10300 Bubb, Cupertino, CA 127,553(2) 10/08 6.56%
10500 N. DeAnza, Cupertino, CA
4050 Starboard, Fremont, CA
45700 Northport Loop, Fremont, CA
45738 Northport Loop, Fremont, CA
450-460 National, Mountain View, CA
4949 Hellyer, San Jose, CA
6311 San Ignacio, San Jose, CA
6321 San Ignacio, San Jose, CA
6325 San Ignacio, San Jose, CA
6331 San Ignacio, San Jose, CA
6341 San Ignacio, San Jose, CA
6351 San Ignacio, San Jose, CA
3236 Scott, Santa Clara, CA
3560 Bassett, Santa Clara, CA
3570 Bassett, Santa Clara, CA
3580 Bassett, Santa Clara, CA
1135 Kern, Sunnyvale, CA
1212 Bordeaux, Sunnyvale, CA
1230 E. Arques, Sunnyvale, CA
1250 E. Arques, Sunnyvale, CA
1170 Morse, Sunnyvale, CA
3540 Bassett, Santa Clara, CA
3542 Bassett, Santa Clara, CA
3544 Bassett, Santa Clara, CA
3550 Bassett, Santa Clara, CA
---------------
Mortgage Notes Payable Subtotal 144,792
---------------
Total $188,115
===============
</TABLE>
(1) The debt owed to the Berg Group carries a variable interest rate equal to
LIBOR plus 1.30 percent and is payable in full in February 2001.
(2) John Kontrabecki, one of the limited partners, has guaranteed approximately
$12.0 million of this debt.
- 13 -
<PAGE>
ACQUIRING PROPERTIES DEVELOPED BY THE BERG GROUP
The following table presents certain information concerning projects for which
the Company, through its interests in the operating partnerships, has the right
to acquire under the Berg Land Holdings Option Agreement and the Pending
Projects Acquisition Agreement.
<TABLE>
<CAPTION>
Approximate
Rentable Area Total Estimated
Property (Square Feet) Anticipated Acquisition Date Acquisition Value (1)
------------------------------ -------------------- ----------------------------------- -----------------------
BERG LAND HOLDINGS
UNDER DEVELOPMENT (dollars in thousands)
<S> <C> <C> <C>
Hellyer View 77,184 3rd Quarter 2000 $ 10,000
Hellyer III (Phase I) 117,740 4thQtr 2000/1stQtr 2001 13,800
Hellyer Vista (Phase I) 131,500 4thQtr 2000/1stQtr 2001 15,000
Silver Creek 346,000 1st Quarter 2001 38,500
Morgan Hill (JV I) (2) 211,000 1st Quarter 2001 22,000
5550 Hellyer 79,800 1st Quarter 2001 10,200
5750 Hellyer 73,312 1st Quarter 2001 9,000
Creekside 65,000 1st Quarter 2001 8,200
Caspian (Phase II) 100,000 2nd Quarter 2001 14,900
Morgan Hill (JV II) (2) 60,000 2nd Quarter 2001 5,700
Morgan Hill (JV III) (2) 40,000 2nd Quarter 2001 4,000
5535 Hellyer 125,000 3rd Quarter 2001 14,200
--------- --------
Subtotal 1,426,536 $165,500
AVAILABLE LAND
Morgan Hill (2) 650,000
King Ranch 248,500
Hellyer & Piercy 763,000
Fremont & Cushing 387,000
Evergreen 2,480,000
---------
Subtotal 4,528,500
PENDING PROJECTS ACQUISITION
PENDING PROJECT
Automation IV (1 building) 110,000 1st Quarter 2001 12,500
TOTAL 6,065,036 $178,000
========= ========
</TABLE>
(1) The Estimated Acquisition Value represents the estimated economics for
acquiring the pending projects under the terms of the Pending Projects
Acquisition Agreement and the Berg Land Holdings Option Agreement, which
may differ from the actual acquisition cost as determined under GAAP.
(2) The Company expects to own an approximate 50% interest in the partnership
to be formed to develop the property. The property will be operated and
managed by the other partner in the entity. The rentable area and estimated
acquisition value shown above reflect both the Company's and the other
partner's combined interest in these properties.
Pursuant to the Berg Land Holdings Option Agreement between the Company and the
Berg Group, the Company currently has the option to acquire any future R&D,
office and industrial property developed by the Berg Group on land it currently
owns or has under option, or acquires for these purposes in the future, directly
or indirectly by certain members of the Berg Group.
- 14 -
<PAGE>
The time required to complete the leasing of developments varies from project to
project. Generally, the Company will not acquire any of the above projects until
they are fully completed and leased. There can be no assurance that the
acquisition date and final cost to the Company as indicated above will be
realized.
Although the Company expects to acquire the new properties available to it under
the terms of the Pending Projects Acquisition Agreement and the Berg Land
Holdings Option Agreement, there can be no assurance that the Company actually
will consummate any of the intended transactions, including all of those
discussed above. Furthermore, the Company has not yet determined the means by
which it would acquire and pay for any such properties or the impact of any of
the acquisitions on its business, results of operations, financial condition,
FFO or available cash for distribution.
The minority interest in earnings for unrelated parties was deducted from total
minority interest in earnings in calculating Funds from Operation ("FFO").
During the third quarter of 1999, the Company entered into a new lease agreement
for 2001 Logic Drive with Xilinx, Incorporated ("Xilinx"). The lease agreement
includes an option granted to Xilinx to purchase the building at a predetermined
price. In September 1999, in accordance with the option provisions of the lease
agreement, Xilinx paid the Company a deposit of $21,564 to secure its option
right. Upon exercise of the option, the Company will refund the remaining
deposit amount and Xilinx will deposit into escrow funds equal to the purchase
price. In July 2000, Xilinx and the Company agreed to extend the option period
for one year until July 31, 2001. Xilinx and the Company further agreed to
reduce the deposit by $167 per month commencing August 1, 2000 until the later
of: (1) the transfer of title to the property to Xilinx or (2) July 31, 2001. In
the event Xilinx does not exercise its option, the Company must refund the
remaining deposit to Xilinx, without interest.
HISTORICAL CASH FLOWS
Net cash provided by operating activities for the six months ended June 30, 2000
was $43.0 million compared to $25.0 million for the same period in 1999. The
change was a direct result of rent increases and new acquisitions.
In May 2000, the Company entered into a ten-year lease with ONI Systems
Corporate ("ONI") for 444,500 square feet of space to be constructed by the Berg
Group on land that is subject to the Berg Land Holdings Option Agreement. As
partial consideration for the lease, the Company was granted an option to
purchase 100,000 shares of ONI common stock in its initial public offering. The
Company realized net proceeds of $6,257. Of this amount the Company recognized
$501 during the second quarter with the balance deferred as prepaid rent to be
amortized over the ten-year lease term.
Net cash used in investing activities was approximately $1.1 million and $241
for the six months ended June 30, 2000 and 1999, respectively. Cash used in
investing activities during the six months ended June 30, 2000 was related to
tenant improvements made to existing real estate assets.
Net cash used in financing activities was $41.6 million for the six months ended
June 30, 2000 compared to $22.1 million for the same period in 1999. During the
six months ended June 30, 2000, the Company reduced debt outstanding and made
distributions to holders of its common stock and the O.P. Units by utilizing
cash generated from operating activities.
CAPITAL EXPENDITURES
The properties require periodic investments of capital for tenant-related
capital expenditures and for general capital improvements. For the years ended
December 31, 1994 through December 31, 1999, the recurring tenant improvement
costs and leasing commissions incurred with respect to new leases and lease
renewals of the properties previously owned or controlled by members of the Berg
Group averaged approximately $1.5 million annually. The Company expects that the
average annual cost of recurring tenant improvements and leasing commissions,
related to the properties, will be approximately $2.5 million for the year 2000.
The Company believes it will recover substantially all of these sums from the
tenants under the new or renewed leases through increases in rental rates. The
Company expects to meet its long-term liquidity requirements for the funding of
property development, property acquisitions and other material non-recurring
capital improvements through long-term secured and unsecured indebtedness and
the issuance of additional equity securities by the Company.
- 15 -
<PAGE>
FUNDS FROM OPERATIONS
As defined by the National Association of Real Estate Investment Trusts
("NAREIT"), FFO represents net income (loss) before minority interest of unit
holders (computed in accordance with GAAP), excluding gains (or losses) from
debt restructuring and sales of property, plus real estate related depreciation
and amortization (excluding amortization of deferred financing costs and
depreciation of non-real estate assets) and after adjustments for unconsolidated
partnerships and joint ventures. Management considers FFO an appropriate measure
of performance of an equity REIT because, along with cash flows from operating
activities, financing activities and investing activities, it provides investors
with an understanding of the Company's ability to incur and service debt, and
make capital expenditures. FFO should not be considered as an alternative for
net income as a measure of profitability and it is not comparable to cash flows
provided by operating activities determined in accordance with GAAP, nor is FFO
necessarily indicative of funds available to meet the Company's cash needs,
including its need to make cash distributions to satisfy REIT requirements.
The Company's definition of FFO also assumes conversion at the beginning of the
period of all convertible securities, including minority interests that might be
exchanged for common stock. FFO does not represent the amount available for
management's discretionary use; as such funds may be needed for capital
replacement or expansion, debt service obligations or other commitments and
uncertainties.
Furthermore, FFO is not comparable to similarly entitled items reported by other
REITs that do not define them exactly as the Company defines FFO. FFO for the
three months ended June 30, 2000 and 1999 and the six months ended June 30, 2000
are summarized in the table below:
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------------------- Six Months Ended
2000 1999 June 30, 2000
------------------------ --------------------- ---------------------
(Dollars in thousands)
<S> <C> <C> <C>
Net income $ 2,930 $ 1,065 $ 5,561
Add:
Minority interest (1) 13,558 9,487 25,390
Depreciation 3,863 3,399 7,495
Less:
Gain on sale of 501 - 501
security
------------------------ --------------------- ---------------------
FFO $19,850 $13,951 $37,945
======================== ===================== =====================
</TABLE>
(1) The minority interest for unrelated parties was deducted from total
minority interest in calculating FFO.
DISTRIBUTION POLICY
The Company intends to pay distributions to stockholders based upon total Funds
Available for Distribution ("FAD"), which is calculated as FFO less
straight-lined rents, leasing commissions paid and capital expenditures made
during the respective period. The calculations of FAD for the three months ended
June 30, 2000 and 1999 and the six months ended June 30, 2000 are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------------------- Six Months Ended
2000 1999 June 30, 2000
------------------------ --------------------- ---------------------
(Dollars in thousands)
<S> <C> <C> <C>
FFO $19,850 $13,951 $37,945
Less:
Straight-line rents 357 903 1,326
Leasing commissions 753 - 902
Capital expenditures 248 133 1,148
------------------------ --------------------- ---------------------
FAD $18,492 $12,915 $34,569
======================== ===================== =====================
</TABLE>
The Company intends to make regular quarterly distributions to holders of common
stock based on its FAD. The Company's ability to make such distributions will be
affected by numerous factors, including, most importantly, the receipt of
distributions from the operating partnerships.
- 16 -
<PAGE>
FAD does not represent cash generated from operating activities in accordance
with generally accepted accounting principles and is not necessarily indicative
of cash available to fund cash needs. The actual return that the Company will
realize and the amount available for distributions to its stockholders will be
affected by a number of factors, including the revenues received from its
properties, its operating expenses, the interest expense incurred on borrowings
and planned and unanticipated capital expenditures.
The Company anticipates that cash available for distribution will exceed
earnings and profits for federal income tax purposes, as the latter figure is
reduced by non-cash expenses, such as depreciation and amortization, that the
Company will incur. Distributions, other than capital gain distributions, by the
Company to the extent of its current and accumulated earnings and profits for
federal income tax purposes most likely will be taxable to U.S. stockholders as
ordinary dividend income unless a stockholder is a tax-exempt entity.
Distributions in excess of earnings and profits generally will be treated as a
non-taxable reduction of the U.S. stockholder's basis in the common stock to the
extent of such basis, and thereafter as a taxable gain. The percentage of such
distributions in excess of earnings and profits, if any, may vary from period to
period. The Company anticipates that a substantial percentage of the
distributions to stockholders for the year ending December 31, 2000 will
constitute taxable income to its shareholders.
Distributions will be determined by the Company's board of directors and will
depend on actual FAD, the Company's financial condition, capital requirements,
the annual distribution requirements under the REIT provisions of the Code and
such other factors as the board of directors deems relevant.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Company does not believe recently issued accounting standards will
materially impact the Company's financial statements.
FORWARD LOOKING INFORMATION
This quarterly report contains forward-looking statements within the meaning of
the federal securities laws. The Company intends such forward-looking statements
to be covered by the safe harbor provisions for forward-looking statements
contained in the Private Securities Reform Act of 1995, and is including this
statement for purposes of complying with these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company, are generally
identifiable by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project" or similar expressions. The Company's ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse effect on the operations
and future prospects of the Company include, but are not limited to, changes in:
economic conditions generally and the real estate market specifically,
legislative or regulatory provisions affecting the Company (including changes to
laws governing the taxation of REITs), availability of capital, interest rates,
competition, supply of and demand for office and industrial properties in the
Company's current and proposed market areas, and general accounting principles,
policies and guidelines applicable to REITs. In addition, the actual timing of
development, construction, and leasing on the projects that the Company believes
it may acquire in the future under the Berg Land Holdings Option Agreement is
unknown presently, and reliance should not be placed on the estimates concerning
these projects set forth under the caption, "Acquiring Properties Developed by
the Berg Group," above. The acquisition costs of projects acquired from the Berg
Group under the Pending Projects Acquisition Agreement will vary based upon the
number of O.P. Units issued in exchange for the property and the price of common
stock, which is issuable upon conversion of O.P. Units under certain
circumstances, at the time of the acquisition. These risks and uncertainties,
together with the other risks described from time to time in the Company's
reports and other documents filed with the Securities and Exchange Commission,
should be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements.
- 17 -
<PAGE>
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes have occurred since the Annual Report on Form 10-K for the
year ended December 31, 1999.
- 18 -
<PAGE>
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The annual meeting of stockholders of the Company was held on May 31, 2000
in which proxies representing 15,069,428 shares of common stocks, or 88.5%
of the total outstanding shares, voted.
b) At the annual meeting of stockholders, Mr. Carl E. Berg, John C. Bolger,
William A. Hasler, and Lawrence B. Helzel were elected as directors for the
ensuing year, all who were currently serving on the board of directors of
the Company.
c) The following proposals were voted upon at the meeting:
Proposal No. 1: Election of Directors
<TABLE>
<CAPTION>
Total Vote for Each Total Vote Withheld Total Vote Against
Directors Director from Each Director Each Director
-------------------------- ------------------------ --------------------- ---------------------
<S> <C> <C> <C>
Carl E. Berg 15,034,913 0 0
John C. Bolger 15,034,913 0 0
William A. Hasler 15,034,913 0 0
Lawrence B. Helzel 15,034,913 0 0
</TABLE>
Proposal No. 2: The second matter voted upon was the ratification of the
selection of PricewaterhouseCoopers, LLP as independent public accountants
for the Company for the year ending December 31, 2000. There were
14,956,644 votes in favor of the proposal, 11,406 votes against the
proposal, and 101,378 abstentions.
- 19 -
<PAGE>
PART II - OTHER INFORMATION
ITEM 2
CHANGES IN SECURITIES AND USE OF PROCEEDS
The information provided in Part I, "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Overview" is incorporated by
reference in response to this item.
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial Data Schedule not attached
b. Reports on Form 8-K
None
- 20 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
MISSION WEST PROPERTIES, INC.
(Registrant)
Date: August 11, 2000 By: /s/ Carl E. Berg
----------------------------
Carl E. Berg
Chief Executive Officer
(Principal Accounting Officer)
- 21 -
