SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended September 30, 1995.
___ Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
________________ to _______________.
Commission File Number 1-12222
BEDFORD PROPERTY INVESTORS, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 68-0306514
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
270 Lafayette Circle, Lafayette, CA 94549
(Address of principal executive offices)
Registrant's telephone number, including area code (510) 283-8910
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months or for such shorter period
that Registrant was required to file such reports and (2) has been
subject to such filing requirements for the past 90 days. Yes x No___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Class Outstanding as of November 13, 1995
Common Stock, $0.01 par value 6,090,650
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BEDFORD PROPERTY INVESTORS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
Statement 1
Consolidated Balance Sheets
as of September 30, 1995, and December 31, 1994 2
Consolidated Statements of Income for the three
and nine months ended September 30, 1995 and 1994 3
Consolidated Statements of Stockholders' Equity
for the nine months ended September 30, 1995 and the
year ended December 31, 1994 4
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Discussion and Analysis of Results of
Operations and Financial Condition 12-18
PART II. OTHER INFORMATION
ITEMS 1 - 6 18-24
SIGNATURES 25
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BEDFORD PROPERTY INVESTORS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENT
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The information furnished
reflects all adjustments which are, in the opinion of management,
necessary for a fair presentation of results of operations for the
interim periods. Such adjustments are of a normal recurring nature.
These financial statements should be read in conjunction with the
notes to financial statements appearing in the annual report to
stockholders for the year ended December 31, 1994.
<PAGE>
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands, except share amounts)
September 30, December 31,
1995 1994
ASSETS:
Real estate investments:
Office building-held for sale $ 8,321 $ 8,928
Office buildings-held for investment 23,397 23,022
Industrial buildings 38,304 26,253
70,022 58,203
Less accumulated depreciation 3,876 3,150
66,146 55,053
Cash 15,562 4,733
Other assets 4,245 2,508
Total assets $ 85,953 $62,294
LIABILITIES AND STOCKHOLDERS' EQUITY:
Bank loan payable - 22,400
Accounts payable and accrued expenses 1,620 850
Dividend payable 800 568
Acquisition payable - 600
Other liabilities 1,101 944
Total liabilities 3,521 25,362
Redeemable preferred shares:
Series A convertible preferred stock,
par value $0.01 per share; authorized,
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, 6,040,650 shares in
1995; 5,976,900 shares in 1994 60 60
Additional paid-in capital 107,209 107,151
Accumulated losses and distributions
in excess of net income (74,837) (70,279)
Total common stock and other
stockholders' equity 32,432 36,932
Total liabilities and
stockholders' equity $ 85,953 $ 62,294
See accompanying notes to consolidated financial statements.
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BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (Unaudited)
(in thousands, except share and per share amounts)
Three Months Nine Months
1995 1994 1995 1994
Property operations:
Rental income $2,774 $2,473 $8,052 $6,305
Rental expenses:
Operating expenses 772 686 2,077 1,753
Real estate taxes 261 287 743 710
Depreciation and amortization 372 263 1,070 868
Provision for loss on real
estate investment 630 - 630 -
Income from property operations 739 1,237 3,532 2,974
General and
administrative expense (336) (361) (1,018) (976)
Interest income 37 9 56 45
Interest expense (401) (336) (1,309) (533)
Income before gain
(loss) on sale 39 549 1,261 1,510
Gain (loss) on sale of real estate
investment (12) - (12) 1,193
Net income $27 $549 $1,249 $2,703
Income (loss) applicable to common
stockholders (1) $(133) $549 $1,089 2,703
Earnings (loss) per
common and common
equivalent share (1) $(0.02) $0.09 $0.18 $0.44
Weighted average number
of common
and common
equivalent shares 6,163,719 6,141,928 6,142,760 6,141,197
(1) Reflects dividend of $160 accrued during the third quarter of 1995 on
$50,000 of preferred stock issued on September 18, 1995.
See accompanying notes to consolidated financial statements.
<PAGE>
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF COMMON AND OTHER STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND THE YEAR ENDED DECEMBER 31, 1994 (Unaudited)
(in thousands, except per share data)
Total common
Accumulated stock
losses and and other
Additional distributions stock-
Common paid-in in excess of holders'
stock capital net income equity
Balance,
December 31, 1993 $60 $107,147 $(71,766) $35,441
Issuance of
common stock - 4 - 4
Net income - - 3,609 3,609
Dividends
($0.355 per share) - - (2,122) (2,122)
Balance,
December 31, 1994 60 107,151 (70,279) 36,932
Issuance of
common stock - 58 - 58
Costs of issuance of
preferred stock - - (3,750) (3,750)
Redemption of rights - - (60) (60)
Net income - - 1,249 1,249
Dividends to common
shareholders
($0.305 per share) - - (1,837) (1,837)
Dividends to preferred
shareholder (9%) - - (160) (160)
Balance,
September 30, 1995 $60 $107,209 ($74,837) $32,432
See accompanying notes to consolidated financial statements.
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (Unaudited)
(in thousands)
1995 1994
Operating Activities:
Net income $1,249 $2,703
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,273 1,058
Loss on sale of real
estate investment 12 -
Gain on sale of real
estate investment - (1,193)
Provision for loss on real estate
investment 630 -
Change in other assets (2,090) (574)
Change in accounts payable and
accrued expenses 270 (364)
Change in other liabilities 157 396
Net cash provided by
operating activities 1,501 2,026
Investing Activities:
Investments in real estate (14,688) (26,126)
Proceeds from sale of real estate
investment 1,433 8,289
Net cash used by investing activities (13,255) (17,837)
Financing Activities:
Proceeds from bank loan 3,850 30,257
Repayments of bank loan (26,250) (17,359)
Issuance of common stock 58 -
Net proceeds from sale of
preferred stock 46,750 -
Redemption of rights (60) -
Payment of dividends (1,765) (1,434)
Net cash provided by financing
activities 22,583 11,464
Net increase (decrease) in cash 10,829 (4,347)
Cash at beginning of period 4,733 4,930
Cash at end of period $ 15,562 $ 583
Supplemental disclosure of cash flow
information:
Cash paid during the
period for interest $ 1,283 $ 254
See accompanying notes to consolidated financial statements.
<PAGE>
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and Basis of Presentation
The Company
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. Since
July 1, 1993, the Company's Common Stock has traded under the symbol
"BED" on both the New York and Pacific Stock Exchanges.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair
presentation of financial condition, results of operations, and cash
flows in conformity with generally accepted accounting principles.
When necessary, reclassifications have been made to prior period
balances to conform to current period presentation.
Per Share Data
Per share data is based on the weighted average number of common and
common equivalent shares outstanding during the period. 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 preferred stock are deducted from net
income for purposes of determining income applicable to common
stockholders.
<PAGE>
Note 2. Real Estate Investments
As of September 30, 1995, the Company's real estate investments (net
of depreciation) were diversified by property type as follows (in
thousands):
Number of Investment % of
Properties Amount Total
Office Buildings 5 $28,838 44
Industrial Buildings 10 37,308 56
Total 15 $66,146 100
As of September 30, 1995, the Company's real estate investments (net
of depreciation) were diversified by geographic region as follows (in
thousands):
Number of Investment % of
Properties Amount Total
San Francisco Bay
Area, California 6 $22,592 34
Greater Los Angeles
Area, California 3 23,226 35
Salt Lake City,
Utah 1 6,720 10
Greater Kansas City
Area, Kansas 4 7,311 11
Jackson, Mississippi
(sold October 2, 1995) 1 6,297 10
Total 15 $66,146 100
<PAGE>
The following table sets forth the Company's real estate investments as of
September 30, 1995 (in thousands):
Less
Accumulated
Depre-
Land Building ciation Total
Office Buildings:
IBM Building (1) $ 2,590 $5,731 $2,024 $6,297
Woodlands Tower II 945 6,095 320 6,720
1000 Town Center
Drive 1,785 4,691 307 6,169
Mariner Court 3,221 4,506 187 7,540
Village Green 743 1,411 42 2,112
Total Office 9,284 22,434 2,880 28,838
Industrial Buildings:
Building 3
Contra Costa Diablo
Industrial Park 495 1,172 125 1,542
Building 8
Contra Costa Diablo
Industrial Park 877 1,551 166 2,262
Building 18,
Mason Industrial Park 610 1,305 146 1,769
Building 1,
Ninety-Ninth
Street Park 396 1,584 1 1,979
Building 2,
Ninety-Ninth
Street Park 172 575 - 747
Building 3,
Ninety-Ninth
Street Park 360 2,172 232 2,300
Lackman
Business Center 626 1,660 1 2,285
Dupont
Industrial Center 3,588 6,136 207 9,517
Milpitas Town Center 1,935 4,624 114 6,445
350 East
Plumeria Drive 3,166 5,300 4 8,462
Total Industrial 12,225 26,079 996 37,308
Total $21,509 $48,513 $3,876 $66,146
(1) Sold October 2, 1995.
<PAGE>
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
property was evaluated and written down to management's best estimate
of net realizable value. The Company wrote down its investment in
this property by $3,631,000. This write down resulted from the
general economic conditions that existed in the national and local
real estate markets. 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. This gain was primarily
attributable to an improvement in 1993 in the local real estate
economy.
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.
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.
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.
Milpitas Town Center
The property, consisting of two suburban research and development
buildings and 3.1 acres of entitled land, is located in Milpitas,
California. It was purchased for $6,320,000 or $62 per square foot
(excluding the undeveloped land) on August 11, 1994. The property has
a Phase I environmental site assessment which indicates that the
groundwater under the property either has been or may in the future be
impacted by the migration of contaminants originating from an off-site
source. The responsible party has begun remediation pursuant to a
clean-up program which 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 the property.
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 Peter B. Bedford, Chairman of the Board and Chief
Executive Officer of the Company (see Note 3).
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 (see Note 3).
Ninety-Ninth Street Park, 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 (see Note 3).
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 $81 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 (see Note 3).
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. In the anticipation of
this sale, the investment in this property was written down by
$630,000 at September 30, 1995.
There has been no significant development in environmental matters or
proceedings since the filing of the Company's 1994 Annual Report on
Form 10-K.
The Company internally manages the majority of its properties and
maintains centralized financial record keeping. For the IBM Building
and Woodlands Tower II, the Company has subcontracted on-site
maintenance to local maintenance firms.
Note 3. Related Party Transactions
Since February 1993, all of the Company's activities relating to debt
and equity financings and the acquisition of new properties have been
handled through an arrangement with Mr. Bedford, whereby he provides
acquisition and financing personnel, allocable overhead costs, and the
costs of all due diligence conducted prior to an acquisition. Since
January 1995, this arrangement has been with Bedford Acquisitions,
Inc. (BAI), a company wholly-owned by Mr. Bedford. Upon the
completion of a financing or the acquisition of a property, BAI is
paid a fee by the Company equal to 1-1/2% of the gross amount raised
or 1-1/2% of the purchase price of the property, as the case may be.
However, because Mr. Bedford is a related party and in order to insure
that such fees are reasonable, the Board of Directors has limited the
maximum amount of fees that can be paid to BAI. The agreement
specifies that aggregate fees paid to BAI for such services cannot
exceed the total costs incurred by BAI in maintaining a staff of
personnel skilled in such activities. As of September 30, 1995, the
Company had paid Mr. Bedford or BIA an aggregate of $2,407,000
pursuant to this arrangement, which was $158,000 less than the amount
of total acquisition and financing costs funded.
The Company believes that since the fees charged are (i) comparable to
those charged by other sponsors or real estate investment entities or
other third party service providers, and (ii) are charged only for
services on acquired properties or completed financings, such fees are
properly includable in direct acquisition costs and are 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 4. Stock Options
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.
On September 13, 1995, one member of the management team exercised
options for 50,000 shares of common stock in exchange for a note
payable to the Company. The $287,500 note bears interest at 7.5%.
The unpaid balance of the note is included in the accompanying
consolidated balance sheet as a reduction of additional paid-in
capital.
Note 5. 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, carries an interest rate
option of either prime plus 0.50% or IBOR plus 2.25%. It is secured
by mortgages on Woodlands Tower II, Mariner Court, Village Green,
Milpitas Town Center, IBM Building, 1000 Town Center Drive and Dupont
Industrial Center.
The daily weighted average amount owing to the bank was $18,112,000
and $6,285,000 in the first nine months of 1995 and 1994,
respectively. The weighted average interest rate in these periods was
8.73% and 7.70%, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations - Nine Months Ended September 30, 1995, Compared
with Nine Months Ended September 30, 1994.
Income
Income from property operations (defined as rental income less rental
expenses) increased $558,000 or 19% for the nine months ended
September 30, 1995, as compared to the same period in 1994. This is
due primarily to an increase in rental income of $1,747,000 for the
first nine months in 1995 compared to the first nine months in 1994,
offset by an increase in rental expenses of $559,000 and provision for
possible loss on real estate investment of $630,000. The increase in
rental income and expenses is primarily attributable to the increase
in real estate investments.
350 East Plumeria Drive, Lackman Business Center, and Ninety-Ninth
Street Park, Buildings 1 and 2 were acquired in September 1995.
Village Green and Milpitas Town Center were acquired in the middle of
the third quarter of 1994, and Dupont Industrial Center was acquired
on May 24, 1994. These acquisitions increased rental income in the
first nine months of 1995 by approximately $ 1,547,000. Additionally,
1000 Town Center Drive (acquired December 30, 1993) had an increase in
rental income of approximately $589,000, resulting from an increase in
occupancy from 43% to 95%. The increase in rental income was offset
by a rental loss of $249,000 resulting from the vacancies at the
Contra Costa Diablo Buildings 3 and 8.
The increase in rental expenses is primarily attributable to operating
expenses incurred in connection with the newly acquired properties and
the increase in occupancy at 1000 Town Center Drive.
In September 1995, the Company recorded a provision for possible loss
of $630,000 in anticipation of the sale of the IBM Building which was
completed on October 2, 1995. There was no provision for possible
loss recorded during the nine months of 1994.
Expenses
Interest expense, which includes amortization of loan fees, increased
$776,000 or 146% for the first nine months of 1995 compared with the
same period in 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, combined with the increase in
interest rates. The amortization expense of loan fees was $167,000
and $173,000 in the first nine months of 1995 and 1994, respectively.
General and administrative expenses remained relatively unchanged as
compared with the same period in 1994. In the first nine months of
1995, the increase of $70,000 in administrative and personnel costs
associated with a larger real estate portfolio was offset by decrease
of $42,000 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.
The Company's current accounting policy is to depreciate properties
held for sale during the holding period, since rental revenues and
operating expenses continue to be recorded. The Company will adopt
the provisions of Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, commencing January 1, 1996. Under the
provisions of SFAS 121, depreciation will not be recorded on
properties being held for sale. The future impact from not
depreciating properties held for sale will be a reduction in the gain
on sale or an increase in the loss on sale.
Results of Operations-Three Months Ended September 30, 1995, Compared
with Three Months Ended September 30, 1994.
Income
Income from property operations (defined as rental income less rental
expenses) decreased $498,000 or 40% for the three months ended
September 30, 1995, as compared to the same period in 1994. This is
due primarily to an increase in rental income of $301,000 for the
three months ended September 30, 1995, compared to the three months
ended September 30, 1994, offset by an increase in rental expenses of
$169,000 and provision for possible loss on real estate investment of
$630,000. The increase in rental income and expenses is primarily
attributable to the increase in real estate investments.
350 East Plumeria Drive, Lackman Business Center, Ninety-Ninth Street
Park, Buildings 1 and 2 were acquired in September 1995. Village
Green and Milpitas Town Center were acquired during the middle of the
third quarter of 1994. These acquisitions increased the third quarter
1995 rental income by approximately $246,000. Additionally, Dupont
Industrial Center (acquired May 24, 1994) and 1000 Town Center Drive
(acquired December 30, 1993) had an increase in quarterly rental
income totaling $222,000, resulting from an increase in occupancy from
75% to 97% for Dupont Industrial Center and 43% to 95% for 1000 Town
Center. The increase in rental income was offset by a rental loss of
$117,000 resulting of the vacancies at Contra Costa Diablo Buildings 3
and 8.
The increase in rental expenses is primarily attributable to operating
expenses incurred in connection with the newly acquired properties and
the increase in occupancy at Dupont Industrial Center and 1000 Town
Center Drive.
In September 1995, the Company recorded a provision for possible loss
of $630,000 in anticipation of the sale of the IBM Building which was
completed on October 2, 1995. There was no provision for possible
loss recorded during the nine months of 1994.
Expenses
Interest expense, which includes amortization of loan fees, increased
$65,000 or 19% for the three months ended September 30, 1995, compared
with the same period in 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 combined with the increase in
interest rates. The amortization expense of loan fees was $56,000 and
$71,000 in the three months ending September 30, 1995 and September
30, 1994, respectively. General and administrative expenses remained
relatively unchanged as compared with the same period in 1994. In the
third quarter of 1995, the increase of $15,000 in administrative and
personnel costs associated with a larger real estate portfolio was
offset by the decrease of $19,000 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.
Liquidity and Capital Resources
On September 18, 1995, the Company completed the sale of $50,000,000
of Series A convertible preferred stock to an investment fund managed
by Aldrich Eastman Waltch. The Series A 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 Series A 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 preferred stock sale was used
to pay off outstanding borrowings 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 facility was used, in part, to finance the acquisitions of Mariner
Court, Dupont Industrial Center, Village Green, and Milpitas Town
Center during the first nine months of 1994. At September 30, 1995,
the Company was in compliance with the covenants and requirements of
its revolving credit facility with Bank of America.
The Company anticipates that the cash flow generated by its real
estate investments and funds available under the above credit facility
will be sufficient to meet its short-term liquidity requirements.
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 nine months ended September 30, 1994, net income was
positively affected by the gain on sale of real estate investments.
For the nine months ended September 30, 1995, the Company recorded a
provision for possible loss of $630,000. The Company does not
anticipate any gain or loss on sales of real estate investments in the
fourth quarter of 1995.
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 may be impacted negatively by future increases
in interest rates and substantial borrowings to finance additional
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 1995 may not be renewed or the terms of renewal may
be less favorable to the Company than current lease terms. As of
September 30, 1995, the Company has released the vacant spaces at both
Contra Costa Diablo Building 3 and Building 8. The Company expects to
incur costs in making improvements or repairs to its portfolio of
properties required by new or renewing tenants and expects to incur
expenses associated with brokerage commissions payable in connection
with the reletting of space.
Inflation
Most of the leases require the tenants to pay their share of operating
expenses, including common area maintenance, real estate taxes and
insurance, thereby reducing the Company's exposure to increases in
costs and operating expenses resulting from inflation. Inflation,
however, could result in an increase in the Company's borrowing costs.
Dividends
Dividends declared for the first, second and third quarters of 1995
were $0.095, $0.105 and $0.105 per share, respectively. 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 period ended September 30, 1995 reflects dividends paid
for the fourth quarter of 1994, the first and second quarters of 1995.
Similarly, the Company's statement of cash flows for the period ended
September 30, 1994 reflects dividends paid for the fourth quarter of
1993, the first and second quarters of 1994. The dividends declared
for the fourth quarter of 1994 and 1993 were $0.095 and $0.07 per
share, respectively. At September 30, 1995, dividends of $160,000
were accrued on the $50,000,000 preferred stock. They are due and
payable 45 days after the quarter end.
Government Regulations
As more fully discussed in Item 1 above, the Phase I environmental
assessment for Milpitas Town Center indicates that the groundwater
under the property either has been or may in the future be impacted by
the migration of contaminants originating off-site. The Company does
not believe that this environmental matter will impair the future
value of Milpitas Town Center.
Financial Condition
During the nine months ended September 30, 1995, the Company's
operating activities provided cash flow of $1,501,000. Investing
activities utilized cash of $13,255,000, mainly for real estate
acquisitions. Financing activities provided cash flow of $22,583,000,
primarily from the preferred stock sale of $50,000,000 less issuance
costs of $3,250,000, offset by net repayments of bank loans of
$22,400,000 and payments of dividends of $1,765,000.
Management considers Funds From Operations (FFO) to be one measure of
the performance of an equity REIT. FFO during the three and nine
months ended September 30, 1995 amounted to $1,041,000 and $2,961,000,
respectively. During the same periods in 1994, FFO amounted to
$812,000 and $2,378,000, respectively. FFO was determined in
accordance with the National Association of Real Estate Investment
Trusts' interpretation published in March 1995. FFO is defined as
net income, excluding gains or losses from debt restructuring and
sales of property, plus depreciation and amortization of assets
related to real estate, after adjustments for unconsolidated ventures.
FFO, therefore, does not represent cash generated from operating
activities in accordance with generally accepted accounting principles
and should not be considered an alternative to net income as an
indication of the Company's performance or to cash flow as a measure
of liquidity or its ability to pay distributions.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
(a) At the Company's annual meeting on September 13, 1995, the
Company's stockholders approved an amendment to the Company's Charter
to (i) define the terms of the Series A Convertible Preferred Stock
(the "Preferred Stock") issued to Bed Preferred No. 1 Limited
Partnership ("AEW"), and (ii) substitute a new Article VII limiting
the transferability of the Company's stock.
As a result of the issuance of the Preferred Stock, the holders
of the Preferred Stock will be entitled to receive a cumulative
dividend equalling the greater of $0.135 per share and the amount of
dividends payable in respect of the Company's common stock (the
"Common Stock") prior to the payment of any dividend to the holders of
the Common Stock. In addition, the holders of the Preferred Stock will
have a liquidation preference in the amount Of $6.30 per share, and
will have certain redemption rights. Pursuant to the terms of the
Preferred Stock, the holders thereof will have the right to elect a
majority of the Board of Directors upon the occurrence of certain
events, including (i) the failure of the Company to pay two
consecutive quarterly dividends on the Preferred Stock (including all
dividends accumulated but unpaid in the prior quarter, (ii) Mr.
Bedford ceasing to serve as substantially full time Chief Executive
Officer of the Company, (iii) the sale by Mr. Bedford and his
affiliates of a substantial portion of their shares of Common Stock,
(iv) the failure to pay the redemption price payable on demand for
redemption by the holders of the Preferred Stock. The holders of the
Preferred Stock have the power to prevent the Company from entering
into certain major transactions or taking certain actions including
any merger, consolidation, sale of assets or the issuance or
modification of any debt having a value in excess of $10 million, the
modification of any executive employment agreement, the filing of any
petition for bankruptcy, and permitting Mr. Bedford to cease serving
as Chief Executive Officer or to sell a substantial percentage of
shares owned by him or his affiliates.
Pursuant to the amendment limiting the transferability of the
Company's stock, subject to certain exceptions, no holder other than
Mr. Bedford and AEW) will be permitted to own more than 5% (in value)
of the aggregate outstanding shares of stock of the Company, and more
than 5% (in number or value) of the outstanding shares of Common
Stock. Any purported transfer in violation of that limitation will
result in an automatic transfer of such stock to a trust for the
benefit of a charitable beneficiary, which trust will enjoy the
economic benefits of, and voting rights associated with, the stock
until such time as the trustee of the trust transfers such shares to a
person who may own such shares without violating the ownership
restrictions. Under the amendment, Mr. Bedford and AEW are subject to
higher ownership limitations than the Stockholders. Specifically, Mr.
Bedford will not be permitted to own more than 15% of the lesser of
the number or value of the outstanding shares of Common Stock
(including shares of Common Stock into which the Preferred Stock will
be convertible). AEW will be permitted to own 100% of the outstanding
shares of Preferred Stock, but will not be permitted to own more than
58% of the lesser of the number or value of the outstanding shares of
Common Stock. Unless Board approval is obtained, however, (i) AEW will
not be permitted to acquire additional shares of the Company's stock
and (ii) Mr. Bedford will be permitted to purchase only that number of
additional shares which would bring his ownership total to 15% of the
outstanding shares assuming conversion of the Preferred Stock.
The purpose of the amendment is to protect the Company from
inadvertently failing to qualify as a REIT. The amendment could have
certain antitakeover effects on the Company.
On September 13, 1995 the Board of Directors of the Company
voted to redeem all of the rights outstanding under the Company's
Stockholder Rights Plan, and to terminate that Plan. As a result, all
of the outstanding rights were redeemed for a price of $.01 per share.
The rights had entitled the holders thereof, following certain
business complications, to acquire shares of a class of the company's
preferred stock.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
The Company held its annual meeting on September 13, 1995, to consider
the following proposals:
(i) To approve the sale and issuance of 8,333,334 shares
of Series A Convertible Preferred Stock of the Company to AEW
Partners, L.P. for an aggregate purchase price of $50 million;
(ii) To amend the charter of the Company ("the Charter")
to create a new class of stock of the Company to be known as "Series A
Convertible Preferred Stock," and to state the terms of such class;
(iii) To amend the Charter to substitute a new Article VII,
containing provisions limiting the transferability of shares of Common
Stock intended to reduce the risk that the Company would fail to
satisfy one of the requirements for qualifying as a real estate
investment trust for federal income tax purposes;
(iv) To amend the Charter to delete in its entirety
Article VIII, relating to certain business combinations;
(V) To elect five Directors, Claude M. Ballard, Peter B.
Bedford, Anthony Downs, Anthony M. Frank, and Martin I. Zankel, to
serve until the next annual meeting of the stockholders and until
their successors are duly elected and qualify.
All proposals were approved except for proposal (iv). The meeting was
reconvened on September 27, October 12 and November 2 in order to
obtain all votes from the stockholders on proposal (iv) which was not
approved after the meeting on November 2, 1995.
Following are the results of the meetings:
For Against Abstain
Sale and issuance of Series A
Convertible Preferred Stock 4,042,521 535,415 37,358
Amendment of the Charter to
Create Series A Convertible
Preferred Stock 4,042,819 536,631 35,844
Amendment of the Charter to
Substitute a new Article VII,
containing provisions limiting
the transferability of shares
of Common Stock 3,945,717 615,617 53,960
Amendment of the Charter to
delete Article VIII, relating
to certain business combinations 4,587,766 162,859 45,815
Election of the following five
Directors to serve until the next
annual meeting:
Claude M. Ballard 5,461,698 59,014 0
Peter B. Bedford 5,458,815 61,897 0
Anthony Downs 5,461,858 58,854 0
Anthony M. Frank 5,460,507 60,205 0
Martin I. Zankel 5,460,707 60,005 0
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit No. Exhibit
2.1 Agreement and Plan of Merger dated July 1, 1993, between
ICM Property Investors Incorporated, a Delaware
corporation, and Bedford Property Investors, Inc., a
Maryland corporation, is incorporated herein by reference
to the Company's registration statement on Form 8-B/A filed
March 6, 1994.
3.1 Articles of Incorporation of Bedford Property Investors,
Inc., as amended pursuant to the Certificate of Amendment
effective September 18, 1995, as amended pursuant to the
Certificate of Amendment set forth at Exhibit 3.2A for the
Series A Convertible Preferred Stock Purchase Agreement
among the Company, Bed Preferred No. 1 Limited Partnership,
and Peter B. Bedford, which Exhibit 3.2A is incorporated by
reference to the Company's Form 10Q for the second quarter
ended June 30, 1995, filed on August 14, 1995.
3.2 Bylaws of Bedford Property Investors, Inc. as amended
effective September 15, 1995.
4.1 Registration Rights Agreement dated as of December 5, 1990,
between ICM Property Investors Incorporated and Peter B.
Bedford, is incorporated herein by reference to Exhibit D,
filed with the Company's Form 8-K dated December 13, 1990.
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 filed with Amendment No.
2 to the Registration Statement No. 2-94354, of ICM
Property Investors Incorporated dated January 25, 1985.
10.2 Real Estate Purchase and Sale Agreement dated as of June 4,
1993, by and between Bay Street Number Two, Ltd., as Seller
and ICM Property Investors Incorporated, as Purchaser, for
Woodlands Tower II and Woodlands Commercial Center, Plan II
and Related Properties, filed with the Company's Form 10-Q
for the quarter ended September 30, 1993.
10.3 Bedford Property Investors, Inc. Employee Stock Option
Plan, effective September 16, 1985, amended as of June 9,
1993, as adopted by the Company on September 27, 1993, and
amended and restated as of February 7, 1994, is
incorporated herein by reference to the Company's
registration statement on Form 8-B/A filed March 6, 1994.
10.4 Bedford Property Investors, Inc. Directors' Stock Option
Plan effective May 20, 1992, as adopted by the Company on
September 27, 1993, and amended and restated as of February
7, 1994, is incorporated herein by reference to the
Company's registration statement on Form 8-B/A filed March
6, 1994.
10.5 Purchase and Sale Agreement dated December 14, 1993, by and
between NCEC Realty, Inc., as Seller, and Bedford Property
Investors, Inc., as Purchaser, for 1000 Town Center Drive,
is incorporated herein by reference to the Company's Form
8-K filed January 13, 1994, and amended on Form 8-K/A
filed on March 17, 1994.
10.6 Purchase and Sale Agreement dated December 20, 1993, by and
between Mariner Court Associates, as Seller, and Bedford
Property Investors, Inc., as Purchaser, for Mariner Court,
is incorporated herein by reference to the Company's Form
8-K filed January 13, 1994, and amended on Form 8-K/A filed
March 17, 1994.
10.7 Purchase and Sale Agreement dated May 24, 1994, by and
between NCEC Realty, as Seller, and Bedford Property
Investors, Inc., as Purchaser, for Dupont Industrial Center
is incorporated herein by reference to the Company's Form
8-K filed on June 8, 1994.
10.8 Credit Agreement for $20 million revolving line of credit
dated December 20, 1993, by and between Bedford Property
Investors, Inc., as Borrower, and Bank of America National
Trust and Savings Association is incorporated by reference
to the Company's Form 10Q/A for the third quarter ended
September 30, 1994, filed on November 28, 1994.
10.9 Modification Agreement to increase $20 million revolving
line of credit to $23 million dated August 8, 1994, by and
between Bedford Property Investors, Inc., as Borrower, and
Bank of America National Trust and Savings Association is
incorporated by reference to the Company's Form 10K for the
year ended December 31, 1994 filed on March 27, 1995.
10.10 Employment Agreement dated February 17, 1993, by and
between ICM Property Investors Incorporated, a Delaware
Corporation, and Peter B. Bedford is incorporated by
reference to the Company's Form 10K for the year ended
December 31, 1995 filed on March 27, 1995, as amended
pursuant to Amendment No. 1 to the Employment Agreement
between Peter B. Bedford and the Company dated September
18, 1995.
10.11 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 the Company's Form 10Q for the quarter ended
June 30, 1995, filed on August 14, 1995.
10.12 Amendment No. 1 to the Series A Convertible Preferred Stock
Purchase Agreement among the Company, AEW Partners, L.P.
and Peter B. Bedford dated September 11, 1995.
10.13 Standstill Agreement by and between Peter B. Bedford, and
Bedford Property Investors, Inc., and Amendment No. 1 to
Standstill Agreement, dated September 18, 1995.
10.14 BPIA Agreement by and between Westminster Holdings, Inc., a
California corporation doing business as BPI Acquisitions
("BPIA") and Bedford Property Investors, Inc., executed on
September 18, 1995.
10.15 Amended and restated credit agreement, dated September 14,
1995, between Bedford Property Investors, Inc., as
Borrower, and Bank of America National Trust and Savings
Association to increase the commitment amount to $60
million.
10.16 Purchase and Sale Agreement dated June 1, 1995, between MHL
Income Realty Partnership III, as Seller, and Bedford
Property Investors, Inc., as Purchaser, for 350 East
Plumeria Drive, in incorporated herein by reference to the
Company's Form 8-K dated September 19, 1995 and filed on
October 2, 1995.
10.17 Sale Agreement dated August 22, 1995, between Bedford
Property Investors, Inc., as Seller, and Parkway Ridgewood,
Inc., as Purchaser, for the IBM Building, is incorporated
herein by reference to the Company's Form 8-K dated October
2, 1995 and filed on October 16, 1995.
10.18 Purchase and Sale Agreement dated August 23, 1995, between
AEW #25 Trust, as Seller, and Bedford Property Investors,
Inc., as Purchaser for 6600 College Boulevard, is
incorporated herein by reference to the Company's Form 8-K
dated October 6, 1995 and filed on October 17, 1995.
10.19 Sale and Option Agreement dated August 25, 1995 by and
between Kemper Investors Life Insurance Company as Lender,
Bedford Property Investors, Inc., as Buyer, and Tustin
Properties, as Owner, for 3002 Dow Avenue.
B. Reports on Form 8-K
During the quarter ended September 30, 1995, the Company filed
on July 27, 1995, a report on Form 8-K dated December 30, 1993,
regarding the acquisition of 1000 Town Center and Mariner Court.
During the quarter ended September 30, 1995, the Company filed
on August 18, 1995, a report on Form 8-K dated August 10, 1994,
regarding the acquisition of Milpitas Town Center.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Sections 13 or 15(a), Registrant has duly caused this report to
be signed on its behalf of the undersigned, thereunto duly authorized.
Dated: November 13, 1995
BEDFORD PROPERTY INVESTORS, INC.
(Registrant)
By: /s/ PETER B. BEDFORD
Peter B. Bedford
Chairman of the Board and
Chief Executive Officer
By: /s/ DONALD A. LORENZ
Donald A. Lorenz
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ HANH KIHARA
Hanh Kihara
Controller
(Principal Accounting Officer)
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