<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1997
REGISTRATION NO. 333-33643
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BEDFORD PROPERTY INVESTORS, INC.
(Exact name of the Registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 68-0306514
(State of other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
</TABLE>
270 LAFAYETTE CIRCLE
LAFAYETTE, CALIFORNIA 94549
(510) 283-8910
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------------
PETER B. BEDFORD
BEDFORD PROPERTY INVESTORS, INC.
270 LAFAYETTE CIRCLE
LAFAYETTE, CALIFORNIA 94549
(510) 283-8910
(Name, address, including zip code, and telephone number, including area code of
agent for service)
------------------------------
COPY TO:
WILLIAM H. HINMAN, JR.
SHEARMAN & STERLING
555 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 616-1100
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
/ /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.02 per
share, offered by the Company....... 20,000,000 Shares $19.90625 $398,125,000 $120,644(3)
Common Stock, par value $.02 per
share, offered by the Selling
Stockholder......................... 4,166,667 Shares $22.03125 $91,796,882 $27,817(3)
</TABLE>
(1) The amount to be registered and the proposed maximum aggregate offering
price also include the number and offering price of any shares initially
offered or sold outside the United States that are thereafter sold or resold
in the United States. Offers and sales of shares outside the United States
are being made pursuant to the exemption afforded by Rule 901 of Regulation
S and this Registration Statement shall not be deemed effective with respect
to such offers and sales.
(2) Estimated solely for the purpose of computing the amount of the registration
fee, based on the average of the high and low prices for the Company's
Common Stock as reported on the New York Stock Exchange on August 11, 1997
with respect to the 20,000,000 shares previously registered on behalf of the
Company and on October 13, 1997 with respect to the 4,166,667 shares
registered on behalf of the selling stockholder, both in accordance with
Rule 457(c) under the Securities Act of 1933.
(3) Registration fee previously paid by registrant.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
Subject to Completion, dated October 29, 1997
PROSPECTUS SUPPLEMENT
(To Prospectus dated , 1997)
6,300,000 SHARES
[LOGO]
B E D F O R D P R O P E R T Y I N V E S T O R S, I N C.
COMMON STOCK
----------------
Bedford Property Investors, Inc. (the "Company") is a self-administered and
self-managed real estate investment trust ("REIT") engaged in the business of
owning, managing, acquiring and developing industrial and suburban office
properties proximate to selected metropolitan areas primarily in the Western
United States. As of September 30, 1997, the Company owned and operated 63
properties aggregating approximately 5.3 million rentable square feet and
comprised of 45 industrial properties, 17 suburban office properties and one
retail property. As of September 30, 1997, the Company's properties were
approximately 97% occupied by over 400 tenants.
All of the shares of Common Stock offered hereby are being sold by the
Company. The Common Stock is listed on the New York Stock Exchange and the
Pacific Exchange under the symbol "BED." The last reported sale price of the
shares of Common Stock on the New York Stock Exchange on October 29, 1997 was
$20 13/16 per share.
---------------------
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share.............................................. $ $ $
Total(3)............................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $250,000 payable by the Company.
(3) The Company has granted the Underwriters an option to purchase up to an
aggregate of 945,000 shares of Common Stock to cover over-allotments. If all
of such shares are purchased, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
---------------------
The shares of Common Stock offered by this Prospectus Supplement are offered
by the Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
Underwriters and to certain further conditions. It is expected that delivery of
the certificates for the shares of Common Stock offered will be made at the
offices of Lehman Brothers Inc., New York, New York on or about ,
1997.
---------------------
LEHMAN BROTHERS
BANCAMERICA ROBERTSON STEPHENS
SMITH BARNEY INC.
SUTRO & CO. INCORPORATED
, 1997
<PAGE>
[Map Showing Property Locations]
[Two Charts Showing Portfolio Composition]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK PRIOR TO THE
PRICING OF THE OFFERING FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON
STOCK AND THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE PRICING OF THE
OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK OR FOR THE
PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN, OR INCORPORATED BY
REFERENCE INTO, THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS.
REFERENCES HEREIN TO THE PERCENTAGE OF A PROPERTY OR PROPERTIES (AS DEFINED
BELOW) OCCUPIED ARE CALCULATED BY DIVIDING RENTABLE SQUARE FEET OCCUPIED BY
TOTAL RENTABLE SQUARE FEET, UNLESS OTHERWISE INDICATED. UNLESS OTHERWISE
INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS
NOT EXERCISED. INFORMATION REGARDING SHARES OF COMMON STOCK, UNLESS OTHERWISE
INDICATED, IS BASED ON A PER-SHARE MARKET PRICE OF $21 7/16, THE LAST REPORTED
SALE PRICE ON THE NEW YORK STOCK EXCHANGE ON OCTOBER 20, 1997. REFERENCES TO THE
"COMPANY" IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL BE
DEEMED TO INCLUDE THE COMPANY, ITS PREDECESSORS, AND THOSE ENTITIES OF WHICH THE
COMPANY HAS CONTROL OR OWNS A MAJORITY OF THE ECONOMIC INTERESTS, UNLESS
OTHERWISE INDICATED OR THE CONTEXT INDICATES OTHERWISE. THE OFFERING OF SHARES
OF COMMON STOCK PURSUANT TO THIS PROSPECTUS SUPPLEMENT IS REFERRED TO HEREIN AS
THE "OFFERING."
WHEN USED IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, THE
WORDS "BELIEVES," "ANTICIPATES," "INTENDS," "EXPECTS" AND SIMILAR EXPRESSIONS
ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT
TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "RISK FACTORS" IN
THE ACCOMPANYING PROSPECTUS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE
ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF OR
THEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF
ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT
SUBSEQUENT EVENTS OR CIRCUMSTANCES OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED
EVENTS.
THE COMPANY
Bedford Property Investors, Inc. is a self-administered and self-managed
equity REIT engaged in the business of owning, managing, acquiring and
developing industrial and suburban office properties proximate to selected
metropolitan areas primarily in the Western United States. As of September 30,
1997, the Company owned and operated, either directly or through one of its
wholly-owned subsidiaries, 63 properties aggregating approximately 5.3 million
rentable square feet and comprised of 45 industrial properties (the "Industrial
Properties"), 17 suburban office properties (the "Suburban Office Properties")
and one retail property (the "Retail Property"). The Industrial Properties, the
Suburban Office Properties and the Retail Property are hereinafter referred to
individually as a "Property" and collectively as the "Properties." As of
September 30, 1997, the Properties were approximately 97% occupied by over 400
tenants. The Company's Properties are located in Northern and Southern
California, Oregon, Washington, Arizona, Nevada, Utah, Colorado, Texas and
Kansas.
The Company seeks to grow its asset base through the acquisition of
industrial and suburban office properties and portfolios of such properties, as
well as through the development of new industrial and suburban office
properties. The Company's strategy is to operate in suburban markets that are
experiencing, or are expected by the Company to experience, superior economic
growth and that are subject to limitations on the development of similar
properties. The Company believes that employment growth is a reliable indicator
of future demand for both industrial and suburban office space. In addition, the
Company believes that certain supply-side constraints, such as limited
availability of undeveloped land in a market, increase a market's potential for
higher average rents over time. The Company is currently targeting selected
markets in which the Company's Properties are located as well as selected
markets in which the Company has expertise. The Company believes that due to
recent economic improvements in these markets, and related improvements in the
commercial property markets, an investment in industrial or suburban office
properties in these markets provides the potential for attractive returns
through increased occupancy levels, rents and real estate values.
S-3
<PAGE>
The Company is led by a professional management team who have on average
over 20 years of experience in the ownership, management, acquisition and
development of industrial and suburban office properties. Peter B. Bedford, the
Company's Chairman and Chief Executive Officer, has been engaged in the
commercial real estate business, primarily in the Western United States, for
over 30 years and during his career has been responsible for the ownership,
management, acquisition and development of an aggregate of approximately 19
million square feet of industrial, office and retail properties, as well as
land, in 14 states.
Upon completion of the Offering, the senior officers and directors of the
Company will beneficially own approximately 6.7% of the outstanding Common
Stock, including 4.6% beneficially owned by Mr. Bedford. In addition, 18.9% of
the Common Stock will be beneficially owned by Bed Preferred No. 1 Limited
Partnership ("BPLP"), a Delaware limited partnership, which in turn is
beneficially owned by an investment fund managed by AEW Capital Management which
has two representatives on the Company's Board of Directors. BPLP acquired this
beneficial interest in the Common Stock by converting its 8,333,334 shares of
the Company's Series A Convertible Preferred Stock, par value $.01 per share
(the "Convertible Preferred Stock") into 4,166,667 shares of Common Stock on
October 14, 1997.
RECENT DEVELOPMENTS
ACQUISITION AND DEVELOPMENT ACTIVITY THROUGH SEPTEMBER 30, 1997
During the first nine months of 1997, the Company acquired 17 Properties,
including seven Industrial Properties and 10 Suburban Office Properties
aggregating approximately 1.7 million rentable square feet, for a total
investment of approximately $158 million. At acquisition, the Company estimated
that these Properties would provide an initial weighted average unleveraged
return on cost (computed as annualized property NOI at the date of acquisition
divided by total acquisition cost) of 9.33%, assuming no further lease-up and
without giving effect to any contractual escalations in rent. The Company
estimates the purchase price of acquisitions completed in 1997 to be 86% of
replacement cost.
In addition, the Company completed shell construction of four industrial
properties aggregating approximately 366,000 square feet, for a total investment
to date of approximately $15 million, and is in the process of developing
another industrial property.
S-4
<PAGE>
The following tables set forth certain information regarding acquisitions
completed and developments-in-progress as of September 30, 1997.
ACQUISITIONS COMPLETED THROUGH SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
SQUARE ACQUISITION MONTH
PROPERTY NAME AND LOCATION FEET COST(1) YIELD(2) COMPLETED
- ------------------------------------------------------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
SUBURBAN OFFICE BUILDINGS
Executive Center Southbank, Phoenix, AZ................. 140,157 $ 12,315 10.12% March
U.S. Bank Centre, Reno, NV.............................. 104,324 12,852 10.53% May
9737 Great Hills Trail, Austin, TX...................... 82,680 9,873 9.80% May
Troika Building, Tucson, AZ............................. 52,000 4,030 10.95% June
Scripps Wateridge, San Diego, CA........................ 123,853 17,340 8.48% June
Orillia Office Park, Renton, WA......................... 334,255 33,300 9.39% July
Phoenix Airport Center, Phoenix, AZ(3).................. 213,854 19,667 8.43% July
------------ ----------- ------
Total Office Building Acquisitions.................... 1,051,123 $ 109,377 9.38%
------------ ----------- ------
INDUSTRIAL BUILDINGS
6500 Kaiser Drive, Fremont, CA.......................... 78,611 $ 8,022 8.82% January
Bedford Fremont Business Center, Fremont, CA............ 146,509 12,796 9.86% March
Spinnaker Court, Fremont, CA............................ 98,500 8,618 9.10% May
2277 Pine View Way, Petaluma, CA........................ 120,480 8,979 9.00% June
2601 W. Broadway, Tempe, AZ............................. 44,244 3,635 8.69% July
The Mondavi Building, Napa, CA.......................... 120,157 6,909 9.10% September
------------ ----------- ------
Total Industrial Building Acquisitions................ 608,501 $ 48,959 9.20%
------------ ----------- ------
Total Acquisitions.................................. 1,659,624 $ 158,336 9.33%
------------ ----------- ------
------------ ----------- ------
</TABLE>
- ------------------------------
(1) Acquisition cost includes purchase price, closing costs and renovation
expenditures budgeted or spent.
(2) Yield is calculated as annualized property NOI at the date of acquisition
divided by acquisition cost.
(3) Phoenix Airport Center consists of four office Properties and one research
and development Property for a total of five Properties.
DEVELOPMENTS-IN-PROGRESS AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
SQUARE DEVELOPMENT MONTH
PROPERTY NAME AND LOCATION FEET COST(1) COMPLETED(2)
- ------------------------------------------------------------- ------------ ------------ ----------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
INDUSTRIAL BUILDINGS
99th Street Building #4, Lenexa, KS(3)................... 68,806 $ 2,786 August
Westech II, Phoenix, AZ(3)............................... 81,323 3,084 September
Bordeaux Center, Napa, CA(3)............................. 150,000 5,515 October
47513 Westinghouse Drive, Fremont, CA(3)................. 65,385 3,775 Under Construction
Napa-Lot 10A, Napa, CA................................... 100,000 964 Under Design
------------ ------------
Total Industrial Building Development.................. 465,514 $ 16,124
------------ ------------
------------ ------------
</TABLE>
- ------------------------------
(1) Development cost includes land acquisition price, development and related
soft costs incurred as of September 30, 1997.
(2) Determined as of the date of shell completion.
(3) Upon completion of these four projects the total all-in costs are expected
to be approximately $23 million.
S-5
<PAGE>
The following is a brief description of each of the
properties-in-development. With the exception of Napa-Lot 10A, which is
currently undergoing development studies, each of these properties is in its
planned lease-up phase.
99TH STREET BUILDING #4
This property is a 68,806 square foot manufacturing/warehouse facility on
4.8 acres of land in Lenexa, KS adjoining the Company's 99th Street Building #1,
#2 and #3 Properties. The shell was completed in August 1997, and the total
project costs are estimated to be $4.0 million. The Lenexa market has a vacancy
rate of 3% and this is one of the few new buildings in the market. As of
September 30, 1997, 25% of the building was leased and an additional 50% of the
project was in lease negotiations.
WESTECH BUSINESS CENTER--PHASE II
This property is a 81,323 square foot service center industrial building
located on 6.0 acres of land in Phoenix, AZ adjacent to the Company's Westech
Business Center Property. The shell construction was completed in mid-September
1997, and the total project costs are estimated to be $5.2 million. The Company
believes that the Phoenix market is experiencing strong leasing activity, with a
current vacancy rate of 6.7%. As of September 30, 1997, the building was 61%
leased with leases pending that would bring the occupancy to 75%.
BORDEAUX CENTER
This property is a 150,000 square foot manufacturing/warehouse facility on
8.3 acres of land in Napa, CA adjoining the Company's Napa Valley Corporate Way
Property. The shell construction was completed in October 1997, and the total
project costs are estimated to be $8.1 million. The Company believes that the
Napa market has experienced very active leasing in the past few years, with a
current vacancy rate of 4.5%. As of September 30, 1997, 45% of project was
leased.
47513 WESTINGHOUSE DRIVE
This property is a 65,385 square foot research and development facility on
4.3 acres of land in Fremont, CA. The shell construction is expected to be
completed in early November 1997, and total project costs are estimated to be
$5.7 million. The Fremont market has a current vacancy rate of 6.6%. Presently
the Company is negotiating with tenants that would occupy 100% of the project if
lease negotiations are consummated.
NAPA-LOT 10A
This property consists of 7.95 acres of land in Napa, CA. The property is
currently undergoing design development studies to determine its highest and
best use.
RECENT ACQUISITIONS
On October 9, 1997, the Company completed the acquisition of a research and
development building located in Vista, California comprising 44,063 rentable
square feet for a purchase price of $3.0 million. The building is occupied in
its entirety under a seven year triple net lease to Palomar Technologies. The
lease agreement provides for annual fixed rental increases. At acquisition, the
Company estimated the initial unleveraged return on cost (computed as annualized
property NOI at the date of acquisition divided by acquisition cost) at 9.1%. In
conjunction with the purchase, the Company also acquired an adjacent 1.36 acre
parcel for approximately $360,000 upon which it plans to construct a 20,000
square foot research and development building.
On October 16, 1997, the Company completed the acquisition of a five-story
office building located in Denver, Colorado, comprising 90,712 rentable square
feet and a separate parking structure for a purchase price of $16.5 million. The
building, which is 100% occupied by Wells Fargo Bank, North American Title
Company, Oracle Corporation and Applied Computer Technology, has an initial
yield of 9.77%. The
S-6
<PAGE>
purchase price also included an adjacent 3.1 acre parcel of land that has
entitlements allowing the Company to build an additional 120,000 square feet of
office space.
PROPERTY DISPOSITIONS
On July 31, 1997, the Company sold two of its Southern California office
properties for a sale price of approximately $25.8 million, which resulted in a
gain of approximately $10.8 million. The properties were 1000 Town Center Drive
in Oxnard, California and Mariner Court in Torrance, California.
INCREASE IN COMMON STOCK DISTRIBUTIONS
On September 4, 1997, the Company announced an 11.1% increase in its
quarterly Common Stock dividend from $.27 to $.30 per share, which is equal to
$1.20 on an annualized basis. The higher dividend rate commenced with the
Company's third quarter of 1997 dividend. The Company previously announced, in
May 1997, a 3.8% increase in its quarterly dividend from $.26 to $.27 per share
which, together with the September increase, represents a total increase of
15.4% in the Company's Common Stock dividend in 1997.
TOTAL RETURN PERFORMANCE OF COMMON STOCK
An investor who purchased Common Stock in the Company's secondary Common
Stock offering on April 23, 1996, reinvested all dividends through the Company's
dividend reinvestment plan and held such shares through October 15, 1997 would
have had a cumulative pretax return of approximately 88% or an annualized pretax
return of approximately 60%. Past performance, however, is not necessarily
indicative of results that will be obtained in the future from an investment in
the Company's Common Stock, and no assurances can be given in this regard.
APPOINTMENT OF NEW CHIEF FINANCIAL OFFICER
In September 1997, the Company appointed Scott R. Whitney as Senior Vice
President and Chief Financial Officer. Mr. Whitney has over 20 years of
experience in real estate and has served as Senior Vice President/Chief
Financial Officer of WCI Communities of Naples, Florida since 1995. Before
joining WCI, Mr. Whitney was with Equity Group Investments Inc., affiliates of
which he joined in 1984.
REDUCTION IN INTEREST RATE AND INCREASE IN SIZE OF CREDIT FACILITY
Effective January 13, 1997, the Company's existing credit facility (the
"Credit Facility") was amended to lower the interest rate from LIBOR plus 2.00%
to LIBOR plus 1.75%. On June 13, 1997, the Company further reduced this interest
rate to LIBOR plus 1.50% and increased the size of the Credit Facility to $150
million. On September 24, 1997 the Company again increased the size of the
Credit Facility from $150 million to $175 million. The Company is currently
under negotiations to restructure its Credit Facility as an unsecured line and
to further lower the interest rate thereunder. No assurance can be given that
the Credit Facility will be restructured or that the interest rate will be
further reduced.
RECENT OPERATING RESULTS
The Company's strong operating performance has generated increased earnings
and dividends. For the nine months ended September 30, 1997, the Company
reported net income of $24,296,000 (including a gain of $10,787,000 from the
sale of two properties), or $1.63 per share on a fully-diluted basis, on rental
revenues of $32,472,000, compared with net income of $7,865,000, or $.84 per
share on a fully diluted basis, on rental revenues of $19,168,000 for the nine
months ended September 30, 1996. The Company's Funds from Operations for the
nine months ended September 30, 1997 was $17,490,000, compared to $9,620,000 for
the nine months ended September 30, 1996. Funds from Operations 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.
S-7
<PAGE>
THE COMPANY'S PROPERTIES
As of September 30, 1997, the location and type of Properties by rentable
square feet were as follows:
RENTABLE SQUARE FOOTAGE OF PROPERTIES BY LOCATION AND TYPE OF PROPERTY
<TABLE>
<CAPTION>
SUBURBAN PERCENT NUMBER OF
METROPOLITAN AREA INDUSTRIAL OFFICE RETAIL TOTAL OF TOTAL PROPERTIES
- ---------------------------------- ------------- ------------- ---------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Northern California............... 2,049,388 59,036 -- 2,108,424 39% 28
Southern California............... 902,677 204,894 -- 1,107,571 21% 10
Arizona........................... 243,306 350,889 -- 594,195 11% 9
Greater Seattle Area, WA.......... -- 429,095 -- 429,095 8% 2
Greater Kansas City Area, KS...... 247,903 79,316 -- 327,219 6% 6
Denver, CO........................ 210,536 -- -- 210,536 4% 2
Greater Portland Area, OR......... 161,512 -- -- 161,512 3% 2
Salt Lake City, UT................ -- 114,352 -- 114,352 2% 1
Reno, NV.......................... -- 104,324 -- 104,324 2% 1
Colorado Springs, CO.............. -- -- 84,347 84,347 2% 1
Austin, TX........................ -- 82,680 -- 82,680 2% 1
--
------------- ------------- ---------- ------------- ---
Total........................... 3,815,322 1,424,586 84,347 5,324,255 100% 63
--
--
------------- ------------- ---------- ------------- ---
------------- ------------- ---------- ------------- ---
Percent of Total................ 71% 27% 2% 100%
Number of Properties............ 45 17 1 63
</TABLE>
As of September 30, 1997, the location and type of Properties by annualized
base rent were as follows:
ANNUALIZED BASE RENT OF PROPERTIES BY LOCATION AND TYPE OF PROPERTY
<TABLE>
<CAPTION>
SUBURBAN PERCENT NUMBER OF
METROPOLITAN AREA INDUSTRIAL OFFICE RETAIL TOTAL OF TOTAL PROPERTIES
- ------------------------------------- ------------- ------------- ---------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Northern California.................. $ 14,870,328 $ 1,140,744 -- $ 16,011,072 37% 28
Southern California.................. 5,203,656 2,766,396 -- 7,970,052 18% 10
Arizona.............................. 1,941,720 3,082,716 -- 5,024,436 12% 9
Greater Seattle Area, WA............. -- 4,225,944 -- 4,225,944 10% 2
Greater Kansas City Area, KS......... 1,763,028 973,800 -- 2,736,828 7% 6
Reno, NV............................. -- 1,813,560 -- 1,813,560 4% 1
Salt Lake City, UT................... -- 1,791,744 -- 1,791,744 4% 1
Austin, TX........................... -- 1,488,240 -- 1,488,240 3% 1
Greater Portland Area, OR............ 1,024,116 -- -- 1,024,116 2% 2
Colorado Springs, CO................. -- -- $ 876,600 876,600 2% 1
Denver, CO........................... 626,172 -- -- 626,172 1% 2
--
------------- ------------- ---------- ------------- ---
Total.............................. $ 25,429,020 $ 17,283,144 $ 876,600 $ 43,588,764 100% 63
--
--
------------- ------------- ---------- ------------- ---
------------- ------------- ---------- ------------- ---
Percent of Total................... 58% 40% 2% 100%
Number of Properties............... 45 17 1 63
</TABLE>
S-8
<PAGE>
THE OFFERING
All of the shares of Common Stock offered hereby are being sold by the
Company. None of the Company's stockholders is selling any shares of Common
Stock in the Offering.
<TABLE>
<CAPTION>
<S> <C>
Common Stock outstanding prior to the Offering........... 15,331,367 shares(1)
Common Stock offered in the Offering..................... 6,300,000 shares(2)
Common Stock to be outstanding after the
Offering............................................... 21,631,367 shares(1)(2)
Use of Proceeds.......................................... To repay indebtedness under the Company's Credit
Facility, to purchase additional properties and for
general corporate purposes, including working capital.
See "Use of Proceeds."
New York Stock Exchange and Pacific Exchange Symbol...... "BED"
</TABLE>
- ------------------------
(1) Based on the number of shares of Common Stock outstanding as of September
30, 1997, plus the 4,166,667 Shares issued upon conversion of the
Convertible Preferred Stock. Excludes the 95,049 shares of Common Stock
reserved for issuance upon conversion of certain partnership units.
(2) Excludes the 945,000 shares of Common Stock subject to the Underwriters'
over-allotment option.
S-9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth summary consolidated financial and operating
data for the Company and its subsidiaries on a historical basis as of June 30,
1997, for the six months ended June 30, 1997 and 1996, and for the years ended
December 31, 1996 and 1995. The following table also sets forth summary
consolidated financial and operating data for the Company and its subsidiaries
on a pro forma basis as of June 30, 1997, for the six months ended June 30, 1997
and for the year ended December 31, 1996.
The financial and operating data for the years ended December 31, 1996 and
1995 have been derived from the Company's audited financial statements. The
financial and operating data as of June 30, 1997 and for the six months ended
June 30, 1997 and 1996 have been derived from the Company's unaudited financial
statements. The unaudited financial statements include all adjustments
(consisting of normal recurring adjustments) that management considers necessary
for a fair presentation of the financial position and results of operations for
these periods. Operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the entire year ending
December 31, 1997. The following data should be read in conjunction with the
Consolidated Financial Statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" incorporated by
reference in this Prospectus Supplement.
The unaudited pro forma balance sheet data as of June 30, 1997 are presented
as if property acquisitions and property sales occurring after June 30, 1997 and
before September 30, 1997 (excluding the acquisition of the Mondavi Building on
September 16, 1997 for approximately $6.9 million (the "Mondavi Acquisition"))
had occurred on June 30, 1997. The unaudited pro forma operating data for the
six months ended June 30, 1997 are presented as if (i) property acquisitions and
property sales occurring after December 31, 1996 and before September 30, 1997
(excluding the Mondavi Acquisition), (ii) the sale of 4,600,000 shares of Common
Stock at $17.375 per share, and (iii) the assumption of an $8,914,000 mortgage
loan had occurred on January 1, 1997. The unaudited pro forma operating data for
the year ended December 31, 1996 are presented as if (i) property acquisitions
and property sales occurring after December 31, 1995 and before September 30,
1997 (excluding the Mondavi Acquisition), (ii) the sale of 3,350,000 shares of
Common Stock at $13.00 per share, (iii) the sale of 4,600,000 shares of Common
Stock at $ 17.375 per share, and (iv) mortgage loan financings of $60,764,000
had occurred on January 1, 1996. The pro forma data do not include any
adjustments relating to the 6,300,000 shares of Common Stock offered hereby.
The pro forma data are based upon certain assumptions in addition to those
specified above that are included in the notes to the pro forma financial
statements incorporated by reference in this Prospectus Supplement. The pro
forma financial data are not necessarily indicative of what the actual financial
position and results of operations of the Company would have been as of and for
the periods indicated, nor do they purport to represent the Company's future
financial position and results of operations.
S-10
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
--------------------------------- --------------------------------
PRO FORMA ACTUAL ACTUAL PRO FORMA ACTUAL ACTUAL
1997 1997 1996 1996 1996 1995
---------- ---------- --------- ---------- --------- ---------
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE, PROPERTY AND OCCUPANCY
DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Rental income........................ $ 23,199 $ 19,683 $ 12,078 $ 44,797 $ 27,541 $ 11,695
Income from property operations...... 14,899 12,571 7,204 28,134 16,564 6,362
General and administrative
expenses........................... 1,117 1,117 927 1,752 1,752 1,457
Interest income...................... 144 144 62 150 150 226
Interest expense..................... 5,822 3,032 1,765 12,532 4,347 1,594
Income before minority interest and
gain(loss) on sale of real estate
investment......................... 8,104 8,566 4,574 14,000 10,615 3,537
Gain(loss) on sale of real estate
investment......................... 10,595 -- 359 10,661 406 (642)
Net income........................... 18,648 8,515 4,933 24,555 11,021 2,895
Net income applicable to common
stockholders....................... 16,398 6,265 2,683 20,050 6,516 1,607
Primary earnings per common and
common equivalent share............ $ 1.45 $ 0.61 $ 0.61 $ 1.79 $ 1.18 $ 0.52
Weighted average number of common and
common equivalent shares
outstanding........................ 11,330,584 10,243,123 4,432,999 11,175,123 5,531,438 3,089,549
Earnings per common share-assuming
full dilution...................... $ 1.19 $ 0.59 $ 0.57 $ 1.59 $ 1.13 $ 0.52
Weighted average number of common
shares-assuming full dilution...... 15,633,597 14,546,136 8,599,666 15,513,100 9,765,303 3,089,549
CASH FLOW INFORMATION:
Net cash provided by operating
activities......................... $ 9,836 $ 4,392 $ 14,378 $ 4,898
Net cash used by investment
activities......................... (90,175) (29,352) (96,964) (73,259)
Net cash provided by financing
activities......................... 80,086 24,928 82,887 64,655
OTHER DATA:
Funds from operations(1)............. $ 10,940 $ 5,900 $ 13,645 $ 5,021
Dividends declared per share of
Common Stock....................... $ 0.53 $ 0.74 $ 1.00 $ 0.82
Numbers of Properties................ 62 57 35 62 48 30
Rentable square feet (in
thousands)......................... 5,204 4,824 2,963 5,204 3,878 2,576
Percent occupied..................... 97% 98% 96% 96% 94% 95%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
PRO FORMA 1997 ACTUAL 1997
--------------- -----------
<S> <C> <C>
BALANCE SHEET DATA AT JUNE 30, 1997:
Real estate investments before accumulated depreciation........................... $ 364,017 $ 328,561
Total assets...................................................................... 374,384 332,690
Mortgage Loans.................................................................... 60,584 60,584
Credit Facility................................................................... 88,143 58,350
Common Stock and other stockholders' equity....................................... 160,828 150,040
</TABLE>
- ------------------------------
(1) Management considers Funds from Operations to be one measure of the
performance of an equity REIT. Funds from Operations is used by financial
analysts in evaluating REITs and can be one measure of a REIT's ability to
make cash distributions. Presentation of this information provides the
reader with an additional measure to compare the performance of different
REITs. Funds from Operations generally is defined by NAREIT as net income
(loss) (computed in accordance with generally accepted accounting
principles), excluding gains (losses) from debt restructurings and sales of
property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Funds from Operations was
computed by the Company in accordance with this definition. Funds from
Operations does not represent cash generated by operating activities in
accordance with the generally accepted accounting principles; it is not
necessarily indicative of cash available to fund cash needs and should not
be considered as an alternative to net income (loss) as an indicator of the
Company's operating performance or as an alternative to cash flow as a
measure of liquidity.
S-11
<PAGE>
THE COMPANY
Bedford Property Investors, Inc. is a self-administered and self-managed
equity REIT engaged in the business of owning, managing, acquiring and
developing industrial and suburban office properties proximate to selected
metropolitan areas primarily in the Western United States. As of September 30,
1997, the Company owned and operated, either directly or through one of its
wholly-owned subsidiaries, 63 properties aggregating approximately 5.3 million
rentable square feet and comprised of 45 Industrial Properties, 17 Suburban
Office Properties and one Retail Property. As of September 30, 1997, the
Properties were approximately 97% occupied by over 400 tenants. The Company's
Properties are located in Northern and Southern California, Oregon, Washington,
Arizona, Nevada, Utah, Colorado, Texas and Kansas.
The Company seeks to grow its asset base through the acquisition of
industrial and suburban office properties and portfolios of such properties, as
well as through the development of new industrial and suburban office
properties. The Company's strategy is to operate in suburban markets that are
experiencing, or are expected by the Company to experience, superior economic
growth and that are subject to limitations on the development of similar
properties. The Company believes that employment growth is a reliable indicator
of future demand for both industrial and suburban office space. In addition, the
Company believes that certain supply-side constraints, such as limited
availability of undeveloped land in a market, increase a market's potential for
higher average rents over time. The Company is currently targeting selected
markets proximate to metropolitan areas in which the Company's Properties are
located as well as selected markets in which the Company has expertise. The
Company believes that due to recent economic improvements in these markets, and
related improvements in the commercial property markets, an investment in
industrial or suburban office properties in these markets provides the potential
for attractive returns through increased occupancy levels, rents and real estate
values.
The Company is led by a professional management team who have on average
over 20 years of experience in the ownership, management, acquisition and
development of industrial and suburban office properties. Peter B. Bedford, the
Company's Chairman and Chief Executive Officer, has been engaged in the
commercial real estate business, primarily in the Western United States, for
over 30 years and during his career has been responsible for the ownership,
management, acquisition and development of an aggregate of approximately 19
million square feet of industrial, office and retail properties, as well as
land, in 14 states.
Upon completion of the Offering, the senior officers and directors of the
Company will beneficially own approximately 6.7% of the outstanding Common
Stock, including 4.6% beneficially owned by Mr. Bedford. In addition 18.9% of
the Common Stock will be beneficially owned by Bed Preferred No. 1 Limited
Partnership ("BPLP"), a Delaware limited partnership which in turn is
beneficially owned by an investment fund managed by AEW Capital Management which
has two representatives on the Company's Board of Directors. BPLP acquired this
beneficial interest in the Common Stock by converting its 8,333,334 shares of
the Company's Convertible Preferred Stock into 4,166,667 shares of Common Stock
on October 14, 1997.
BUSINESS OBJECTIVE AND GROWTH PLANS
The Company's business objective is to increase stockholders' long-term
total return through the appreciation in value of the Common Stock. To achieve
this objective, the Company seeks to (i) increase cash flow from its existing
Properties, (ii) acquire quality industrial and suburban office properties
and/or portfolios of such properties and (iii) develop new industrial and
suburban office properties.
INTERNAL GROWTH
The Company seeks to increase cash flow from existing Properties through (i)
the lease-up of vacant space, (ii) the reduction of costs associated with tenant
turnover through the retention of existing tenants,
S-12
<PAGE>
(iii) the negotiation of increases in rental rates and contractual periodic rent
increases when market conditions permit and (iv) the strict containment of
operating expenses and effective management of capital expenditures.
In the first nine months of 1997, leases for 753,895 square feet expired
with a weighted average base rental rate of $8.04 per square foot. Approximately
76% of this space has been re-leased, and the weighted average base rental rate
of the new leases is $8.71 per square foot, an increase of 8.3%. Changes in
average rental rate do not reflect changes in expense recovery rates, if any. In
addition, past performance is not necessarily indicative of results that will be
obtained in the future, and no assurance can be given in that regard.
ACQUISITIONS
The Company seeks to acquire quality industrial and suburban office
properties and/or portfolios of such properties. The Company believes that (i)
the experience of its management team, (ii) its conservative capital structure
and its existing $175 million Credit Facility, (iii) its relationships with
private and institutional real estate owners, (iv) its strong relationships with
real estate brokers and (v) its integrated asset management program enable it to
effectively identify and capitalize on acquisition opportunities. Each
acquisition opportunity is reviewed to evaluate whether it meets the following
criteria: (i) potential for higher occupancy levels and/or rents as well as for
lower turnover and/or operating expenses, (ii) ability to generate returns in
excess of the Company's weighted average cost of capital, taking into account
the estimated costs associated with tenant turnover (i.e., tenant improvements,
leasing commissions and the loss of income due to vacancy) and (iii)
availability for purchase at a price at or below estimated replacement cost. The
Company has, however, acquired and may in the future acquire properties which do
not meet one or more of these criteria. This may be particularly true with the
acquisition of a portfolio of properties, which may include properties that do
not meet one or more of the foregoing criteria.
Following completion of an initial review, the Company may make a purchase
offer, subject to satisfactory completion of its due diligence process. The due
diligence process enables the Company to refine its original estimate of a
property's potential performance and typically includes a complete review and
analysis of the property's physical structure, systems, environmental status and
projected financial performance, as well as an evaluation of the local market
and competitive properties and of relevant economic and demographic information.
Mr. Bedford and at least one other member of the Board of Directors typically
visit each proposed acquisition property before the purchase is closed.
The Company's activities relating to the acquisition of new properties,
including the due diligence process, are conducted on an exclusive basis by
Bedford Acquisitions, Inc. ("Bedford Acquisitions"), a California corporation
wholly-owned by Mr. Bedford. Bedford Acquisitions receives a fee in an amount
equal to the lesser of (i) 1 1/2% of the gross amount raised in financings or
the aggregate purchase price of property acquisitions, or (ii) an amount equal
to (a) the aggregate amount of approved expenses funded by Bedford Acquisitions
through the time of such acquisition or financing minus (b) the aggregate amount
of fees previously paid to Bedford Acquisitions pursuant to such arrangement. In
no event will the aggregate amount of fees paid to Bedford Acquisitions exceed
the aggregate amount of costs funded by Bedford Acquisitions. The agreement with
Bedford Acquisitions will expire January 1, 1998 and is renewable at the option
of the Company for additional one year terms. The Company intends to renew this
agreement for 1998.
DEVELOPMENT
The Company seeks to develop properties in markets where (i) strong demand
for space has caused or is expected to cause occupancy rates to remain high and
(ii) there is a limited supply of land available for new development. The
Company's management team has experience in all phases of the development
process, including market analysis, site selection, zoning, design,
pre-development leasing, construction
S-13
<PAGE>
and permanent financing and construction management. The Company believes that a
general decrease in competition in development activity as well as higher
occupancy rates in most of the Company's markets will lead to additional
attractive development opportunities. The Company is currently in the process of
developing properties in Northern California, Arizona and Kansas and is
considering developing additional properties in Northern California, Southern
California and Arizona. The Company has significant development experience in
each of these markets.
CORPORATE STRATEGIES
In pursuing its business objectives and growth plans, the Company intends
to:
PURSUE A MARKET DRIVEN STRATEGY.
The Company's strategy is to operate in suburban markets which are
experiencing, or are expected by the Company to experience, economic growth, and
which are, ideally, subject to supply-side constraints. The Company believes
that the metropolitan areas in which it operates have multiple suburban "cores"
and that the potential for growth in these metropolitan areas is generally
greatest in and around these suburban cores. The Company believes that such
suburban cores emerge as jobs move to the suburbs and typically offer a
well-trained and well-educated work force, high quality of life and, in many
cases, a diversified economic base. The Company focuses on owning, managing,
acquiring and developing properties in these suburban cores. Additionally, the
Company seeks out real estate markets that are subject to supply-side
constraints such as limited availability of undeveloped land and/or geographic,
topographic, regulatory and/or infrastructure restrictions. The Company believes
that such restrictions serve as barriers of entry to new construction, thereby
limiting the supply of new commercial space. The Company believes that these
supply-side constraints, when combined with a growing employment and population
base, enhance the long-term investment potential of a real estate asset.
FOCUS ITS EFFORTS IN THE WESTERN UNITED STATES.
The Company is currently targeting selected suburban markets in the Western
United States, including markets in which the Company's Properties are located
as well as selected new markets. The Company believes that due to continued
economic improvements in these markets, and related improvements in the
commercial property markets, an investment in industrial or suburban office
properties in these markets provides the potential for attractive returns
through increased occupancy levels, rents and real estate values. The Company
believes that this geographic focus, combined with management's market
experience, contributes to a more thorough understanding of these industrial and
suburban office property markets and allows the Company to anticipate trends and
therefore to better identify investment opportunities.
ACQUIRE AND DEVELOP "SERVICE CENTER/FLEX" INDUSTRIAL PROPERTIES.
One of the Company's targeted property types is "service center/flex"
industrial properties. These properties are generally smaller than other
industrial buildings and are divisible into units ranging from approximately
1,500 square feet to approximately 20,000 square feet in order to accommodate
multiple tenants of various sizes and needs. The buildings generally range in
size from 8,000 to 80,000 square feet, have a clear height of 12 to 18 feet and
are built using concrete tilt construction with store fronts incorporated in the
front elevation and grade level service doors in the back elevation. The Company
believes that these properties require more management expertise than other
types of industrial properties and that it has developed such expertise. The
Company also believes that many potential buyers do not wish or are not
well-positioned to undertake such active management. As a result, the Company
believes that it often faces fewer competitors for this product and is generally
able to acquire these properties at above average yields.
S-14
<PAGE>
CAPITALIZE ON ITS EXPERIENCED MANAGEMENT TEAM.
The Company's management team has direct experience in all aspects of
managing a large real estate portfolio. The Company's management team has on
average over 20 years of experience in the ownership, management, acquisition
and development of industrial and suburban office properties. The Company
believes that the experience of its management team makes it strategically
well-positioned for growth.
PLAN FOR FUTURE ANTICIPATED EXPENSES ASSOCIATED WITH TENANT TURNOVER.
The cash flow of a real estate asset can vary significantly from year to
year depending on tenant turnover. When a lease expires and a tenant renews or
vacates its space, costs associated with tenant improvements, lease commissions
and lost income due to vacancy or construction down-time can significantly
reduce property cash flow. Due to the capital intensive nature of suburban
office properties and, to a lesser degree, industrial properties, the Company
believes that planning and budgeting for future costs associated with tenant
turnover is a prudent component of managing the cash flow of the Properties. For
its existing portfolio, the Company estimates the future costs for tenant
improvements, lease commissions and lost income due to vacancy and construction
down-time on a property by property basis. Although these future costs are not
accrued for financial reporting purposes, the Company incorporates these
estimates in its annual budgets and longer-term forecasts and seeks to maintain
cash and/or availability under the Credit Facility adequate to cover these
budgeted expenditures. The Company believes that its ability to commit capital
to fund tenant improvements and pay lease commissions helps to retain and
attract tenants. To the extent that a vacancy in one of the Properties does
occur, the Company believes that its policy of budgeting ahead for anticipated
tenant improvement costs and leasing commissions enables it to compete
effectively for new tenants.
UTILIZE IN-HOUSE ASSET AND PROPERTY MANAGEMENT.
The Company believes that the long-term value of its Properties is enhanced
through in-house asset management and currently manages 55 of its 63 properties
from its five regional property management offices and its corporate
headquarters. The Company conducts its Northern California property management
activities out of its headquarters office in Lafayette, California, its Southern
California property management activities out of its regional office in Tustin,
California, its Kansas City property management activities out of its regional
office in Lenexa, Kansas, its Arizona property management activities out of its
regional office in Phoenix, Arizona, and its Washington property management
activities out of its regional office in Seattle, Washington. The Company's
eight Properties in Utah, Colorado, Oregon and Texas are currently managed for
the Company by third parties. The Company intends to open additional property
management offices in those regions as its portfolios grow to a point where it
becomes economically justified.
The Company's asset management team develops and monitors a comprehensive
asset management plan for each Property in an effort to ensure its efficient
operation. The Company's Vice President of Property/Asset Management works
directly with the Company's internal finance and accounting staff to develop and
monitor detailed budgets and financial reports for each Property. He also works
with each property manager to identify and implement opportunities to improve
cash flow from each Property and to maximize each Property's long-term
investment value. The Company's property management staff is generally
responsible for leasing activities, ordinary maintenance and repairs, keeping
financial records on income and expenses, rent collection, payment of operating
expenses and property operations. The Company's property management philosophy
is based on the belief that the long-term value of the Properties is enhanced by
attention to detail and hands-on service provided by professional in-house
property managers. The Company believes that a successful leasing program starts
by servicing existing tenants first. Costs associated with tenant turnover
(i.e., tenant improvements, leasing commissions and the loss of income due to
vacancy) can be significant and, by addressing and attending to existing
tenants'
S-15
<PAGE>
needs, the Company believes that it can increase its retention of existing
tenants and simultaneously make its properties more attractive to tenants.
COOPERATE WITH LOCAL REAL ESTATE BROKERS.
The Company seeks to develop strong relationships with local real estate
brokers, who can provide access to tenants as well as general market
intelligence and research. The Company believes that these relationships have
enhanced the Company's ability to attract and retain tenants.
MAINTAIN ITS CONSERVATIVE FINANCIAL LEVERAGE.
As adjusted to reflect the Offering and the application of the net proceeds
therefrom to repay all of the outstanding balance under the Company's Credit
Facility, the Company's total consolidated indebtedness as of September 30, 1997
equaled approximately 11.5% of the Company's Total Market Capitalization (based
on the closing stock price of 21 7/16 on the NYSE as of October 20, 1997). See
"Capitalization" and "Use of Proceeds." The Company currently intends to limit
its total consolidated indebtedness to no more than 45% of its Total Market
Capitalization. The Board of Directors intends, however, to retain the ability
to raise additional capital, including additional debt and equity, in order to
pursue acquisition and development opportunities that meet the Company's
investment criteria.
S-16
<PAGE>
THE COMPANY'S PROPERTY MARKETS
The Company's Properties are located in selected markets proximate to
metropolitan areas in Northern and Southern California, Oregon, Washington,
Arizona, Nevada, Utah, Colorado, Texas and Kansas. The Company believes that due
to recent economic improvements in these markets, and related improvements in
the commercial property markets, an investment in industrial or suburban office
properties in these markets provides the potential for attractive returns
through increased occupancy levels, rents and real estate values. In the 1997
edition of EMERGING TRENDS IN REAL ESTATE, a publication of Equitable Real
Estate Investment Management, Inc., more than 150 real estate professionals
ranked San Francisco, Seattle, Denver, San Diego and Los Angeles among the top
eight markets in the nation for general real estate investment in 1997.
The following chart outlines employment growth in the Company's markets
versus the United States as a whole for 1992 through 1997.
EMPLOYMENT GROWTH IN THE COMPANY'S MARKETS(1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Company's Markets United States
<S> <C> <C>
1992 0.1% 0.3%
1993 1.6% 1.9%
1994 2.4% 3.1%
1995 3.7% 2.7%
1996 4.3% 2.0%
1997 Forecast 3.9% 2.1%
</TABLE>
- ------------------------------
(1) Source: Bureau of Labor Statistics, Rosen Consulting Group. Represents
nonfarm employment growth in the Company's markets weighted based on the
total "Annualized Base Rent" of the Properties located in each of the
markets as of September 30, 1997. "Annualized Base Rent" means, for any
Property and at any date, the product of (i) the monthly base rent in effect
with respect to such Property at such date or, if such monthly base rent has
been reduced by a temporary rent concession, the monthly base rent that
would have been in effect at such date in the absence of such concession,
and (ii) twelve. Annualized Base Rent does not reflect any increases or
decreases in monthly rental rates or lease expirations which are scheduled
to occur or which may occur after the date of calculation or the cost of any
leasing commissions or tenant improvements.
S-17
<PAGE>
The following charts show absorption, construction and occupancy rates for
suburban office and industrial properties in the Company's markets over the past
six years.
SUBURBAN OFFICE PROPERTY DATA--THE COMPANY'S MARKETS(1)(2)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Square Feet (in
millions)
<S> <C> <C> <C>
Construction Net Absorption Occupancy
1992 0.692 5.195 82.9%
1993 0.144 8.031 84.1%
1994 0.793 5.09 87.1%
1995 1.478 8.387 89.2%
1996 3.262 10.289 91.1%
1997 3.133 5.067 91.9%
</TABLE>
INDUSTRIAL PROPERTY DATA--THE COMPANY'S MARKETS(1)(2)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SQUARE FEET (IN
MILLIONS)
<S> <C> <C> <C>
Construction Net Absorption Occupancy
1992 7 18 83.0%
1993 6 19 83.8%
1994 9 51 89.4%
1995 19 32 92.2%
1996 35 43 93.9%
1997 21 22 94.2%
</TABLE>
- ------------------------
(1) Source: Rosen Consulting Group. Data for 1997 as of second quarter. Data for
1992 through 1996 as of fourth quarter. Occupancy is weighted based on the
Annualized Base Rent of the Suburban Office and Industrial Properties
located in each of the Company's markets. Construction and Net Absorption
are totals.
(2) The following data was not available: (i) all data for Modesto, Napa, Reno,
and Santa Rosa, (ii) 1992 and 1993 industrial construction and absorption
for San Diego, (iii) 1992 and 1993 industrial net absorption for Portland
and (iv) 1997 suburban office and industrial occupancy, construction and net
absorption for Austin.
S-18
<PAGE>
The following table contains additional economic data for each of the
Company's markets.
ECONOMIC SUMMARY OF THE COMPANY'S MARKETS(1)
<TABLE>
<CAPTION>
POPULATION POPULATION JOB UNEMPLOYMENT
METROPOLITAN AREA (THOUSANDS)(2) GROWTH(3) GROWTH(4) RATE(5)
- ------------------------------------------------------------ ------------- -------------- ------------- ------------------
<S> <C> <C> <C> <C>
Northern California(6)...................................... 6,784 0.8% 3.1% 4.1%
Southern California(7)...................................... 17,436 0.7% 2.4% 5.8%
Phoenix..................................................... 2,747 3.6% 5.9% 2.8%
Seattle..................................................... 2,235 1.4% 5.4% 3.4%
Kansas City................................................. 1,690 1.1% 2.9% 3.2%
Reno........................................................ 299 2.6% 3.3% 4.5%
Salt Lake City.............................................. 1,218 2.1% 4.3% 2.9%
Austin...................................................... 1,041 3.6% 1.6% 3.1%
Portland.................................................... 1,759 2.3% 4.2% 4.3%
Denver...................................................... 1,867 2.3% 1.8% 2.8%
</TABLE>
- ------------------------------
(1) Source: U.S. Bureau of the Census, Bureau of Labor Statistics, Rosen
Consulting Group.
(2) Population of metropolitan statistical area as of July 1, 1996.
(3) Five-year compounded annual growth rate from 1991 to 1996.
(4) Forecasted growth rate for 1997.
(5) As of August 1997.
(6) Represents aggregate data for Napa, Oakland, San Francisco, San Jose, Santa
Rosa and Modesto.
(7) Represents aggregate data for Los Angeles-Long Beach, Orange County,
Riverside-San Bernardino and San Diego.
S-19
<PAGE>
The State of California, in particular, where approximately 55% of the
Company's total Annualized Base Rent was generated as of September 30, 1997, has
been experiencing economic growth in excess of national averages, as the economy
continues to recover from the recession it experienced between 1990 and 1993.
The following chart shows average annual growth in nonfarm payroll
employment for California and the United States as a whole. The chart
demonstrates that the recession, as evidenced by the growth (or decline) in
employment, came later in California than for the U.S. as a whole and the
recovery has come later as well. In 1996, the job growth rate in California
exceeded the job growth rate in the U.S. for the first time since 1990.
EMPLOYMENT GROWTH IN CALIFORNIA(1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
California United States
<S> <C> <C>
1992 -1.7% 0.3%
1993 -0.9% 1.9%
1994 0.9% 3.1%
1995 2.2% 2.7%
1996 2.8% 2.0%
1997 Forecast 3.0% 2.1%
</TABLE>
- ------------------------------
(1) Source: Bureau of Labor Statistics, Rosen Consulting Group.
This recovery has had a positive effect on both surburban office and
industrial real estate markets throughout the state, with net absorption
continuing to outpace completions and occupancy rates continuing to trend
upward. In the 1997 EMERGING TRENDS IN REAL ESTATE survey, San Francisco was
rated the number one metropolitan area for investment, and Los Angeles
(excluding the central business district) showed the greatest improvement among
the top markets, moving from number 14 in 1996 to number eight.
S-20
<PAGE>
The following charts show absorption, construction and occupancy rates for
suburban office and industrial properties in the Company's Northern and Southern
California property markets over the past six years.
NORTHERN CALIFORNIA(1)(2)
SUBURBAN OFFICE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Suare Feet (in
000s)
<S> <C> <C> <C>
Construction Net Absorption Occupancy
1992 609 1,060 84.6%
1993 39 999 85.7%
1994 18 1,355 87.3%
1995 - 1,960 89.6%
1996 449 3,176 92.8%
1997 704 391 92.5%
</TABLE>
INDUSTRIAL
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Square Feet (in
000s)
<S> <C> <C> <C>
Construction Net Absorption Occupancy
1992 207 3,473 86.0%
1993 61 (1,058) 85.7%
1994 273 13,032 90.1%
1995 1,455 7,611 92.3%
1996 3,820 5,576 93.0%
1997 2,252 4,577 93.8%
</TABLE>
SOUTHERN CALIFORNIA(1)(3)
SUBURBAN OFFICE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SQUARE FEEL (IN
000S)
<S> <C> <C> <C>
Construction Net Absorption Occupancy
1992 621 2,246 78.80%
1993 35 4,028 80.60%
1994 237 1,267 81.10%
1995 475 1,037 81.40%
1996 83 4,817 83.50%
1997 78 2,154 84.40%
</TABLE>
INDUSTRIAL
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SQUARE FEET (IN
000S)
<S> <C> <C> <C>
Construction Net Absorption Occupancy
1992 3,166 3,373 86.40%
1993 1,060 -606 86.40%
1994 5,945 20,475 87.80%
1995 4,210 37,289 90.80%
1996 8,927 26,051 92.40%
1997 5,848 9,005 92.80%
</TABLE>
- ------------------------
(1) Source: Rosen Consulting Group. Data for 1997 as of second quarter. Data for
1992 through 1996 as of fourth quarter. Occupancy is weighted based on the
total stock of each metropolitan statistical area ("MSA") as of second
quarter 1997. Data for 1992 and 1993 San Diego industrial construction and
absorption not available. Construction and Net Absorption are totals.
(2) Based on data for the following MSAs: San Francisco, San Jose and Oakland.
(3) Based on data for the following MSAs: Los Angeles-Long Beach, Orange County,
Riverside-San Bernardino and San Diego.
S-21
<PAGE>
THE COMPANY'S PROPERTIES
As of September 30, 1997, the Company owned and operated 63 Properties,
aggregating approximately 5.3 million rentable square feet and comprised of 45
Industrial Properties totalling approximately 3.8 million rentable square feet,
17 Suburban Office Properties totalling approximately 1.4 million rentable
square feet and one Retail Property totalling approximately 84,000 rentable
square feet. As of September 30, 1997, the Suburban Office Properties and
Industrial Properties were approximately 99% and 97% occupied, respectively, by
a total of 421 tenants, of which 83 were Suburban Office Property tenants and
338 were Industrial Property tenants. As of September 30, 1997, the Retail
Property was 97% occupied by 15 tenants.
The following table summarizes certain information with respect to the
Properties as of September 30, 1997. As noted in "Recent Developments," the
Company has acquired two properties since September 30, 1997 and also has five
properties under development. None of these properties is included in this
table.
TABLE OF PROPERTIES
<TABLE>
<CAPTION>
YEAR TOTAL NET
ACQUIRED/ RENTABLE TOTAL NUMBER EFFECTIVE
PROPERTY NAME AND YEAR SQUARE PERCENT ANNUALIZED OF RENT/ PROPERTY
LOCATION CONSTRUCTED FEET OCCUPIED BASE RENT TENANTS SQ. FT. TYPE
- -------------------------------------------------- ------------ --------- -------- ----------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES
NORTHERN CALIFORNIA
Building #3 at Contra Costa Diablo Industrial
Park, Concord................................... 1990/1983 21,840 100% $ 149,448 1 $ 6.84 Bulk
Building #8 at Contra Costa Diablo Industrial
Park, Concord................................... 1990/1981 31,800 100% 190,800 1 6.00 Bulk
Building #18 at Mason Industrial Park, Concord.... 1990/1984 28,836 100% 199,596 9 6.92 Service
115 Mason Circle, Concord......................... 1996/1971 35,000 100% 215,856 5 6.17 Service
Auburn Court, Fremont............................. 1995/1983 68,030 100% 530,976 6 7.80 R&D
47650 Westinghouse Drive, Fremont................. 1995/1982 24,030 100% 132,648 1 5.52 R&D
47600 Westinghouse Drive, Fremont................. 1996/1982 24,030 100% 245,112 1 10.20 R&D
47633 Westinghouse Drive, Fremont................. 1996/1983 50,088 100% 569,412 1 11.37 R&D
6500 Kaiser Drive, Fremont........................ 1997/1990 78,611 100% 707,496 1 9.00 R&D
Bedford Fremont Business Center, Fremont.......... 1997/1990 146,509 100% 1,714,104 24 11.70 Service
Spinnaker Court, Fremont.......................... 1997/1986 98,500 100% 788,748 2 8.01 R&D
Fourier Avenue, Fremont........................... 1996/1982 104,400 100% 938,352 1 8.99 R&D
Milpitas Town Center, Milpitas.................... 1994/1983 102,620 100% 913,068 3 8.90 R&D
598 Gibraltar Drive, Milpitas..................... 1996/1996 45,090 100% 427,452 1 9.48 R&D
Doherty Avenue, Modesto........................... 1996/1963-71 251,308 100% 472,128 1 1.88 Bulk
860-870 Napa Valley Corporate Way, Napa........... 1996/1984 67,775 89% 548,496 18 9.12 Service
The Mondavi Building, Napa........................ 1997/1985 120,157 100% 591,168 1 4.92 Bulk
350 East Plumeria Drive, San Jose................. 1995/1983 142,700 100% 1,198,680 1 8.40 R&D
Lundy Avenue, San Jose............................ 1996/1982 60,428 100% 428,496 2 7.09 R&D
O'Toole Business Center, San Jose................. 1996/1984 122,320 97% 1,157,688 23 9.71 Service
301 East Grand, South San Francisco............... 1995/1974 57,846 100% 322,020 3 5.57 Bulk
342 Allerton, South San Francisco................. 1995/1969 69,312 100% 524,496 4 7.57 Bulk
400 Grandview Bldg, South San Francisco........... 1995/1976 107,004 100% 752,100 5 7.03 Bulk
410 Allerton, South San Francisco................. 1995/1970 46,050 100% 237,612 1 5.16 Bulk
417 Eccles, South San Francisco................... 1995/1964 24,624 53% 82,428 1 6.36 Bulk
2277 Pine View Way, Petaluma...................... 1997/1989 120,480 100% 831,948 1 6.91 R&D
--------- -------- ----------- ------ ---------
Subtotal/Weighted Average....................... 2,049,388 99% $14,870,328 118 $ 7.34
--------- -------- ----------- ------ ---------
SOUTHERN CALIFORNIA
Dupont Industrial Center, Ontario................. 1994/1989 451,192 100% $ 1,534,776 15 $ 3.40 Bulk
3002 Dow Business Center, Tustin.................. 1995/1987-89 192,125 96% 1,561,956 60 8.47 Service
Carroll Tech I, San Diego......................... 1996/1984 21,936 100% 261,756 1 11.93 R&D
Carroll Tech II, San Diego........................ 1996/1984 37,586 100% 432,996 1 11.52 R&D
Signal Systems Building, San Diego................ 1996/1990 109,780 100% 890,316 1 8.11 R&D
Vista 1, Vista.................................... 1996/1990 42,508 100% 219,336 1 5.16 R&D
Vista 2, Vista.................................... 1996/1990 47,550 100% 302,520 1 6.36 R&D
--------- -------- ----------- ------ ---------
Subtotal/Weighted Average....................... 902,677 99% $ 5,203,656 80 $ 5.84
--------- -------- ----------- ------ ---------
DENVER
Bryant Street Annex, Denver....................... 1995/1968 55,000 23% $ 45,624 1 $ 3.55 Bulk
Bryant Street Quad, Denver........................ 1995/1971-73 155,536 100% 580,548 17 3.73 Bulk
--------- -------- ----------- ------ ---------
Subtotal/Weighted Average....................... 210,536 80% $ 626,172 18 $ 3.68
--------- -------- ----------- ------ ---------
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL NET
ACQUIRED/ RENTABLE TOTAL NUMBER EFFECTIVE
PROPERTY NAME AND YEAR SQUARE PERCENT ANNUALIZED OF RENT/ PROPERTY
LOCATION CONSTRUCTED FEET OCCUPIED BASE RENT TENANTS SQ. FT. TYPE
- -------------------------------------------------- ------------ --------- -------- ----------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ARIZONA
Westech Business Center, Phoenix.................. 1996/1985 143,940 95% $ 1,275,228 49 $ 9.36 Service
2601 W. Broadway, Tempe........................... 1997/1977 44,244 100% 315,912 1 7.14 R&D
Phoenix Airport Center #3, Phoenix................ 1997/1990 55,122 100% 350,560 1 6.36 R&D
--------- -------- ----------- ------ ---------
Subtotal/Weighted Average....................... 243,306 97% $ 1,941,720 51 $ 8.28
--------- -------- ----------- ------ ---------
GREATER PORTLAND AREA
Twin Oaks Technology Center, Beaverton............ 1995/1984 95,173 84% $ 595,800 17 $ 7.42 Service
Twin Oaks Business Center, Beaverton.............. 1995/1984 66,339 73% 428,316 9 8.86 Service
--------- -------- ----------- ------ ---------
Subtotal/Weighted Average....................... 161,512 80% $ 1,024,116 26 $ 8.01
--------- -------- ----------- ------ ---------
GREATER KANSAS CITY AREA
Ninety-Ninth Street #3, Lenexa.................... 1990/1990 50,000 89% $ 260,424 2 $ 5.89 Bulk
Ninety-Ninth Street #1, Lenexa.................... 1995/1988 35,516 100% 295,536 3 8.32 Bulk
Ninety-Ninth Street #2, Lenexa.................... 1995/1988 12,974 100% 111,840 1 8.62 R&D
Lackman Business Center, Lenexa................... 1995/1985 45,956 100% 402,456 23 8.77 Service
Panorama Business Park, Kansas City............... 1996/1984 103,457 100% 692,772 16 6.70 Service
--------- -------- ----------- ------ ---------
Subtotal/Weighted Average....................... 247,903 98% $ 1,763,028 45 $ 7.25
--------- -------- ----------- ------ ---------
TOTAL/WEIGHTED AVERAGE ALL INDUSTRIAL
PROPERTIES.................................... 3,815,322 97% $25,429,020 338 $ 6.86
--------- -------- ----------- ------ ---------
SUBURBAN OFFICE PROPERTIES
NORTHERN CALIFORNIA
Village Green, Lafayette.......................... 1994/1983 16,895 83% $ 324,288 9 $23.12 Office
100 View Street, Mountain View.................... 1996/1985 42,141 100% 816,456 7 19.37 Office
--------- -------- ----------- ------ ---------
Subtotal/Weighted Average....................... 59,036 95% $ 1,140,744 16 $20.44
--------- -------- ----------- ------ ---------
SOUTHERN CALIFORNIA
Laguna Hills Square, Laguna....................... 1996/1983 51,734 88% $ 1,110,444 9 $24.41 Office
Carroll Tech III, San Diego....................... 1996/1984 29,307 100% 242,520 1 8.28 Office
Scripps Wateridge, San Diego...................... 1997/1990 123,853 100% 1,413,432 2 11.41 Office
--------- -------- ----------- ------ ---------
Subtotal/Weighted Average....................... 204,894 97% $ 2,766,396 12 $14.24
--------- -------- ----------- ------ ---------
SALT LAKE CITY
Woodlands II, Salt Lake City...................... 1993/1990 114,352 100% $ 1,791,744 12 $14.72 Office
--------- -------- ----------- ------ ---------
GREATER KANSAS CITY AREA
6600 College Boulevard, Overland Park............. 1995/1982-83 79,316 100% $ 973,800 6 $12.28 Office
--------- -------- ----------- ------ ---------
GREATER SEATTLE AREA
Kenyon Center, Bellevue........................... 1996/1987 94,840 100% $ 1,100,664 1 $11.61 Office
Orillia Office Park, Renton....................... 1997/1986 334,255 100% 3,125,280 1 9.35 Office
--------- -------- ----------- ------ ---------
Subtotal/Weighted Average....................... 429,095 100% $ 4,225,944 2 $ 9.85
--------- -------- ----------- ------ ---------
RENO
U.S. Bank Centre, Reno............................ 1997/1989 104,324 94% $ 1,813,560 17 $18.53 Office
--------- -------- ----------- ------ ---------
AUSTIN
9737 Great Hills Trail, Austin.................... 1997/1984 82,680 100% $ 1,488,240 1 $18.00 Office
--------- -------- ----------- ------ ---------
ARIZONA
Executive Center at Southbank, Phoenix............ 1997/1989 140,157 98% $ 1,256,736 7 $ 9.14 Office
Troika Building, Tucson........................... 1997/1985 52,000 100% 468,000 1 9.00 Office
Phoenix Airport Center #1, Phoenix................ 1997/1990 32,460 100% 448,224 6 13.81 Office
Phoenix Airport Center #2, Phoenix................ 1997/1990 35,768 100% 257,532 1 7.20 Office
Phoenix Airport Center #4, Phoenix................ 1997/1990 30,504 100% 219,624 1 7.20 Office
Phoenix Airport Center #5, Phoenix................ 1997/1990 60,000 100% 432,600 1 7.21 Office
--------- -------- ----------- ------ ---------
Subtotal/Weighted Average....................... 350,889 99% $ 3,082,716 17 $ 8.85
--------- -------- ----------- ------ ---------
TOTAL/WEIGHTED AVERAGE ALL SUBURBAN OFFICE
PROPERTIES.................................... 1,424,586 99% $17,283,144 83 $12.31
--------- -------- ----------- ------ ---------
RETAIL PROPERTY
Academy Place Shopping Center, Colorado Springs... 1995/1980-82 84,347 97% $ 876,600 15 $10.66 Retail
--------- -------- ----------- ------ ---------
TOTAL/WEIGHTED AVERAGE ALL PROPERTIES........... 5,324,255 97% $43,588,764 436 $ 8.38
--------- -------- ----------- ------ ---------
--------- -------- ----------- ------ ---------
</TABLE>
S-23
<PAGE>
LEASE EXPIRATIONS FOR THE PROPERTIES
The following table sets forth as of September 30, 1997 a schedule of lease
expirations for the Properties, assuming that none of the tenants exercise
renewal options or termination rights. The Company expects to benefit from
increasing rental rates in its markets as its leases expire. There can be no
assurance, however, that the Company will actually obtain this benefit or that
the Company's rental rates won't decline as a result of renegotiated leases.
<TABLE>
<CAPTION>
PERCENTAGE AND
CUMULATIVE PERCENTAGE PERCENTAGE AND
OF TOTAL LEASED SQUARE CUMULATIVE PERCENTAGE
FEET SUBJECT TO OF ANNUALIZED BASE RENT
RENTABLE EXPIRING LEASES ANNUALIZED UNDER EXPIRING LEASES
NUMBER OF SQUARE FEET ---------------------------- BASE RENT ----------------------------
YEAR OF LEASE LEASES SUBJECT TO CUMULATIVE UNDER EXPIRING CUMULATIVE
EXPIRATION EXPIRING EXPIRING LEASES PERCENTAGE PERCENTAGE LEASES PERCENTAGE PERCENTAGE
- ------------------ --------------- --------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997.............. 47 178,950 3.5% 3.5% $ 1,499,952 3.4% 3.4%
1998.............. 124 975,702 18.8% 22.3% 7,540,380 17.3% 20.7%
1999.............. 81 565,282 10.9% 33.2% 5,086,848 11.7% 32.4%
2000.............. 84 648,036 12.5% 45.7% 6,672,960 15.3% 47.7%
2001.............. 40 705,426 13.6% 59.3% 6,721,128 15.4% 63.1%
2002.............. 39 438,373 8.5% 67.8% 4,493,148 10.3% 73.4%
2003.............. 5 123,892 2.4% 70.2% 1,162,512 2.7% 76.1%
2004.............. 4 541,296 10.4% 80.6% 4,903,776 11.3% 87.4%
2005.............. 3 125,555 2.4% 83.0% 1,363,560 3.1% 90.5%
2006.............. 5 414,633 8.0% 91.0% 1,877,736 4.3% 94.8%
2007 and
thereafter...... 4 468,125 9.0% 100.0% 2,266,764 5.2% 100.0%
--- --------------- ----- ----- -------------- ----- -----
----- -----
Total......... 436 5,185,270 100.0% $ 43,588,764 100.0%
--- --------------- ----- -------------- -----
--- --------------- ----- -------------- -----
</TABLE>
As set forth in the foregoing table, as of September 30, 1997, leases
representing 3%, 17%, 12% and 15%, respectively, of the Company's total
Annualized Base Rent were scheduled to expire during 1997, 1998, 1999 and 2000,
respectively. The Company will be subject to the risk that, upon expiration,
certain of these or other leases will not be renewed, the space may not be
relet, or the terms of renewal or reletting (including the cost of required
renovations or concessions to tenants) may be less favorable than current lease
terms. See "Risk Factors--Risks Inherent in Real Estate Investments--Lease
Expirations; Renewal of Leases and Reletting of Unleased Space" in the
accompanying Prospectus.
LEASE EXPIRATIONS FOR THE INDUSTRIAL PROPERTIES
The following table sets forth as of September 30, 1997 the scheduled lease
expirations for the Industrial Properties, assuming that none of the tenants
exercise renewal options or termination rights.
<TABLE>
<CAPTION>
PERCENTAGE AND
CUMULATIVE PERCENTAGE PERCENTAGE AND
OF TOTAL LEASED SQUARE CUMULATIVE PERCENTAGE
FEET SUBJECT TO OF ANNUALIZED BASE RENT
RENTABLE EXPIRING LEASES ANNUALIZED UNDER EXPIRING LEASES
NUMBER OF SQUARE FEET ---------------------------- BASE RENT ----------------------------
YEAR OF LEASE LEASES SUBJECT TO CUMULATIVE UNDER EXPIRING CUMULATIVE
EXPIRATION EXPIRING EXPIRING LEASES PERCENTAGE PERCENTAGE LEASES PERCENTAGE PERCENTAGE
- ------------------ --------------- --------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997.............. 43 168,816 4.6% 4.6% $ 1,371,600 5.4% 5.4%
1998.............. 109 886,449 24.0% 28.6% 6,398,880 25.2% 30.6%
1999.............. 65 453,001 12.3% 40.9% 3,427,512 13.4% 44.0%
2000.............. 60 348,915 9.4% 50.3% 2,770,128 10.9% 54.9%
2001.............. 24 454,906 12.3% 62.6% 3,288,576 12.9% 67.8%
2002.............. 21 196,864 5.3% 67.9% 1,498,776 5.9% 73.7%
2003.............. 4 105,982 2.9% 70.8% 1,020,012 4.0% 77.7%
2004.............. 3 207,041 5.6% 76.4% 1,778,496 7.0% 84.7%
2005.............. 1 42,508 1.1% 77.5% 219,336 0.9% 85.6%
2006.............. 4 364,032 9.8% 87.3% 1,388,940 5.5% 91.1%
2007 and
thereafter...... 4 468,125 12.7% 100.0% 2,266,764 8.9% 100.0%
--- --------------- ----- ----- -------------- ----- -----
----- -----
Total......... 338 3,696,639 100.0% $ 25,429,020 100.0%
--- --------------- ----- -------------- -----
--- --------------- ----- -------------- -----
</TABLE>
S-24
<PAGE>
LEASE EXPIRATIONS FOR THE SUBURBAN OFFICE PROPERTIES
The following table sets forth as of September 30, 1997 the scheduled lease
expirations for the Suburban Office Properties, assuming that none of the
tenants exercise renewal options or termination rights.
<TABLE>
<CAPTION>
PERCENTAGE AND
CUMULATIVE PERCENTAGE PERCENTAGE AND
OF TOTAL LEASED SQUARE CUMULATIVE PERCENTAGE
FEET SUBJECT TO OF ANNUALIZED BASE RENT
RENTABLE EXPIRING LEASES ANNUALIZED UNDER EXPIRING LEASES
NUMBER OF SQUARE FEET ---------------------------- BASE RENT ----------------------------
YEAR OF LEASE LEASES SUBJECT TO CUMULATIVE UNDER EXPIRING CUMULATIVE
EXPIRATION EXPIRING EXPIRING LEASES PERCENTAGE PERCENTAGE LEASES PERCENTAGE PERCENTAGE
- ------------------ --------------- --------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997.............. 3 6,501 0.5% 0.5% $ 92,016 0.5% 0.5%
1998.............. 10 76,757 5.4% 5.9% 988,404 5.8% 6.3%
1999.............. 14 109,267 7.8% 13.7% 1,629,600 9.4% 15.7%
2000.............. 20 255,988 18.2% 31.9% 3,536,748 20.5% 36.2%
2001.............. 14 237,934 16.9% 48.8% 3,225,348 18.7% 54.9%
2002.............. 17 235,479 16.7% 65.5% 2,925,024 16.9% 71.8%
2003.............. 1 17,910 1.3% 66.8% 142,500 0.8% 72.6%
2004.............. 1 334,255 23.8% 90.6% 3,125,280 18.1% 90.7%
2005.............. 2 83,047 5.9% 96.5% 1,144,224 6.6% 97.3%
2006.............. 1 49,295 3.5% 100.0% 474,000 2.7% 100.0%
2007 and
thereafter...... 0 -- 0.0% 100.0% -- 0.0% 100.0%
--- --------------- ----- ----- -------------- ----- -----
----- -----
Total......... 83 1,406,433 100.0% $ 17,283,144 100.0%
--- --------------- ----- -------------- -----
--- --------------- ----- -------------- -----
</TABLE>
TENANTS
The following table sets forth as of September 30, 1997 the Company's twenty
largest tenants by annualized base rent.
<TABLE>
<CAPTION>
SQUARE % OF TOTAL
FOOTAGE ANNUALIZED ANNUALIZED
TENANT PROPERTY OCCUPIED BASE RENT BASE RENT
- -------------------------------------------------------------------------------------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Boeing Company Kenyon Center & Orillia Office Park 429,095 $ 4,225,948 9.70%
Empire Funding Corporation 9737 Great Hills Trail 82,680 1,488,240 3.41%
Compression Labs 350 E. Plumeria 142,700 1,198,680 2.75%
Qualcomm, Inc. Scripps Wateridge 74,558 939,430 2.16%
Credence Systems Corporation Fourier Avenue 104,400 938,352 2.15%
Hybritech, Inc. Carroll Tech I, II, & III 88,829 937,264 2.15%
Global Associates Signal Building 109,780 890,316 2.04%
Sola International, Inc. 2277 Pine View Way 120,480 831,948 1.91%
Quester Technology, Inc. 47600 & 47633 Westinghouse Drive 79,118 814,516 1.87%
CompHealth, Inc. Woodlands Tower II 49,698 786,466 1.80%
Sprint Communications 6600 College Boulevard 62,441 736,800 1.69%
Elo Touchsystems, Inc. 6500 Kaiser Drive 78,611 707,496 1.62%
Spectra Laboratories Bedford Fremont Business Center 58,732 681,843 1.56%
Hartford Insurance U.S. Bank Centre 37,820 661,020 1.52%
Robert Mondavi Corp. The Mondavi Building 120,157 591,172 1.36%
Synnex Info. Tech. Spinnaker Court 69,230 560,928 1.29%
Leslie Poolmart, Inc. Dupont Industrial Center 183,244 527,736 1.21%
American Express Travel Executive Center at Southbank 52,144 521,440 1.20%
Saddleback Memorial Medical Laguna Hills Square 22,988 503,717 1.16%
Lifescan, Inc. Milpitas Town Center 48,350 500,063 1.15%
---------- ----------- ----------
TOTAL TWENTY LARGEST TENANTS 2,015,055 $19,043,375 43.70%
---------- ----------- ----------
---------- ----------- ----------
TOTAL PORTFOLIO 5,324,255 $43,588,764 100.00%
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
S-25
<PAGE>
USE OF PROCEEDS
The net cash proceeds to the Company from the sale of Common Stock offered
hereby are estimated to be approximately $128.1 million or approximately $147.3
million if the Underwriters' over-allotment option is exercised in full. The
Company intends to use the net cash proceeds of the Offering to repay all
indebtedness outstanding under the Company's Credit Facility (which amounted to
approximately $119 million as of October 20, 1997). The Company intends to use
any remaining net proceeds to purchase additional properties and for general
corporate purposes, including working capital. The Company is continuously
engaged, in the ordinary course of its business, in the evaluation of properties
for acquisition. Pending application of any remaining net proceeds, the Company
will invest such portion of the net proceeds in interest-bearing accounts and
short-term, interest-bearing securities, which are consistent with the Company's
intention to qualify for taxation as a REIT. Such investments may include, for
example, government and governmental agency securities, certificates of deposit
and interest-bearing bank deposits.
As of September 30, 1997, the weighted average interest rate on the
indebtedness expected to be repaid with the net proceeds of the Offering was
7.35% and the maturity date of such indebtedness was June 1, 2000.
S-26
<PAGE>
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY
The Common Stock of the Company trades on the New York Stock Exchange
("NYSE") and the Pacific Exchange under the symbol "BED." The following table
sets forth, for the periods indicated, the quarterly high and low sale prices
per share reported on the NYSE and the dividends declared per share by the
Company on the Common Stock during each quarterly period since the first quarter
of 1995. All of the following quotations have been adjusted to reflect the
one-for-two reverse stock split of the Common Stock effected on March 29, 1996.
<TABLE>
<CAPTION>
SALE PRICE
-------------------- DIVIDENDS
HIGH LOW DECLARED
--------- --------- -----------
<S> <C> <C> <C>
1995
First Quarter.............................................. $ 12 3/4 $ 10 3/4 $ .19
Second Quarter............................................. $ 11 3/4 $ 10 1/4 $ .21
Third Quarter.............................................. $ 13 1/2 $ 11 1/4 $ .21
Fourth Quarter............................................. $ 15 1/4 $ 12 3/4 $ .21
1996
First Quarter.............................................. $ 15 1/4 $ 14 $ .24
Second Quarter............................................. $ 16 $ 12 3/8 $ .24
Third Quarter.............................................. $ 14 5/8 $ 12 3/4 $ .26
Fourth Quarter............................................. $ 17 1/2 $ 14 1/8 $ .26
1997
First Quarter.............................................. $ 21 1/4 $ 16 5/8 $ .26
Second Quarter............................................. $ 20 1/8 $ 17 $ .27
Third Quarter.............................................. $ 22 $ 19 $ .30
Fourth Quarter (through October 20, 1997).................. $22 15/16 $20 15/16 N/A
</TABLE>
As of October 14, 1997 the Company had 500 record holders of Common Stock.
On October 29, 1997, the last reported sale price of the Common Stock on the
NYSE was $20 13/16 per share.
On September 4, 1997 the Company announced an 11.1% increase in its
quarterly Common Stock dividend from $.27 per share to $.30 per share, which is
equal to $1.20 on an annualized basis. The higher dividend rate commenced with
the Company's third quarter of 1997 dividend. The Company previously announced,
in May 1997, a 3.8% increase in its quarterly dividend from $.26 per share to
$.27 per share which, together with the September increase, represents a total
increase of 15.4% in the Company's Common Stock dividend in 1997.
None of the dividends declared in 1996 represented a return of capital for
tax purposes. Furthermore, the Company currently anticipates that none of the
dividends declared in 1997 will represent a return of capital for tax purposes.
There can be no assurance, however, that the estimate for 1997 will not vary
from actual results for 1997 which will depend, in 1997 and future years, among
other things, upon the Company's actual taxable income and amounts distributed.
S-27
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
September 30, 1997, and (ii) as adjusted to give effect to the conversion of the
8,333,334 shares of Convertible Preferred Stock into 4,166,667 shares of Common
Stock on October 14, 1997, the issuance of the 6,300,000 shares of Common Stock
offered hereby and the application of a portion of the net proceeds therefrom to
repay indebtedness under the Credit Facility.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1997
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Credit Facility (1).................................................................... $ 97,645 $ --
Mortgage Loans......................................................................... 60,455 60,455
---------- -----------
Total Debt........................................................................... 158,100 60,455
---------- -----------
Convertible Preferred Stock:
Series A Convertible Preferred Stock: $.01 par value;
10,000,000 authorized; 8,333,334 issued and outstanding, actual; none issued and
outstanding, as adjusted............................................................. 50,000 --
---------- -----------
Minority Interest in Consolidated Partnership............................................ 1,497 1,497
---------- -----------
Common Stock and Other Stockholders' Equity:
Preferred Stock: $.01 par value; 10,000,000 authorized;
none issued and outstanding.......................................................... -- --
Common Stock: $.02 par value; 50,000,000 authorized;
11,164,700 issued and outstanding, actual; 21,631,367 issued and outstanding, as
adjusted (2)......................................................................... 223 433
Additional paid-in capital............................................................. 223,104 400,948
Accumulated losses and distributions in excess of net income........................... (62,455) (62,455)
---------- -----------
Total Common Stock and Other Stockholders' Equity.................................. 160,872 338,926
---------- -----------
Total Capitalization............................................................... $ 370,469 $ 400,878
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) The outstanding balance under the Credit Facility as of October 20, 1997 was
approximately $119 million.
(2) Does not include 95,049 shares of Common Stock reserved for issuance upon
the conversion of partnership units issued by the Company in connection with
its acquisition of certain Properties in December, 1996 utilizing a Down
REIT acquisition structure.
S-28
<PAGE>
MANAGEMENT
The following table sets forth certain information concerning the Company's
Directors and senior officers. Officers of the Company serve at the discretion
of the Board of Directors, subject, in the case of Mr. Bedford, to the terms of
an employment agreement. In addition to the Company's senior officers, 26
employees assist with the management of the Company's day-to-day operations.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Peter B. Bedford....................... 59 Chairman of the Board and Chief Executive Officer
Scott R. Whitney....................... 45 Senior Vice President and Chief Financial Officer
James R. Moore......................... 57 Senior Vice President of Property/Asset Management
Robert E. Pester....................... 40 Senior Vice President of Acquisitions (Bedford Acquisitions)
Hanh Kihara............................ 49 Vice President and Controller
Claude M. Ballard...................... 68 Director, Limited Partner of the Goldman Sachs Group, L.P.
Anthony Downs.......................... 66 Director, Senior Fellow at the Brookings Institution
Thomas G. Eastman...................... 51 Director, Director and Co-Founder of Aldrich Eastman Waltch
Anthony M. Frank....................... 66 Director, Chairman, Acrogen, Inc.; former Chairman of First
Nationwide Bank
Thomas H. Nolan, Jr.................... 40 Director, Director of AEW Capital Management, L.P.
Martin I. Zankel....................... 63 Director, Senior Partner, Bartko, Zankel, Tarrant & Miller
</TABLE>
COMPANY OFFICERS
Mr. Bedford has been Chairman of the Board since May 1992 and Chief
Executive Officer since November 1992. He has served as a Director of the
Company since February 1991. Mr. Bedford has been engaged in the commercial real
estate business, primarily in the Western United States, for over 30 years and
has been responsible for the acquisition, ownership, development and management
of an aggregate of approximately 19 million square feet of industrial, office
and retail properties, as well as land, in 14 states. Mr. Bedford serves on the
boards of directors of BankAmerica Corporation, Bixby Ranch Company, a real
estate investment company, and First American Title Guarantee Co., a title
insurance company. Mr. Bedford is the recipient of numerous awards recognizing
his contributions to the real estate industry and serves as a trustee of the
Urban Land Institute, a governor of the Urban Land Foundation and an overseer of
the Hoover Institution. His previous experience also includes serving as Vice
Chairman of the National Realty Committee and of the Hoover Institution and as
Chairman of the Real Estate Advisory Board of the Wharton School of Business.
Mr. Bedford received his B.A. in Economics from Stanford University.
Mr. Whitney became Senior Vice President and Chief Financial Officer of the
Company in September 1997. From 1995 to 1997, Mr. Whitney served as Senior Vice
President/Chief Financial Officer of WCI Communities of Naples, Florida, a
master planned community developer. From 1984 to 1995, Mr. Whitney served in
various positions at Equity Group Investments Inc. and affiliates, a full
service real estate investment and management concern, most recently as
Executive Vice President/Chief Financial Officer of Equity Institutional
Investors. Mr. Whitney has been a certified public accountant since 1976. Mr.
Whitney received a B.S. in accounting/finance from Northern Illinois University.
Mr. Moore joined the Company as Senior Vice President of Property/Asset
Management in September 1995. From 1983 to 1994, he was Managing Director of
Cushman & Wakefield, an international commercial real estate services firm. Mr.
Moore was also a branch manager and commercial real estate broker at Cushman &
Wakefield. He has served on the Board of Trustees of The Lindsay Museum in
Walnut Creek, California since 1984. Mr. Moore has studied at the Commercial
Investment Real Estate
S-29
<PAGE>
Institute and has lectured at the University of San Francisco and San Francisco
State University. He received a B.A. in History from the University of
California at Berkeley, an M.B.A. from the University of San Francisco and is
currently working toward a Doctor of Business Administration at Golden Gate
University.
Mr. Pester has been Senior Vice President of Acquisitions and Development of
Bedford Acquisitions since February 1994. Prior to joining Bedford Acquisitions,
he was a real estate investment consultant from 1992 to 1993, President of the
Development Division of Bedford Property Holding LTD., Inc from 1989 to 1992 and
Vice President of Cushman & Wakefield in Northern California from 1980 to 1989.
Mr. Pester received a B.S. in Economics and in Political Science from the
University of California at Santa Barbara.
Ms. Kihara has been the Controller of the Company since May 1993 and a Vice
President since May 1997. Prior to joining the Company she was Controller and
Assistant Controller of Bedford Property Holding LTD., Inc from 1990 to 1993.
From 1986 to 1990, Ms. Kihara was a Manager of Armstrong, Gilmour and
Associates, a certified public accounting firm. Ms. Kihara has been a certified
public accountant since 1989. Ms. Kihara received a B.S. in Administration and
Accounting from California State University--Hayward.
S-30
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to the
underwriters named below (the "Underwriters"), and each of the Underwriters has
severally agreed to purchase, the respective number of shares of Common Stock
set forth below opposite their respective names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Lehman Brothers Inc. ............................................................
BancAmerica Robertson Stephens...................................................
Smith Barney Inc. ...............................................................
Sutro & Co. Incorporated.........................................................
----------
Total........................................................................ 6,300,000
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock are subject to certain conditions
precedent and that if any of the shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, all shares of Common Stock
must be so purchased.
The Company has been advised by the Underwriters that they propose to offer
the shares of Common Stock directly to the public at the initial public offering
price set forth on the cover page of this Prospectus Supplement and to certain
dealers at such public offering price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other underwriters or to certain other
brokers or dealers. After the initial public offering, the public offering
price, the concession to selected dealers and the reallowance to other dealers
may be changed by the Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
additional 945,000 shares of Common Stock at the initial public offering price
less underwriting discounts and commissions, solely to cover over-allotments, if
any. The Underwriters may exercise this option at any time up to 30 days after
the date of this Prospectus Supplement. To the extent that the Underwriters
exercise this option, each of the Underwriters will be obligated, subject to
certain conditions, to purchase a number of additional shares of Common Stock
proportionate to such Underwriter's initial commitment reflected in the
foregoing table.
The Company, the directors and senior officers of the Company and BPLP have
agreed, subject to certain exceptions, that they will not, without the prior
written consent of Lehman Brothers Inc., directly or indirectly, for a period of
90 days with respect to the directors, for a period of 120 days with respect to
BPLP and for a period of 180 days with respect to the Company and the senior
officers after the date hereof, sell, offer to sell, grant any option for sale
of, or otherwise dispose of, or enter into any agreement to sell, any shares of
Common Stock or any securities convertible or exchangeable or exercisable for
Common Stock.
In connection with the Offering, the rules of the Securities and Exchange
Commission permit the Underwriters to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
In addition, if the Underwriters over-allot (i.e., if they sell more shares
of Common Stock than are set forth on the cover page of this Prospectus), and
thereby create a short position in the Common Stock in connection with the
Offering, the Underwriters may reduce that short position by purchasing Common
Stock in the open market. The Underwriters also may elect to reduce any short
position by exercising all or part of the over-allotment option described
herein.
S-31
<PAGE>
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof.
In addition, Mr. Bedford is a director of BancAmerica Corporation, an
affiliate of BancAmerica Robertson Stevens.
S-32
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 29, 1997
PROSPECTUS
20,000,000 SHARES
4,166,667 SHARES
[LOGO]
BEDFORD PROPERTY INVESTORS, INC.
COMMON STOCK
------------------
Bedford Property Investors, Inc., a Maryland corporation (the "Company"),
may offer from time to time, up to 20,000,000 shares (the "Company Shares") of
the Company's common stock, par value $0.02 per share (the "Common Stock"), in
amounts, at prices and on terms to be determined at the time of sale. In
addition, Bed Preferred No. 1 Limited Partnership ("BPLP" or the "Selling
Stockholder") may offer from time to time up to 4,166,667 shares (the "Selling
Stockholder Shares") (the "Company Shares" and the "Selling Stockholder Shares"
to be generally or collectively referred to as the "Shares") of Common Stock in
amounts, at prices and on terms to be determined at the time of sale. The
Selling Stockholder Shares offered hereby were issued to the Selling Stockholder
on October 14, 1997 upon conversion by the Selling Stockholder of its 8,333,334
shares of the Company's Series A Convertible Preferred Stock, par value $.01 per
share (the "Convertible Preferred Stock"), into shares of Common Stock.
The number of Shares offered pursuant to this Prospectus, the terms of the
offering of such Shares and the initial price and the net proceeds to the
Company or the Selling Stockholder from the sale thereof will be, where
applicable, set forth in an accompanying supplement to this Prospectus (a
"Prospectus Supplement").
The Company's Common Stock is listed on the New York Stock Exchange (the
"NYSE") and the Pacific Exchange (the "PSE") under the symbol "BED." Any Common
Stock offered pursuant to a Prospectus Supplement will be listed on such
exchanges, subject to official notice of issuance.
The Company and the Selling Stockholder may sell Shares directly or through
agents, underwriters or dealers designated from time to time, and the Company
may sell Shares pursuant to a dividend reinvestment plan. If any agents,
underwriters or dealers are involved in the sale of the Shares, the names of
such agents, underwriters or dealers and any applicable commissions or discounts
and the net proceeds to the Company or the Selling Stockholder from such sale
will be set forth in the applicable Prospectus Supplement.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
RELATING TO AN INVESTMENT IN THE COMMON STOCK.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, as well as such reports, proxy statements and other information filed
with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
also can be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the site is http://www.sec.gov. Such reports, proxy statements
and other information of or concerning the Company can also be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005 and the offices of the Pacific Exchange at 301 Pine Street, San Francisco,
California 94104.
The Company has filed with the Commission a Registration Statement (of which
this Prospectus is a part) on Form S-3 under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission,
and in the exhibits thereto. Statements contained in this Prospectus as to the
content of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Company and the Common Stock
offered hereby, reference is hereby made to the Registration Statement and such
exhibits and schedules, which may be examined without charge at, or copies
obtained upon payment of prescribed fees from, the Commission and its regional
offices listed above.
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (WITHOUT EXHIBITS, UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE WITHOUT
CHARGE UPON REQUEST. REQUESTS FOR DOCUMENTS SHOULD BE DIRECTED TO BEDFORD
PROPERTY INVESTORS, INC., 270 LAFAYETTE CIRCLE, LAFAYETTE, CALIFORNIA 94549,
ATTENTION: INVESTOR RELATIONS (TELEPHONE: (510) 283-8910).
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE
COMMON STOCK, AND THE IMPOSITION OF A PENALTY BID IN CONNECTION WITH THE
OFFERING. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION" IN
THE ACCOMPANYING PROSPECTUS SUPPLEMENT, IF ANY.
2
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents are incorporated by reference in this Prospectus:
1. The Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
2. The Registrant's Current Report on Form 8-K filed on January 9, 1997.
3. The Registrant's Current Report on Form 8-K/A filed on February 4, 1997.
4. The Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1997.
5. The Registrant's Current Report on Form 8-K filed on July 23, 1997.
6. The Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1997.
7. The Registrant's Current Report on Form 8-K/A filed on September 19, 1997.
8. The Registrant's Current Report on Form 8-K filed on October 21, 1997.
9. The description of the Registrant's Common Stock set forth in the
Registrant's registration statement on Form 8-B as filed with the Commission
on July 26, 1993, under the Exchange Act.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of the filing hereof and prior to the
termination of this offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the dates of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
3
<PAGE>
THE COMPANY
Bedford Property Investors, Inc., a Maryland corporation, is a
self-administered and self-managed equity REIT engaged in the business of
owning, managing, acquiring and developing industrial and suburban office
properties proximate to selected metropolitan areas primarily in the Western
United States. As of September 30, 1997, the Company owned and operated, either
directly or through one of its wholly-owned subsidiaries, 63 properties
aggregating approximately 5.3 million rentable square feet and comprised of 45
industrial properties (the "Industrial Properties"), 17 suburban office
properties (the "Suburban Office Properties") and one retail property (the
"Retail Property"). The Industrial Properties, the Suburban Office Properties
and the Retail Property are hereinafter referred to individually as a "Property"
and collectively as the "Properties." As of September 30, 1997, the Properties
were approximately 97% occupied by over 400 tenants. The Company's Properties
are located in Northern and Southern California, Oregon, Washington, Arizona,
Nevada, Utah, Colorado, Texas and Kansas.
The Company seeks to grow its asset base through the acquisition of
industrial and suburban office properties and portfolios of such properties, as
well as through the development of new industrial and suburban office
properties. The Company's strategy is to operate in suburban markets that are
experiencing, or are expected by the Company to experience, economic growth. The
Company also seeks markets that are subject to limitations on the development of
similar properties. The Company believes that employment growth is a reliable
indicator of future demand for both industrial and suburban office space. In
addition, the Company believes that certain supply-side constraints, such as
limited availability of undeveloped land in a market, increase a market's
potential for higher average rents over time. The Company is currently targeting
selected markets in which the Company Properties are located as well as selected
markets in which the Company has expertise. The Company believes that due to
recent economic improvements in these markets, and related improvements in the
commercial property markets, an investment in industrial and suburban office
properties in these markets, and in particular in California, provides the
potential for attractive returns through increased occupancy levels, rents and
real estate values.
The Company is led by a professional management team who have on average
over 20 years of experience in the ownership, management, acquisition and
development of industrial and suburban office properties. Peter B. Bedford, the
Company's Chairman and Chief Executive Officer, has been engaged in the
commercial real estate business, primarily in the Western United States, for
over 30 years and has been responsible for the ownership, management,
acquisition and development of an aggregate of approximately 19 million square
feet of industrial, office and retail properties, as well as land in 14 states.
Until October 14, 1997, BPLP, a Delaware limited partnership beneficially
owned by an investment fund managed by AEW Capital Management was the holder of
all of the outstanding shares of the Company's Convertible Preferred Stock. On
October 14, 1997, BPLP elected to convert these shares of Convertible Preferred
Stock into the 4,166,667 shares of Common Stock which may be offered for sale by
BPLP hereunder.
4
<PAGE>
RISK FACTORS
WHEN USED IN THIS PROSPECTUS, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS"
AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET
FORTH BELOW. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO
THESE FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
In addition to the other information contained or incorporated by reference
in this Prospectus, prospective investors should carefully consider the
following factors before purchasing the Common Stock offered hereby.
GEOGRAPHIC CONCENTRATION; DEPENDENCE ON CALIFORNIA ECONOMY
As of September 30, 1997, approximately 55% of the Company's total
annualized base rent was generated by its Properties located in the State of
California. As a result of this geographic concentration, the performance of the
commercial real estate markets and the local economies in various areas within
California could affect the value of such Properties and the rental income from
such Properties and, in turn, the Company's results of operations. In addition,
the geographic concentration of the Company's Properties in California in close
proximity to regions known for their seismic activity exposes the Company to the
risk that operating results could be materially affected by a significant
earthquake. See "--Risks Inherent in Real Estate Investments--Effect of
Uninsured Loss."
HISTORICAL LOSSES; POSSIBILITY OF FUTURE LOSSES
As a result of investments made under the Company's prior management team,
the Company had losses of $12.3 million, $5.5 million, $21.9 million and
$286,000 for fiscal years 1990 through 1993, respectively, before taking into
account the gain on the extinguishment of debt in 1992 and gains on sales of
investments and joint venture partnerships in 1993. Although such losses were
due in large part to investments which the Company subsequently divested, there
can be no assurance that the Company will not incur significant losses in the
future. As of September 30, 1997, the Company's consolidated balance sheet
reflected accumulated losses and distributions in excess of net income
aggregating approximately $62.5 million, resulting from the losses referred to
above and the fact that aggregate dividends to stockholders have exceeded net
income.
RISKS INHERENT IN REAL ESTATE INVESTMENTS
GENERAL
Real property investments are subject to numerous risks. The yields
available from an equity investment in real estate depend on the amount of
income generated and costs incurred by the related properties. If properties in
which the Company invests do not generate sufficient income to meet costs,
including debt service, tenant improvements, third-party leasing commissions and
capital expenditures, the Company's results of operations and ability to make
distributions to its stockholders will be adversely affected. Revenues and
values of the Company's properties may be adversely affected by a number of
factors, including the national economic climate, the local economic climate,
local real estate conditions (such as an oversupply of space or a reduction in
demand for real estate in an area), the attractiveness of the properties to
tenants, competition from other available space, the ability of the Company to
provide adequate maintenance and insurance and to cover other operating costs,
government regulations and changes in real estate, zoning or tax laws, interest
rate levels, the availability of financing and potential liabilities under
environmental and other laws. Historically, the Company has had tenants leasing
space in the Properties who occasionally have been delinquent in their payments.
Further, because the Company
5
<PAGE>
generally does not have extensive historical or financial information on the
tenants in its recently acquired Properties, there may be tenants in the
Company's recently acquired Properties who, unknown to the Company, were
delinquent in the payment of their rent in the past. As substantially all of the
Company's income is derived from rental income from real property, the Company's
results of operations and ability to make distributions to stockholders would be
adversely affected if a number of the Company's tenants or one or more of the
Company's significant tenants were unable to meet their obligations to the
Company or failed to renew their leases with the Company, or if the rental rates
upon reletting or renewal of leases were significantly lower than current rates
or if the Company were unable to lease a significant amount of space on
economically favorable terms or at all. In addition, certain significant
expenditures associated with each equity investment (such as debt service, real
estate taxes and maintenance costs) are generally not reduced when circumstances
cause a reduction in rental income from the investment. Should such events
occur, the Company's results of operations and ability to make distributions to
stockholders could be adversely affected.
LEASE EXPIRATIONS; RENEWAL OF LEASES AND RELETTING OF UNLEASED SPACE
As of September 30, 1997, leases representing 3%, 17%, 12% and 15% of the
Company's total annualized base rent were scheduled to expire during 1997, 1998,
1999 and 2000, respectively. The Company will be subject to the risk that, upon
expiration, certain of these or other leases will not be renewed, the space may
not be relet, or the terms of renewal or reletting (including the cost of
required renovations or concessions to tenants) may be less favorable than
current lease terms. In addition, the Company expects to incur costs in making
improvements or repairs to its Properties required by new or renewing tenants
and expenses associated with brokerage commissions payable in connection with
the reletting of space. Similarly, rental income may be reduced due to vacancies
resulting from lease expirations or by construction of tenant improvements
required by renewing or new tenants. If the Company is unable to promptly renew
leases or relet space or to fund expenses relating to tenant turnover, if the
terms of any such renewal or reletting are less favorable than current lease
terms, or if the expenses relating to tenant turnover are greater than expected,
the foregoing could have a material adverse effect on the Company and its
ability to make distributions to stockholders.
DEPENDENCE ON CERTAIN TENANTS
As of September 30, 1997, twenty of the Company's tenants accounted for
approximately 44% of its total annualized base rent. If the Company were to lose
any one or more of such tenants, or if any one or more of such tenants were to
declare bankruptcy or to fail to make rental payments when due, there could be a
material adverse effect on the Company and its ability to make distributions to
stockholders. See "--Bankruptcy of Tenants."
BANKRUPTCY OF TENANTS
At any time, a tenant could seek the protection of the bankruptcy laws,
which might result in the modification or termination of such tenant's lease and
cause a reduction in the cash flow of the Company. In addition, a tenant from
time to time may experience a downturn in its business which may weaken its
financial condition and result in its failure to make rental payments when due.
In the event of default by or bankruptcy of a tenant, the Company may experience
delays in enforcing its rights as lessor and may incur substantial costs in
protecting its investment. The default, bankruptcy or insolvency of a major
tenant may have an adverse effect on the Company and its ability to make
distributions to stockholders. Moreover, a substantial number of the Company's
tenants are professionals or small- or medium-sized businesses, which are
generally more susceptible to the foregoing risks than are large,
well-capitalized enterprises.
6
<PAGE>
RISKS ASSOCIATED WITH REAL ESTATE ACQUISITION AND DEVELOPMENT
The Company intends to actively seek to acquire industrial and suburban
office properties and portfolios of such properties, which may include the
acquisition of other companies and business entities owning such properties.
Although the Company will engage in due diligence with respect to each new
acquisition, there can be no assurance that the Company will be aware of all
potential liabilities and problems associated with such properties, and the
Company may have limited contractual recourse, or no contractual recourse,
against the sellers of such properties. In that regard, the Company only
recently acquired a number of its Properties, and there can be no assurance that
the Company is aware of all potential liabilities and problems associated with
these recently acquired Properties. Moreover, it is likely that in the future,
the majority of the Company's properties and portfolios of properties will be
acquired on an "as is" basis, with limited recourse against the sellers. In
addition, acquisitions of new properties entail risks that the investments will
fail to perform in accordance with expectations, and estimates of the costs of
improvements to bring an acquired property up to the Company's standards, and
standards established for the market position intended for that property, may
prove inaccurate. To the extent that the Company acquires properties with
substantial vacancies (as it has in the past), there is a risk that the Company
will be unable to lease vacant space in a timely manner or at all, and that the
costs of obtaining tenants (such as tenant improvements, lease concessions and
brokerage commissions) could prove more costly than anticipated.
The Company will be subject to a number of risks relating to the development
of any industrial and suburban office property projects it decides to develop,
including the risks that financing for such development may not be available on
favorable terms, that a project may not be completed or may not be completed on
schedule or for the amount planned (resulting in increased debt service expense
and construction costs) and that newly constructed properties may not be leased
on profitable terms or at all. Timely construction may be adversely affected by
the failure to obtain governmental permits, by environmental matters, by local
or national strikes and by local or national shortages in building materials or
supplies or fuel for equipment. Any of the foregoing could adversely affect the
Company and its ability to make distributions to stockholders.
EFFECT OF UNINSURED LOSS
The Company currently carries general liability coverage with primary limits
of $1 million per occurrence and $2 million in the aggregate, as well as a $20
million umbrella liability policy. The Company carries property insurance on a
replacement value basis covering both the cost of direct physical damage and the
loss of rental income. Separate flood and earthquake insurance is provided with
an annual aggregate limit of $10 million, subject to varying deductibles of 5%
to 10% of total insurable value per building with respect to earthquake
coverage. Certain types of losses, however (such as losses due to acts of war,
nuclear accidents or pollution), may be either uninsurable or not economically
insurable. Likewise, certain losses could exceed the limits of the Company's
insurance policies or could cause the Company to bear a substantial portion of
those losses due to deductibles under those policies. Should an uninsured loss
occur, the Company could lose both its invested capital in and anticipated cash
flow from the property and would continue to be obligated to repay any
outstanding indebtedness incurred to acquire such property. In addition, a
majority of the Properties are located in areas that are subject to earthquake
activity. Although the Company has obtained earthquake insurance policies for
all of its Properties, should one or more Properties sustain damage as a result
of an earthquake, the Company may incur substantial losses up to the amount of
the deductible under its earthquake policy and, additionally, to the extent that
the damage exceeds the policy's maximum coverage. Although the Company has
obtained owner's title insurance policies for each of the Properties, the title
insurance may be in an amount less than the current market value of certain of
the Properties. If a title defect results in a loss that exceeds insured limits,
the Company could lose all or part of its investment in, and anticipated gains
(if any) from, such Property.
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SUBSTANTIAL INCREASE IN DIVIDEND REQUIREMENTS; POSSIBLE INABILITY TO SUSTAIN
DIVIDENDS
Any new shares of Common Stock issued hereunder could substantially increase
the cash required to continue to pay cash dividends at current levels. Any
Common Stock or preferred stock that may in the future be issued to finance
acquisitions, upon exercise of stock options or otherwise, would have a similar
effect. See "--Shares Available for Future Sale." The Company's ability to pay
dividends will depend in large part on the performance of its Properties and
other properties that it may acquire in the future. In addition, the Company's
existing credit facility (the "Credit Facility") places certain limitations on
the Company's ability to pay quarterly dividends to stockholders. The Company is
currently renegotiating these and other provisions in its Credit Facility,
although there can be no assurance that such renegotiation will result in the
Company acquiring additional flexibility in its ability to pay dividends.
In addition, the Company's ability to pay dividends is based upon a number
of uncertainties. In particular, the Company only recently acquired a number of
its Properties and, therefore, has a limited operating history with respect to
those Properties. The Company's ability to pay dividends depends in large part
upon whether these recently acquired Properties, as well as the Company's other
Properties and future acquisitions, perform in accordance with expectations.
Likewise, the Company's ability to pay dividends will depend upon, among other
things, occupancy levels at its Properties, its ability to enter into new leases
upon expiration of current leases and costs associated with the renewal or
reletting of space, expenditures with respect to existing and newly acquired
Properties, the amount of its debt and the interest rate thereon, default or
bankruptcy by tenants, and other costs relating to its Properties, as well as
the continued absence of significant expenditures relating to environmental or
other regulatory matters. Most of these matters are beyond the control of the
Company and it is unlikely that the Company's expectations with respect to these
matters will prove accurate in all respects. A significant difference between
such expectations and actual results could have a material adverse effect on the
Company and its ability to pay dividends.
The Company's ability to pay dividends on the Common Stock is further
limited by the laws of Maryland, its state of incorporation. Under the Maryland
General Corporate Law, as amended (the "MGCL"), a Maryland corporation may not
make a distribution if, after giving effect to such distribution, either (i) the
corporation would not be able to pay indebtedness of the corporation as such
indebtedness becomes due in the usual course of business or (ii) the
corporation's total assets would be less than the sum of the corporation's total
liabilities plus (unless the corporation's charter provides otherwise, which the
Company's charter (the "Charter") does with respect to dividends but does not
with respect to distributions by redemption or other acquisition of shares or
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of distribution, to satisfy the preferential rights upon
dissolution of stockholders whose preferential rights are superior to those
receiving the distribution. Thus, the Company cannot make a distribution, except
by dividend, on the Common Stock if, after giving effect to the distribution,
the Company's total assets would be less than the sum of the Company's
liabilities plus the amount that would be needed to satisfy the preferential
rights upon dissolution of the holders of any shares of preferred stock then
outstanding if the Company were to be dissolved at the time of the distribution.
TAX RISKS; RISKS ASSOCIATED WITH REIT STATUS
ADVERSE CONSEQUENCES OF THE FAILURE TO MAINTAIN QUALIFICATION AS A REIT
The Company believes that it has operated so as to qualify as a REIT under
the Internal Revenue Code of 1986, as amended (the "Code"), commencing with the
taxable year 1985. However, no assurance can be given that the Company will be
able to continue to operate in a manner enabling it to remain so qualified or
that it will not be found to have failed to qualify as a REIT for a prior tax
year. In that regard (as discussed below), it is uncertain whether the Company
properly requested written statements from certain stockholders for tax year
1993 as required by the regulations issued by the United States Treasury
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Department (the "Treasury Regulations") under the Code. Qualification as a REIT
involves the application of highly technical and complex Code provisions which
have only a limited number of judicial and administrative interpretations, and
the determination of various factual matters and circumstances not entirely
within the Company's control may have an impact on its ability to maintain its
qualification as a REIT. For example, in order to qualify as a REIT, at least
95% of the Company's gross income in any year must be derived from qualifying
sources and the Company must make distributions to stockholders aggregating
annually at least 95% of its REIT taxable income (excluding net capital gains).
In addition, no assurance can be given that new legislation, Treasury
Regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to the Company's qualification as
a REIT or the federal income tax consequences of such qualification. The
Company, however, is not aware of any proposal to amend the tax laws that would
significantly and adversely affect the Company's ability to continue to operate
as a REIT.
As a condition to maintaining its status as a REIT, the Code, and the
Treasury Regulations promulgated thereunder, contain a requirement (the "Five or
Fewer Requirement") that, during the last half of each taxable year, not more
than 50% in value of the REIT's outstanding stock be owned, directly or
indirectly, by five or fewer individuals (defined in the Code to include certain
entities). For purposes of the Five or Fewer Requirement, the Code generally
permits a look-thru rule that treats shares of stock in a REIT held by certain
tax-exempt entities as held directly by their beneficiaries. In order to
determine if a REIT satisfies the Five or Fewer Requirement, the Treasury
Regulations require a REIT to request written statements concerning the
ownership of its capital stock from certain stockholders of record (the
"Stockholder Polling Requirements"). For tax year 1993 (and possibly for certain
prior years which tax counsel referred to below believes are outside the normal
period for federal tax audit), it is uncertain whether the Company properly
requested the written statements required by the Stockholder Polling
Requirements from certain clearing organizations holding Common Stock as
nominees for the beneficial owners of such shares. However, the Company did
employ stockholder polling procedures for tax year 1993 which it believes went
beyond what is required by the Treasury Regulations under the Code in providing
stockholder ownership information for purposes of determining whether the
Company had satisfied the Five or Fewer Requirement. In that regard, the Company
has received an opinion of Shearman & Sterling, counsel to the Company, to the
effect that, based on various assumptions and factual representations made by
the Company, the Company has not, by virtue of the Stockholder Polling
Requirements, failed to qualify as a REIT with respect to tax year 1993.
However, such opinion is not binding on the Internal Revenue Service (the
"IRS"). If the IRS were to successfully challenge such compliance, the Company
would lose its status as a REIT as of the first taxable year in which it was
considered not to have complied with such requirements.
If the Company fails to maintain its qualification as a REIT, or is found
not to have qualified as a REIT for any prior year, the Company would not be
entitled to deduct dividends paid to its stockholders and would be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. In addition, unless entitled to
relief under certain statutory provisions, the Company would also be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification was lost. This treatment would reduce amounts
available for investment or distribution to stockholders because of the
additional tax liability to the Company for the year or years involved. In
addition, the Company would no longer be required by the Code to make any
distributions. As a result, disqualification of the Company as a REIT could have
a material adverse effect on the Company and its ability to make distributions
to stockholders. To the extent that distributions to stockholders have been made
in anticipation of the Company's qualifying as a REIT, the Company might be
required to borrow funds or to liquidate certain of its investments to pay the
applicable tax.
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EFFECT OF DISTRIBUTION REQUIREMENTS
To maintain its status as a REIT, the Company is required each year to
distribute to its stockholders at least 95% of its taxable income (excluding net
capital gains). In addition, the Company is subject to a 4% nondeductible excise
tax on the amount, if any, by which certain distributions paid by it with
respect to any calendar year are less than the sum of 85% of its ordinary income
and 95% of its capital gain net income for the calendar year plus any amount of
such income not distributed in prior years. Although the Company anticipates
that cash flow from operations will be sufficient to enable it to pay its
operating expenses and meet the distribution requirements discussed above, there
can be no assurance that this will be the case and it may be necessary for the
Company to incur borrowings or otherwise obtain funds to satisfy the
distribution requirements associated with maintaining its qualification as a
REIT. In addition, differences in timing between the receipt of income and the
payment of expenses in arriving at taxable income of the Company could require
the Company to incur borrowings or otherwise obtain funds to meet the
distribution requirements that are necessary to maintain its qualification as a
REIT. There can be no assurance that the Company will be able to borrow funds or
otherwise obtain funds if and when necessary to satisfy such requirements.
TRANSFER AND OWNERSHIP LIMITATIONS
For the purpose of preserving the Company's REIT qualification, the
Company's Charter provides that no holder is permitted to own, either actually
or constructively under the applicable attribution rules of the Code, more than
5% (in value) of the aggregate outstanding shares of all classes of stock of the
Company or more than 5% (in number or value, whichever is more restrictive) of
the outstanding shares of Common Stock, with certain exceptions. In addition, no
holder is permitted to own, either actually or constructively under the
applicable attribution rules of the Code, any shares of any class of the
Company's stock if such ownership would cause more than 50% in value of the
Company's outstanding stock to be owned by five or fewer individuals, would
result in the Company's stock being beneficially owned by less than 100 persons
(determined without reference to any rule of attribution) or would otherwise
result in the Company's failure to qualify as a REIT. Acquisition or ownership
(actual or constructive) of the Company's stock in violation of these
restrictions results in automatic transfer of such stock to a trust for the
benefit of a charitable beneficiary or, under certain specified circumstances,
the violative transfer may be deemed void ab initio or the Company may choose to
redeem the violative shares. Mr. Bedford and BPLP are subject to higher
ownership limitations than the other stockholders. Specifically, Mr. Bedford is
not permitted to own more than 15% of the lesser of the number or value of the
outstanding shares of Common Stock and BPLP is not permitted to own more than
58% of the lesser of the number or value of the outstanding shares of Common
Stock.
The constructive ownership rules are complex and may cause Common Stock
owned beneficially or constructively by a group of related individuals and/or
entities to be constructively owned by one individual or entity. As a result,
the acquisition of less than 5% of the number or value of outstanding Common
Stock (or the acquisition of an interest in an entity which owns Common Stock)
by an individual or entity could cause that individual or entity (or another
individual or entity) to constructively own Common Stock in excess of the limits
described above, and thus subject such stock to the ownership restrictions in
the Charter.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the efforts of its senior officers, and
in particular Peter B. Bedford, its Chairman and Chief Executive Officer. While
the Company believes that it could find replacements for these key personnel,
the loss of their services could have a material adverse effect on the Company.
In addition, the Credit Facility provides that it is an event of default
thereunder if Mr. Bedford ceases for any reason to be the Chairman or Chief
Executive Officer of the Company and a replacement reasonably satisfactory to
the lenders thereunder has not been appointed by the Board of Directors within
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six months thereafter. Mr. Bedford and the Company have entered into an amended
employment agreement pursuant to which Mr. Bedford has agreed to serve as
Chairman of the Board and Chief Executive Officer on a substantially full-time
basis until the agreement's expiration on September 18, 2000. This agreement
will be automatically renewed for additional consecutive one-year terms unless
either party gives the other notice of non-renewal.
COMPETITION
Numerous industrial and suburban office properties compete with the
Company's Properties in attracting tenants. Some of these competing properties
are newer, better located or better capitalized than the Company's Properties.
Many of the Company's investments, particularly the Suburban Office Properties,
are located in markets which have a significant supply of available space,
resulting in intense competition for tenants and lower rents. The number of
competitive properties in a particular area could have a material adverse effect
on the Company's ability to lease space in the Properties or at newly acquired
or developed properties. In addition, numerous real estate companies (including
other REITs) compete with the Company in making bids to acquire new properties.
Many of these companies are larger and have substantially greater financial
resources than the Company. The activities of these competitors could cause the
Company to pay a higher purchase price for a new property than it otherwise
would have paid, or may prevent the Company from purchasing a desired property
at all.
REGULATORY COMPLIANCE
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances released on, above, under
or in such property. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The costs of such removal or remediation could be
substantial. Additionally, the presence of such substances, or the failure to
properly remediate such substances, may adversely affect the owner's ability to
borrow using such real estate as collateral. All of the Properties have had
Phase I environmental site assessments (which involve inspection without soil
sampling or groundwater analysis) by independent environmental consultants and
have been inspected for hazardous materials as part of the Company's acquisition
inspections. None of the Phase I assessments has revealed any environmental
conditions requiring material expenditures for remediation. The Phase I
assessment for Milpitas Town Center indicates that the groundwater under that
Property either has been, or may in the future be, impacted by the migration of
contaminants originating off-site. According to information available to the
Company, the responsible party for this off-site source has been identified and
has begun remediation pursuant to a cleanup program mandated by a California
environmental authority and the cleanup program is backed by an insurance policy
from CIGNA up to $10 million. The Company does not believe that this
environmental matter will impair the future value of Milpitas Town Center in any
significant respect, or that the Company will be required to fund any portion of
the cost of remediation, although there can be no assurance in this regard. No
assurance can be given that these Phase I assessments or the Company's
inspections have revealed all environmental liabilities and problems relating to
its Properties.
Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may be liable in respect of properties and joint
venture interests previously sold or otherwise divested.
The Company believes that it is in compliance in all material respects with
all federal, state and local laws regarding hazardous or toxic substances. To
date, compliance with federal, state and local environmental protection
regulations has not had a material effect upon the Company. However, there can
be no
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assurance that costs of investigating and remediating environmental matters with
respect to properties currently or previously owned by the Company or properties
which the Company may acquire in the future, or other expenditures or
liabilities (including claims by private parties) resulting from hazardous
substances present in, on, under or above such properties or resulting from
circumstances or other actions or claims relating to environmental matters, will
not have a material adverse effect on the Company and its ability to make
distributions to stockholders.
AMERICANS WITH DISABILITIES ACT COMPLIANCE; GOVERNMENT REGULATION; RISK OF
INCREASED REGULATORY COMPLIANCE COSTS
Under the Americans with Disabilities Act (the "ADA"), effective in 1992,
all public accommodations and commercial facilities are required to meet certain
federal requirements related to access and use by disabled persons. Compliance
with the ADA requires removal of access barriers, and noncompliance may result
in imposition of fines by the U.S. government or an award of damages to private
litigants. Although the Company believes that the Properties are substantially
in compliance with these requirements, the Company may in the future incur costs
to comply with the ADA with respect to both existing Properties and properties
which may be acquired in the future, which could have an adverse effect on the
Company and its ability to make distributions to stockholders.
The Properties are, and properties which the Company may acquire in the
future will be, subject to various other federal, state and local regulatory
requirements such as local building codes and other similar regulations. Failure
to comply with these requirements could result in the imposition of fines by
governmental authorities or awards of damages to private litigants. The Company
believes that the Properties are currently in substantial compliance with all
applicable regulatory requirements, although expenditures at properties owned by
the Company may be required to comply with changes in these laws. No material
expenditures are contemplated at this time in order to comply with any such laws
or regulations; however, there can be no assurance that these requirements will
not be changed or that new requirements will not be imposed that would require
significant unanticipated expenditures by the Company, which could have an
adverse effect on the Company and its ability to make distributions to
stockholders. Similarly, changes in laws increasing the potential liability for
environmental conditions existing on the Properties may result in significant
unanticipated expenditures, which could adversely affect the Company and its
ability to make distributions to stockholders.
RISKS OF DEBT FINANCING
DEPENDENCE ON CREDIT FACILITY AND MORTGAGE FINANCING
The Credit Facility, which as of September 30, 1997 had an outstanding
balance of $97.6 million, permits the Company to borrow and issue letters of
credit thereunder. Borrowings under the Credit Facility bear interest at a
floating rate and the Company may from time to time incur or assume other
indebtedness which bears interest at a floating rate. In the event of interest
rate increases, the Company's results of operations may be adversely affected.
In that regard, the Company's results of operations for the last several years
have benefitted from historically low levels of interest rates and could be
adversely affected by a rise in interest rates. As of September 30, 1997, the
Credit Facility was secured by mortgages on 32 Properties (which Properties
collectively accounted for approximately 50% of the Company's annualized base
rent as of September 30, 1997), along with the rental proceeds from such
Properties. As of September 30, 1997, these 32 properties comprised
approximately 44% of the Company's total assets. In addition, during 1997, the
Company obtained mortgage loans which, as of September 30, 1997 were in the
aggregate principal amount of $60.5 million. As of September 30, 1997, these
mortgage loans were collateralized by 17 Properties (which Properties
collectively accounted for approximately 28% of the Company's annualized base
rent as of September 30, 1997). As of September 30, 1997, these 17 Properties
comprised approximately 22% of the Company's total assets. The Company is
currently under negotiations to restructure its Credit Facility as an unsecured
line, although there can be no assurance that such
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renegotiations will prove successful. If the Company fails to meet its
obligations under the Credit Facility or the aforementioned mortgage loans, or
any other debt instruments it may enter into from time to time, including
failure to comply with financial covenants, the holders of such indebtedness
generally would be entitled to demand immediate repayment of the principal
thereof and to foreclose upon any collateral securing such indebtedness.
The Credit Facility currently expires on June 1, 2000, when the principal
amount of all outstanding borrowings must be paid. Since the term of the Credit
Facility is limited, the Company's ability to continue to fund acquisitions and
provide funds for working capital and other cash needs following the expiration
or utilization of the Credit Facility will depend primarily on its ability to
obtain additional private or public equity or debt financing.
The Company is subject to the risks normally associated with debt financing,
including the risk that the Company's cash flow from operations will be
insufficient to meet required payments of principal and interest, the risk that
the Company will not be able to refinance existing indebtedness or that the
terms of any such refinancing will not be as favorable as the terms of such
indebtedness, and the risk that the Company may be unable to finance future
acquisitions or capital expenditures on favorable terms, or at all. In addition,
the Company is subject to the risk that its failure to maintain its REIT status
may constitute an event of default under the Credit Facility. In addition, the
Credit Facility provides that it is an event of default thereunder if Mr.
Bedford ceases for any reason to be Chairman or Chief Executive Officer of the
Company and a replacement reasonably satisfactory to the lender under the Credit
Facility has not been appointed by the Board of Directors within six months
thereafter. See "--Dependence on Key Personnel." In addition, default under or
acceleration of any debt instrument could, pursuant to cross-default clauses,
cause or permit the acceleration of other indebtedness. Any such default or
acceleration could have a material adverse effect on the Company and its ability
to make distributions to stockholders and to maintain its qualification as a
REIT under the Code and could threaten the continued viability of the Company.
POLICIES ON INDEBTEDNESS SUBJECT TO CHANGE
The Company currently has a policy of limiting its total consolidated
indebtedness to 50% of the aggregate market value of the outstanding shares of
Common Stock plus the total consolidated indebtedness of the Company. The
organizational documents of the Company, however, do not contain any limitation
on the amount or percentage of indebtedness the Company may incur. Accordingly,
the Board of Directors could alter its policy of limiting the extent of its
borrowing. If this policy were changed, the Company could become more highly
leveraged, resulting in an increase in debt service that could adversely affect
the Company and its ability to make distributions to stockholders and in an
increased risk of default on its obligations. Moreover, although the Company
will consider factors other than market capitalization in making decisions
regarding the incurrence of debt (such as the purchase price of properties to be
acquired with debt financing, the estimated market value of properties upon
refinancing, and the ability of particular properties and the Company as a whole
to generate cash flow to cover expected debt service), there can be no assurance
that the aforementioned ratio will be such that the Company, after meeting debt
service obligations thereon, would be able to continue to make stockholder
distributions at current levels.
REGISTRATION RIGHTS
Pursuant to a registration rights agreement, Mr. Bedford has the right to
require the Company to register up to 250,000 shares under the Securities Act
for offer and sale to the public (including by way of an underwritten public
offering) and to cause such shares to be included in any registration statement
filed by the Company. The right of Mr. Bedford to register shares of Common
Stock and sell them in the public market could have a material adverse effect on
both the market price for the Common Stock and the Company's ability to raise
additional equity capital in the future. See "--Shares Available for Future
Sale."
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RISK OF SUBSTANTIAL DILUTION; MARKET REACTION TO SALES UNDER THIS REGISTRATION
STATEMENT
Under the registration statement of which this Prospectus forms a part, the
Company has the ability to issue up to 20,000,000 additional shares of Common
Stock. In addition, this registration statement registers for sale the 4,166,667
shares of Common Stock the Selling Stockholder received upon its conversion of
the Convertible Preferred Stock. As of October 14, 1997, the Company had
approximately 15.3 million shares of Common Stock outstanding (including the
4,166,667 shares of Common Stock issued upon the conversion of the Convertible
Preferred Stock). Holders of Common Stock could experience substantial dilution
in the event that the Company issues a substantial number of these additional
shares. This issuance could also adversely affect the market price of the Common
Stock. The market price of the Common Stock may be particularly susceptible to
price fluctuations in the near to intermediate future given the relatively large
number of shares that may be sold under this registration statement as compared
to the number of shares currently outstanding.
EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK
One of the factors that will influence the market price of the shares of
Common Stock in public markets will be the annual yield on the price paid for
shares of Common Stock from distributions by the Company. An increase in market
interest rates may lead prospective purchasers of the Common Stock to seek a
higher annual yield from their investments. Such circumstances may adversely
affect the market price of the Common Stock.
CONCENTRATION OF VOTING POWER
As of October 14, 1997, BPLP was the beneficial owner of 4,166,667 shares of
Common Stock of the Company, representing approximately 27% of the outstanding
shares of Common Stock at that date. In addition, As of October 14, 1997, Mr.
Bedford may be deemed to have been the beneficial owner of 1,011,663 shares of
Common Stock of the Company (including then-exercisable options to purchase
101,250 shares and 50,000 shares owned by the Grindstone Trust, as to which Mr.
Bedford disclaims beneficial ownership), representing approximately 6% of the
outstanding shares of Common Stock at that date. While BPLP and Mr. Bedford do
not individually or in the aggregate have majority control of the Company, they
both currently have, and likely will continue to have, significant influence
with respect to the election of directors and approval or disapproval of
significant corporate actions.
EXEMPTION FROM THE MARYLAND BUSINESS COMBINATION LAW
Under the MGCL, certain "business combinations" (including certain issuances
of equity securities) between a Maryland corporation and any person who
beneficially owns 10% or more of the voting power of the corporation's shares or
an affiliate of the corporation who, at any time within the two-year period
prior to the date in question, was the beneficial owner of 10% or more of the
voting power of the then-outstanding voting stock of the corporation (an
"Interested Stockholder") or an affiliate thereof are prohibited for five years
after the most recent date on which the Interested Stockholder becomes an
Interested Stockholder. Thereafter, all such business combinations must be
approved by two super-majority votes of the stockholders unless, among other
conditions, the corporation's common stockholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in cash
or in the same form as previously paid by the Interested Stockholder for its
common shares. Mr. Bedford and BPLP currently beneficially own more than 10% of
the Company's voting shares and would, therefore, be subject to the business
combination provisions of the MGCL. However, as permitted by the MGCL, the Board
of Directors has elected to exempt any business combination with any person from
these provisions of the MGCL. Consequently, unless such exemption is amended or
repealed by the Board of Directors, the five-year prohibition and the
super-majority vote requirements described above will not apply to any business
combination between any Interested Stockholder and the Company. As a result, the
Company may in the future enter into business combinations with Mr. Bedford,
BPLP or other
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Interested Stockholders, without compliance by the Company with the
super-majority vote requirements and other provisions of the statute. The
exemption from these provisions may be amended or repealed by the Board of
Directors at any time.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE CHARTER, THE BYLAWS AND
MARYLAND LAW
The Company's Charter authorizes the Board of Directors to cause the Company
to issue additional shares of Common Stock, Preferred Stock, Convertible
Preferred Stock and to set the preferences, rights and other terms of such
preferred stock without the approval of the holders of the Common Stock.
Although the Board of Directors has no intention to issue any shares of
Preferred Stock at the present time, it may establish one or more series of
Preferred Stock that could, depending on the terms of such series, delay, defer
or prevent a change in control of the Company or other transaction that may be
in the best interests of the stockholders.
The Charter contains other provisions that may delay, defer or prevent a
transaction or a change in control of the Company that might involve a premium
price for the holders of the Common Stock or otherwise be in the best interests
of the stockholders or that could otherwise adversely affect the interests of
the holders of the Common Stock, and the Bylaws may be amended by the Board of
Directors to include provisions that would have a similar effect, although the
Board presently has no such intention. The Charter contains provisions limiting
the transferability and ownership of shares of the stock of the Company, which
may have the effect of delaying, deferring or preventing a transaction or a
change in control of the Company that might involve a premium price for the
holders of the Common Stock or otherwise be in their best interests or that
could have dividend, voting or other rights that could adversely affect the
interests of holders of Common Stock.
Although, as described above in "--Exemption from the Maryland Business
Combination Law," the Board of Directors has elected to exempt the Company from
the "business combination" provisions of the MGCL, such exemption may be amended
or repealed by the Board of Directors at any time. Such action by the Board of
Directors would impose the "business combination" restrictions of the MGCL on
Interested Stockholders, which could delay, defer or prevent a transaction or
change in control of the Company that might involve a premium price for the
Company's stock or otherwise be in the best interests of the stockholders or
that could otherwise adversely affect the interests of the stockholders.
In addition, the MGCL restricts the voting rights of shares deemed to be
"control shares." Under the MGCL, "control shares" are those which, when
aggregated with any other shares held by the acquiror, entitle the acquiror to
exercise voting power within specified ranges. Although the Bylaws provide that
the control share provisions of the MGCL shall not apply to any acquisition by
any person of shares of stock of the Company, such provision of the Bylaws may
be amended or eliminated by the Board of Directors at any time in the future.
Moreover, any such amendment or elimination of such provision of the Bylaws may
result in the application of the control share provisions of the MGCL not only
to control shares which may be acquired in the future, but also to control
shares previously acquired. The control share provisions of the MGCL could
delay, defer or prevent a transaction or change in control of the Company that
might involve a premium price for the Company's stock or otherwise be in the
best interests of the stockholders or that could otherwise adversely affect the
interests of the stockholders.
SHARES AVAILABLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock, or the availability of such shares for future sales,
will have on the market price of the Common Stock prevailing from time to time.
Sales of substantial amounts of Common Stock, or the perception that such sales
could occur, may adversely affect the prevailing market price for the Common
Stock.
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<PAGE>
CHANGES IN POLICIES
The major policies of the Company, including its policies with respect to
maintaining its qualification as a REIT and with respect to dividends,
acquisitions, debt and investments, are established by the Board of Directors.
Although it has no present intention to do so, the Board of Directors may amend
or revise these and other policies from time to time without a vote of or notice
to the stockholders of the Company. Accordingly, holders of the shares of Common
Stock will have no control over changes in policies of the Company, including
any policies relating to the payment of dividends or to maintaining
qualification as a REIT.
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, the
Company will use the net cash proceeds from the sale of the Shares to acquire
new properties as suitable opportunities arise, to expand and improve certain
properties in the Company's portfolio, to develop new industrial and suburban
office properties, to repay certain indebtedness and for general corporate
purposes. Pending application of any net proceeds, the Company will invest such
proceeds in interest-bearing accounts and short-term, interest-bearing
securities, which are consistent with the Company's intention to continue to
qualify for taxation as a REIT. Such investments may include, for example,
government and governmental agency securities, certificates of deposit and
interest-bearing bank deposits.
The Company will not receive any of the proceeds from the sale, if any, of
the Selling Stockholder Shares. See "Selling Stockholder".
SELLING STOCKHOLDER
The Selling Stockholder and any of its transferees who acquire the Selling
Stockholder Shares in such a manner that they continue to constitute
"restricted" securities within the meaning of Rule 144 under the Securities Act
(together, the "Selling Stockholders") may from time to time offer up to
4,166,667 shares of Common Stock of the Company. Each Prospectus Supplement, if
any, will name each Selling Stockholder, if any, offering shares thereby,
indicate the nature of any position, office, or other material relationship
which the Selling Stockholders have had within the past three years with the
Company or any of its predecessors of affiliates, and state the number of shares
owned by the Selling Stockholders prior to the offering, the number of shares of
Common Stock offered by the Selling Stockholders pursuant to the Prospectus
Supplement and the number of shares of Common Stock and the percentage (if one
percent or more) of the outstanding Common Stock owned by the Selling
Stockholders after the offering.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OWNED CLASS
- ----------------------- --------------------------- ----------------- ---------------
<S> <C> <C> <C>
Common Stock Bed Preferred No. 1 4,166,667 27%
Limited Partnership (1)
225 Franklin Street
Boston, MA 02110-2803
</TABLE>
- ------------------------
(1) A Delaware limited partnership beneficially owned by an investment fund
managed by AEW Capital Management.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The following summary of certain terms of the capital stock of the Company
and Maryland law does not purport to be complete and is subject to and qualified
in its entirety by reference to the Company's Charter and Bylaws and Maryland
law.
GENERAL
The Company's Charter provides that the Company may issue up to 50,000,000
shares of Common Stock, 10,000,000 shares of Convertible Preferred Stock, and
10,000,000 shares of Preferred Stock. As of September 30, 1997, there were
11,164,700 shares of Common Stock issued and outstanding. Under Maryland law,
stockholders generally are not liable for a corporation's debts or obligations
solely as a result of their status as stockholders.
COMMON STOCK
All shares of Common Stock offered hereby will be duly authorized, fully
paid and nonassessable. Subject to the preferential rights of any shares or
series of stock that may be issued in the future, holders of shares of Common
Stock are entitled to receive dividends on such stock if, as and when authorized
and declared by the Board of Directors out of assets legally available therefor
and to share ratably in the assets of the Company legally available for
distribution to its stockholders in the event of its liquidation, dissolution or
winding up after payment of or making adequate provision for all debts and
liabilities of the Company.
Each outstanding share of Common Stock entitles the holder to one vote on
all matters submitted to a vote of stockholders and, except as may be provided
with respect to any class or series of stock that may be issued in the future,
the holders of such shares possess the exclusive voting power.There is no
cumulative voting in the election of Directors, which means that the holders of
a majority of the outstanding voting shares of Common Stock can elect all of the
directors standing for election and the holders of the remaining shares of
Common Stock will not be able to elect any directors.
Holders of shares of Common Stock have no preference, conversion, exchange,
sinking fund, redemption rights or preemptive rights to subscribe for any
securities of the Company.
Under the MGCL a Maryland corporation cannot dissolve, amend its charter,
merge, consolidate, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside the ordinary course of
business unless such dissolution, amendment, merger, consolidation, sale or
share exchange is approved by the affirmative vote of stockholders holding at
least two-thirds of the outstanding shares entitled to vote on the matter unless
a lesser percentage (but not less than a majority of all the votes entitled to
be cast on the matter) is set forth in the corporation charter. The Company's
Charter specifies that the affirmative vote of the stockholders holding a
majority of the outstanding shares is necessary to approve such transactions.
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PREFERRED STOCK
Shares of Preferred Stock (including any unissued shares of any series of
Preferred Stock, to the extent permitted by the terms of such series) may be
issued from time to time, in one or more series as authorized by the Board of
Directors. Prior to issuance of shares of each series, the Board of Directors is
required by the MGCL and the Charter to specify the number of shares of
Preferred Stock to be included in such series and set the terms, preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each such series. Accordingly, the Board of Directors, without
approval of the holders of Common Stock, could cause the issuance of one or more
series of Preferred Stock that could, depending on the terms of such series,
delay, defer or prevent a transaction or change in control of the Company that
might involve a premium price for the Common Stock or otherwise be in the best
interests of the holders of Common Stock, or that could have dividend, voting or
other rights that could adversely affect the interests of holders of Common
Stock. See "Risk Factors--Anti-takeover Effect of Certain Provisions of the
Charter, the Bylaws and Maryland Law." As of the date hereof, the Company has no
present plans to issue any additional series of Preferred Stock.
RESTRICTIONS ON TRANSFER AND OWNERSHIP OF CAPITAL STOCK
GENERAL
The Charter provides that the Board of Directors shall use its reasonable
best efforts to cause the Company and its stockholders to qualify for federal
income tax treatment in accordance with provisions of the Code applicable to a
REIT. In furtherance of the foregoing, the Charter further provides that the
Board of Directors shall use its reasonable best efforts to take such actions as
are necessary and may take such actions, as in its sole judgment and discretion
are desirable, to preserve the status of the Company as a REIT; provided,
however, that if the Board of Directors determines that it is no longer in the
best interests of the Company for the Company to continue to qualify as a REIT,
the Board of Directors may revoke or otherwise terminate the Company's election
to be taxed as a REIT.
LIMITATION ON TRANSFER OF CAPITAL STOCK
For the Company to qualify as a REIT under the Code, the Company must, among
other things, satisfy the Five or Fewer Requirement and 100 Stockholder
Requirement. See "Certain Federal Income Tax Considerations." To reduce the risk
that the Company would fail to meet these requirements, the Charter places
limitations on the transferability of the Company's stock.
Subject to certain exceptions, no holder is permitted to own, either
actually or constructively under the applicable attribution rules of the Code,
more than five percent (in value) of the aggregate of the outstanding shares of
stock of the Company (the "Aggregate Stock Ownership Limit") or more than five
percent (in number or value, whichever is more restrictive) of the outstanding
shares of Common Stock (the "Common Stock Ownership Limit"). In addition to
either of the foregoing ownership limits, no holder is permitted to own, either
actually or constructively under the applicable attribution rules of the Code,
any shares of any class of the Company's stock if such ownership or acquisition
(i) would cause more than 50% in value of the Company's outstanding stock to be
owned, either actually or constructively under the applicable attribution rules
of the Code, by five or fewer individuals (as defined in the Code to include
certain entities) or (ii) would result in the Company's stock being beneficially
owned by less than 100 persons (determined without reference to any rules of
attribution). Acquisition or ownership (actual or constructive) of the Company's
stock in violation of these restrictions results in automatic transfer of such
stock to a trust for the benefit of a charitable beneficiary or, under certain
specified circumstances, the violative transfer may be deemed void AB INITIO or
the Company may choose to redeem the violative shares.
As noted above, if any transfer of stock occurs which, if effective, will
result in any person (a "Prohibited Owner") beneficially or constructively
owning (under the applicable attribution rules of the
18
<PAGE>
Code) shares of stock in excess of an applicable ownership restriction, such
shares will be automatically transferred to a trust for the benefit of a
charitable beneficiary, effective as of the close of business on the business
day prior to the date of the purported transfer to the Prohibited Owner. While
such shares of stock are held in trust, the trustee will have all voting rights
with respect to such shares, and all dividends or distributions paid on such
shares will be paid to the trustee of the trust for the benefit of the
charitable beneficiary (any dividend or distribution paid on such stock prior to
the discovery by the Company that such shares have been automatically
transferred to the trust will, upon demand, be paid over to the trustee for the
benefit of the charitable beneficiary). Within 20 days of receiving notice from
the Company of the transfer of shares to the trust, the trustee of the trust
will be required to sell the shares held in the trust to a person, designated by
the trustee, who may own such shares without violating the ownership
restrictions (a "Permitted Holder"). Upon such sale, the price paid for the
shares by the Permitted Holder will be distributed to the Prohibited Owner to
the extent of the lesser of (i) the price paid by the Prohibited Owner for the
share or, if the Prohibited Owner did not give value for the above (e.g., in the
case of a gift, devise or other such transaction), the market price (as defined
in the Charter) on the date of the event which caused the shares to be held in
trust and (ii) the price received by the Trustee from the sale or other
disposition of shares. Any net sales proceeds in excess of this amount will be
paid immediately to the charitable beneficiary.
The Charter exempts Mr. Bedford and BPLP from the Aggregate Stock Ownership
Limit and the Common Stock Ownership Limit and creates separate ownership
limitations for each of these two parties. Mr. Bedford is limited to the
ownership, either actual or constructive under the applicable attribution rules
of the Code, of no more than 15% of the lesser of the number or value of the
outstanding shares of Common Stock. BPLP is limited to the ownership, either
actual or constructive under the applicable attribution rules of the Code, of
58% of the lesser of the number or value of the outstanding shares of Common
Stock.
In addition, the Charter permits the Board of Directors to waive, under
certain conditions, the Aggregate Stock Ownership Limit and the Common Stock
Ownership Limit for other stockholders as to any class or series of the
outstanding stock of the Company and to establish an ownership limitation
relating to such stockholders' stock ownership. The Company has agreed in the
stock purchase agreement pursuant to which it sold the Convertible Preferred
Stock to BPLP that it will not unreasonably withhold its consent to any transfer
by BPLP, provided that the proposed transferee supplies such reasonable
representations and undertakings as appropriate to ensure that the transfer will
not cause the Company to lose its status as a REIT.
If the Board of Directors at any time determines in good faith that a
transfer or other event has taken place that results in a violation of the
above-described ownership limits or that a person intends to acquire or has
attempted to acquire constructive or beneficial ownership of stock of the
Company in violation of the above described limits, the Board of Directors is
required to take such action as it deems advisable to refuse to give effect or
to prevent such transfer or other event, including but not limited to causing
the Company to repurchase stock, refuse to give effect to such ownership or
acquisition on the books of the Company or instituting proceedings to enjoin
such transfer or event.
The constructive ownership rules are complex and may cause Common Stock
owned beneficially or constructively by a group of related individuals and/or
entities to be constructively owned by one individual or entity. As a result,
the acquisition of less than five percent of the number or value of outstanding
Common Stock (or the acquisition of an interest in an entity which owns Common
Stock) by an individual or entity could cause that individual or entity (or
another individual or entity) to constructively own Common Stock in excess of
the limits described above, and thus subject such stock to the Common Ownership
Limit or the Aggregate Stock Ownership Limit set forth in the Charter.
The Charter also requires all persons who own five percent (or such lower
percentage as required by the Code or the Treasury Regulations promulgated
thereunder which, in the case of the Company, is one
19
<PAGE>
percent) of the outstanding shares of the stock of the Company to file each year
a completed questionnaire with the Company containing information regarding
their ownership of such shares, as set forth in the Treasury Regulations. In
addition, upon demand, each beneficial or constructive owner of stock of the
Company is required to disclose to the Company in writing such information as
the Company in good faith deems necessary to determine the Company's status as a
REIT or to comply with the requirements of any taxing authority or governmental
agency or to determine such compliance.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
COMPANY'S CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Charter and Bylaws of the Company does not purport to be complete and is subject
to and qualified in its entirety by reference to Maryland law and the Charter
and Bylaws of the Company. Copies of the Charter and Bylaws may be obtained as
described under "Available Information."
MARYLAND BUSINESS COMBINATION LAW
Under the MGCL, certain "business combinations" (including certain issuances
of equity securities) between a Maryland corporation and any Interested
Stockholder or an affiliate thereof are prohibited for five years after the most
recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, all such business combinations must be approved by two
super-majority votes of the stockholders unless, among other conditions, the
corporation's common stock holders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the same
form as previously paid by the Interested Stockholder for its common shares. Mr.
Bedford and BPLP currently beneficially own more than 10% of the Company's
voting shares and would, therefore, be subject to the business combination
provisions of the MGCL. However, as permitted by the MGCL, the Board of
Directors has elected to exempt any business combination with any person from
these provisions of the MGCL. Consequently, unless such exemption is amended or
repealed by the Board of Directors, the five-year prohibition and the super
majority vote requirements described above will not apply to any business
combination between any Interested Stockholder and the Company. As a result, the
Company may in the future enter into business combinations with Mr. Bedford,
BPLP or other Interested Stockholders, without compliance by the Company with
the super majority vote requirements and other provisions of the statute. The
exemption from these provisions may be amended or repealed by the Board of
Directors at any time. Such action by the Board of Directors would impose the
restrictions of the business combination provisions of the MGCL on the Company,
which could delay, defer or prevent a transaction or change in control of the
Company that might involve a premium price for the Company's stock or otherwise
be in the best interest of the stockholders or that could otherwise adversely
affect the interests of the stockholders.
CONTROL SHARE ACQUISITIONS
The MGCL also provides that "control shares" (defined below) of a Maryland
corporation acquired in a "control share acquisition" have no voting rights
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast on the matter, excluding shares of stock owned by the acquiror, by
officers or by directors who are employees of the corporation. The control share
provisions of the MGCL do not apply (a) to shares acquired in a merger,
consolidation or share exchange if the corporation is a party to the transaction
or (b) to acquisitions approved or exempted by the corporation's charter or
bylaws. The Bylaws of the Company currently contain a provision exempting from
the control share provisions of the MGCL any and all acquisitions by any person
of the Company's shares of stock and, as a result, the control
20
<PAGE>
share provisions currently do not apply to the Company. There can be no
assurance, however, that such provision will not be amended or eliminated by the
Board of Directors at any time in the future.
"Control shares" are voting shares of stock which, if aggregated with all
other such shares of stock previously acquired by the acquiror, or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
(except solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power: (i) one-fifth or more but less than one-third, (ii) one-third
or more but less than a majority, or (iii) a majority or more of all voting
power. Thus, if an acquisition of control shares within one range is approved by
stockholders and is followed by an acquisition of additional control shares by
the same person that results in the total number of control shares owned by that
person being in a higher range, then voting rights for the additional shares in
excess of the previously approved range would also have to be approved by the
stockholders. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained stockholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain limitations, the corporation may redeem any or all of the
control shares (except those for which voting rights have previously been
approved) for fair value determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of the stockholders meeting at which the voting
rights of such shares were considered and not approved. If voting rights for
control shares are approved at the stockholders meeting and the acquiror becomes
entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
As stated above, the control share provisions of the MGCL do not currently
apply to the Company because the Bylaws of the Company contain a provision
exempting from the control share provisions of the MGCL any and all acquisitions
by any person of the Company's shares of stock. There can be no assurance,
however, that such provision will not be amended or eliminated by the Board of
Directors at any time in the future. Moreover, any amendment or elimination of
such provision of the Bylaws may result in the application of the control share
provisions of the MGCL not only to shares which may be acquired in any future
control share acquisitions, but also to shares acquired in prior control share
acquisitions. The potential for such application of the control share provisions
of the MGCL could delay, defer or prevent a transaction or change in control of
the Company that might involve a premium price for the Company's stock or
otherwise be in the best interest of the stockholders.
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<PAGE>
INTERESTED DIRECTOR TRANSACTIONS
The MGCL provides that a contract or other transaction between a corporation
and any of its directors or between a corporation and any other entity in which
any of its directors is a director or has a material financial interest is not
void or voidable by reason of (i) such common directorship or interest; (ii) the
presence of the director at the meeting of the board which authorizes, approves,
or ratifies the contract or transaction; or (iii) the counting of the vote of
the director for the authorization, approval, or ratification of the contract or
transaction if: (a) the fact of the common directorship or interest is disclosed
or known to the board of directors and the board of directors ratifies or
approves the contract or transaction by the affirmative vote of a majority of
its disinterested directors; (b) the fact of the common directorship or interest
is disclosed or known to the stockholders entitled to vote, and the contract or
transaction is authorized, approved or ratified by a majority of the votes cast
by the stockholders entitled to vote other than the votes of shares owned of
record or beneficially by the interested director or corporation; or (c) the
contract or transaction is fair and reasonable to the corporation. In addition,
the Company's Charter contains a provision for approval by the disinterested
directors that is substantially similar to the provision of the MGCL referred to
in clause (a) of the preceding sentence.
AMENDMENTS TO THE CHARTER AND BYLAWS
The Charter provides generally that its provisions may be amended only by
the affirmative vote of a majority of all the votes entitled to be cast on the
matter. The Bylaws provide that the Board of Directors has the exclusive power
to adopt, alter or repeal any provision of the Bylaws and to make new Bylaws.
THE BOARD OF DIRECTORS
The Bylaws provide that the number of Directors of the Company may be
established by a majority of the entire Board of Directors but may not be fewer
than the minimum required by the MGCL nor more than 15, and at least one-half of
the Board of Directors shall consist of Independent Directors. The Bylaws define
"Independent Director" as a director who is not an employee or consultant of the
Company. Any vacancy on the Company's Board of Directors for any cause other
than an increase in the number of Directors shall be filled by a majority of the
remaining Directors (although such majority is less than a quorum). However, any
vacancy that arises because an Independent Director ceases to be a Director of
the Company will be filled by the selection of a successor Director by a
majority vote of the remaining Independent Directors (although less than a
quorum). Any vacancy on the Board created by an increase in the number of
Directors may be filled by a majority vote of the entire Board of Directors,
except that a vacancy which is required to be filled by an Independent Director
pursuant to the Company's Bylaws will be filled by a majority vote of the Board
of Directors' remaining Independent Directors (although less than a quorum). The
Bylaws provide that an individual so elected as a Director will hold office for
the unexpired term of the Director he is replacing.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (a) with respect to an annual meeting
of stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(i) pursuant to the Company's notice of meeting, (ii) by or at the discretion of
the Board of Directors or (iii) by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice procedures set forth in the
Bylaws and (b) with respect to special meetings of stockholders, only the
business specified in the Company's notice of meeting may be brought before the
meeting of stockholders, and nominations of persons for election to the Board of
Directors may be made only (i) pursuant to the Company's notice of meeting, (ii)
by or at the discretion of the Board of Directors or (iii) provided that the
Board of Directors has determined that Directors shall be elected at such
meeting, by a stockholder who is entitled to vote at the meeting and has
complied with the advance notice provisions set forth in the Bylaws. The
foregoing provisions of the Company's Bylaws could delay, defer or prevent a
transaction or a change in control of the Company that might involve a premium
price for the Common Stock.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING IS A GENERAL SUMMARY OF THE MATERIAL FEDERAL INCOME TAX
CONSIDERATIONS ASSOCIATED WITH AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
SHEARMAN & STERLING, COUNSEL TO THE COMPANY, HAS REVIEWED THE FOLLOWING
DISCUSSION AND IS OF THE OPINION THAT IT FAIRLY SUMMARIZES THE FEDERAL INCOME
TAX CONSIDERATIONS THAT ARE LIKELY TO BE MATERIAL TO A HOLDER OF COMMON STOCK.
THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE OF ALL POSSIBLE TAX CONSIDERATIONS
AND IS NOT TAX ADVICE. MOREOVER, THIS SUMMARY DOES NOT DEAL WITH ALL TAX ASPECTS
THAT MIGHT BE RELEVANT TO A PARTICULAR PROSPECTIVE STOCKHOLDER IN LIGHT OF HIS
OR HER PERSONAL CIRCUMSTANCES; NOR DOES IT DEAL WITH PARTICULAR TYPES OF
STOCKHOLDERS THAT ARE SUBJECT TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS
INSURANCE COMPANIES, FINANCIAL INSTITUTIONS AND BROKER-DEALERS. THE CODE
PROVISIONS GOVERNING THE FEDERAL INCOME TAX TREATMENT OF REITS ARE HIGHLY
TECHNICAL AND COMPLEX, AND THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE
APPLICABLE CODE PROVISIONS, RULES AND TREASURY REGULATIONS PROMULGATED
THEREUNDER, AND ADMINISTRATIVE AND JUDICIAL INTERPRETATIONS THEREOF. THE
FOLLOWING DISCUSSION AND THE OPINIONS OF SHEARMAN & STERLING ARE BASED ON
CURRENT LAW.
EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR
WITH RESPECT TO SUCH PURCHASER'S SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF THE PURCHASE, HOLDING AND SALE OF COMMON STOCK OF THE
COMPANY.
FEDERAL INCOME TAXATION OF THE COMPANY
The Company believes that, commencing with its taxable year ending December
31, 1985, it was organized and has operated in such a manner as to qualify for
taxation as a REIT under the Code, and the Company intends to continue to
operate in such a manner, but no assurance can be given that it will operate in
a manner so as to qualify or remain qualified. The Company has not and does not
intend to request a ruling from the IRS as to its status as a REIT. Based on
various assumptions and factual representations made by the Company, in the
opinion of Shearman & Sterling, counsel to the Company, the Company was
organized in conformity with the requirements for qualification as a REIT, the
Company has operated so as to qualify as a REIT since its taxable year ended
December 31, 1993 (which such counsel believes is the Company's earliest taxable
year which is within the normal period for federal tax audit), and the Company's
proposed method of operation will enable it to meet the requirements for
qualification and taxation as a REIT under the Code. Such qualification depends
upon the Company's ability to meet the various requirements imposed under the
Code through actual operations, as discussed below, and no assurance can be
given that actual operations will meet these requirements. The opinion of
Shearman & Sterling is not binding on the IRS. The opinion of Shearman &
Sterling also is based upon existing law, the Treasury Regulations, currently
published administrative positions of the IRS and judicial decisions, which are
subject to change either prospectively or retroactively. In addition, as
discussed under "Risk Factors--Tax Risks; Risks Associated with REIT Status,"
for tax year 1993 (and possibly for certain prior years which such counsel
believes are outside the normal period for federal tax audit) it is uncertain
whether the Company properly requested the written statements required by the
Treasury Regulations concerning the ownership of its stock by certain
stockholders of record (the "Stockholder Polling Requirements") from certain
clearing organizations holding Common Stock as nominees for the beneficial
owners of such shares. However, the Company did employ stockholder polling
procedures for tax year 1993 which it believes went beyond what is required by
the Treasury Regulations in providing stockholder ownership information for
purposes of determining whether the Company satisfied the Five or Fewer
Requirement (defined below under the caption "--Requirements for
Qualification"). In that regard, the Company has received an opinion of Shearman
& Sterling to the effect that, based on various assumptions and factual
representations made by the Company, the Company has not, by virtue of the
Stockholder Polling Requirements, failed to qualify as a REIT with respect to
tax year 1993.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on that portion of its ordinary income
or capital gain that is currently distributed to stockholders. The REIT
provisions of the Code generally allow a REIT to deduct dividends paid to its
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stockholders. This deduction for dividends paid to stockholders substantially
eliminates the federal "double taxation" on earnings (once at the corporate
level and once again at the stockholder level) that usually results from
investments in a corporation.
The Company, however, will be subject to federal income tax, as follows:
first, the Company will be taxed at regular corporate rates on its undistributed
REIT taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the "alternative minimum
tax." Third, if the Company has net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or other non-qualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property other
than foreclosure property held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if the
Company should fail to satisfy either the 75% or 95% gross income test
(discussed below) but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the gross income attributable to the greater of the amount by which the
Company fails the 75% or 95% test, multiplied by a fraction intended to reflect
the Company's profitability. Sixth, if the Company fails to distribute during
each year at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain net income for such year and (iii) any
undistributed taxable income from prior periods, the Company will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company should acquire any asset from a
corporation which is or has been a C corporation (i.e., a corporation generally
subject to full corporate-level tax) in a carryover-basis transaction and the
Company subsequently recognizes gain on the disposition of such asset during the
ten-year period (the "Recognition Period") beginning on the date on which the
asset was acquired by the Company, then, to the extent of the excess of (a) the
fair market value of the asset as of the beginning of the applicable Recognition
Period over (b) the Company's adjusted basis in such asset as of the beginning
of such Recognition Period (the "Built-In Gain"), such gain will be subject to
tax at the highest regular corporate rate, pursuant to guidelines issued by the
IRS (the "Built-In Gain Rules").
REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, the Company must elect to be so treated and must meet
the requirements, discussed below, relating to the Company's organization,
sources of income, nature of assets and distributions of income to stockholders.
ORGANIZATIONAL REQUIREMENTS
The Code defines a REIT as a corporation, trust or association: (i) that is
managed by one or more directors or trustees, (ii) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest, (iii) that would be taxable as a domestic corporation but
for the REIT requirements, (iv) that is neither a financial institution nor an
insurance company subject to certain provisions of the Code, (v) the beneficial
ownership of which is held by 100 or more persons (the "100 Stockholder
Requirement"), and (vi) during the last half of each taxable year not more than
50% in value of the outstanding stock of which is owned, directly or indirectly,
through the application of certain attribution rules, by five or fewer
individuals (as defined in the Code to include certain entities) (the "Five or
Fewer Requirement"). In addition, certain other tests, described below,
regarding the nature of its income and assets also must be satisfied. The Code
provides that conditions (i) through (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days
of a taxable year of 12 months or during a proportionate part of a taxable year
of less than 12 months. For purposes of conditions (v) and (vi), pension funds
and certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of condition (vi).
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In order to protect the Company from a concentration of ownership of its
stock that would cause the Company to fail the Five or Fewer Requirement or the
100 Stockholder Requirement, the Charter of the Company provides that no holder
is permitted to own, either actually or constructively under the applicable
attribution rules of the Code, more than 5% (in value) of the aggregate
outstanding shares of all classes of stock of the Company or more than 5% (in
number or value, whichever is more restrictive) of the outstanding shares of
Common Stock, with certain exceptions. In addition, no holder is permitted to
own, either actually or constructively under the applicable attribution rules of
the Code, any shares of any class of the Company's stock if such ownership would
cause more than 50% in value of the Company's outstanding stock to be owned by
five or fewer individuals or would result in the Company's stock being
beneficially owned by less than 100 persons (determined without reference to any
rule of attribution). See "Description of Capital Stock of the
Company--Restrictions on Transfer and Ownership of Capital Stock." In addition,
certain investors will be prohibited from purchasing or holding the shares of
Common Stock issued on conversion of the Convertible Preferred Stock (but only
so long as such Common Stock is a "restricted security" as defined in Rule 144).
See "Description of Capital Stock of the Company-- Restrictions on Transfer and
Ownership of Capital Stock." In rendering its opinion that the Company has
operated so as to qualify, and its proposed method of operation will enable it
to qualify, as a REIT, Shearman & Sterling is relying on the representation of
the Company that the ownership of its stock has satisfied and will satisfy the
Five or Fewer Requirement and the 100 Stockholder Requirement; and Shearman &
Sterling expresses no opinion as to whether, as a matter of law, the provisions
contained in the Charter will preclude the Company from failing the Five or
Fewer Requirement or the 100 Stockholder Requirement.
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. The Company has a calendar year taxable year.
The Company owns and operates a number of properties through subsidiaries.
Under the Code, a corporation which is a "qualified REIT subsidiary" is not
treated as a separate corporation and is not subject to federal income tax;
rather, all assets, liabilities and items of income, deduction, and credit of a
"qualified REIT subsidiary" are treated as assets, liabilities and such items
(as the case may be) of the REIT for all purposes of the Code including the REIT
qualification tests. Generally, a corporation will qualify as a "qualified REIT
subsidiary" if 100% of its stock is held by the Company. The Company's
subsidiaries are "qualified REIT subsidiaries." Thus, in applying the
requirements described herein, the Company's "qualified REIT subsidiaries" will
be ignored, and all assets, liabilities and items of income, deduction and
credit of such subsidiaries will be treated as assets, liabilities and items of
the Company. While this summary generally does not address state tax
consequences, some states may not recognize a "qualified REIT subsidiary", which
could cause a subsidiary to be taxed or could cause the Company to fail to
qualify as a REIT under such state law.
The Company owns investments through Bedford Realty Partners, L.P. (the
"Partnership"), and may in the future own additional investments through the
Partnership or other partnerhips. In general, partnerships are "pass-through"
entities which are not subject to federal income tax. Rather, partners are
allocated their proportionate share of the items of income, gain, loss,
deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. As a result, the Company will include its proportionate share of
(i) the Partnership's income, gains, losses, deductions and credits for purposes
of the various REIT gross income tests and in its computation of its REIT
taxable income and (ii) the Partnership's assets for purposes of the REIT asset
tests.
INCOME TESTS
To maintain qualification as a REIT, three gross income requirements must be
satisfied annually. First, at least 75% of the Company's gross income, excluding
gross income from certain dispositions of property held primarily for sale to
customers in the ordinary course of a trade or business ("prohibited
transactions") for each taxable year, must be derived directly or indirectly
from investments relating to real
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property or mortgages on real property (including "rents from real property"
and, in certain circumstances, interest) or from certain types of temporary
investments. Second, at least 95% of the Company's gross income (excluding gross
income from "prohibited transactions") for each taxable year must be derived
from such real property investments and from dividends, interest and gain from
the sale or disposition of stock or securities or from any combination of the
foregoing. Third, short-term gain from the sale or other disposition of stock or
securities, gain from "prohibited transactions" and gain from the sale or other
disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Company's gross income (including gross income from prohibited
transactions) for each taxable year.
Rents received or deemed to be received by the Company will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above only if several conditions are met. First, the amount of
rent generally must not be based in whole or in part on the income or profits of
any person. An amount received or accrued generally will not be excluded from
the term "rents from real property," however, solely by reason of being based on
a fixed percentage or percentages of receipts of sales. Second, the Code
provides that rents received from a tenant will not qualify as "rents from real
property" in satisfying the gross income tests if the REIT, or a direct or
constructive owner of 10% or more of the REIT, directly or constructively owns
10% or more of such tenant. Third, if rent attributable to personal property,
leased in connection with a lease of real property, is greater than 15% of the
total rent received under the lease, then the portion of rent attributable to
the personal property will not qualify as "rents from real property." Fourth,
for rents to qualify as "rents from real property" the REIT must not operate or
manage the property or furnish or render services to tenants, other than through
an "independent contractor" who is adequately compensated and from whom the REIT
does not derive any income; provided, however, that a REIT may provide services
with respect to its properties and the income will qualify as "rents from real
property" if the services are "usually or customarily rendered" in connection
with the rental of room or other space for occupancy only and are not otherwise
considered "rendered to the occupant."
The Company has not and does not anticipate that it will in the future
charge rent that is based in whole or in part on the income or profits of any
person (except by reason of being based on a fixed percentage or percentages of
receipts of sales consistent with the rule described above). The Company has not
and does not anticipate that it will in the future derive rental income
attributable to personal property leased in connection with real property that
exceeds 15% of the total rents.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. An amount received or
accrued generally will not be excluded from the term "interest," however, solely
by reason of being based on a fixed percentage or percentages of receipts or
sales.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for that year
if it is eligible for relief under certain provisions of the Code. These relief
provisions will be generally available if (i) the Company's failure to meet
these tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches a schedule of the sources of its income to its federal income
tax return, and (iii) any incorrect information on the schedule is not due to
fraud with intent to evade tax. It is not possible, however, to state whether,
in all circumstances, the Company would be entitled to the benefit of these
relief provisions. For example, if the Company fails to satisfy the gross income
tests because nonqualifying income that the Company intentionally incurs exceeds
the limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. As discussed above in
"--Federal Income Taxation of the Company," even if these relief provisions
apply, a tax would be imposed with respect to the excess net income. No similar
mitigation provision provides relief if the Company fails the 30% income test;
and in such case, the Company will cease to qualify as a REIT. See "Risk
Factors--Tax Risks; Risks Associated with REIT Status--Adverse Consequences of
the Failure to Maintain Qualification as a REIT."
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ASSET TESTS
At the close of each quarter of its taxable year, the Company also must
satisfy three tests relating to the nature and diversification of its assets.
First, at least 75% of the value of the Company's total assets must be
represented by real estate assets, cash, cash items and government securities.
Second, no more than 25% of the Company's total assets may be represented by
securities other than those in the 75% asset class. Third, of the investments
included in the 25% asset class (which does not include any securities issued by
a "qualified REIT subsidiary"), the value of any one issuer's securities owned
by the Company may not exceed 5% of the value of the Company's total assets, and
the Company may not own more than 10% of any one issuer's outstanding voting
securities.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company has maintained and intends in the future to maintain
adequate records of the value of its assets to ensure compliance with the asset
tests and to take such other actions within 30 days after the close of any
quarter as may be required to cure any noncompliance.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to be taxed as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its stockholders in an amount
at least equal to (a) the sum of (i) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends-paid deduction and the Company's net
capital gain) and (ii) 95% of the net income, if any, from foreclosure property
in excess of the special tax on income from foreclosure property, minus (b) the
sum of certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate or in the following taxable year if declared
before the Company timely files its federal income tax return for such year and
if paid on or before the first regular dividend payment after such declaration.
Even if the Company satisfies the foregoing distribution requirements, to the
extent that the Company does not distribute all of its net capital gain or "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
capital gains or ordinary corporate tax rates. Furthermore, if the Company
should fail to distribute during each calendar year at least the sum of (a) 85%
of its ordinary income for that year, (b) 95% of its capital gain net income for
that year and (c) any undistributed taxable income from prior periods, the
Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. In addition, during its
Recognition Period, if the Company disposes of any asset subject to the Built-In
Gain Rules, the Company will be required, pursuant to guidance issued by the
IRS, to distribute at least 95% of the Built-In Gain (after tax), if any,
recognized on the disposition of the asset.
It is expected that the Company's REIT taxable income will continue to be
less than its cash flow due to the allowance of depreciation and other non-cash
charges in computing REIT taxable income. Accordingly, the Company anticipates
that it will generally have sufficient cash or liquid assets to enable it to
satisfy the 95% distribution requirement. It is possible, however, that the
Company, from time to time, may not have sufficient cash or other liquid assets
to meet the 95% distribution requirement or to distribute such greater amount as
may be necessary to avoid income and excise taxation, as a result of timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of such
expenses in arriving at taxable income of the Company, or as a result of
nondeductible expenses such as principal amortization or repayments, or capital
expenditures in excess of non-cash deductions. In the event that such timing
differences occur, the Company may find it necessary to seek funds through
borrowings or the issuance of equity securities (there being no assurance that
it will be able to do so) or, if possible to pay taxable stock dividends in
order to meet the 95% distribution requirement.
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Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in the Company's deduction
for dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends. The Company will,
however, be required to pay interest based upon the amount of any deduction
taken for deficiency dividends.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current or accumulated
earnings and profits, all distributions to stockholders will be dividends,
taxable as ordinary income; and subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends-received deduction.
Unless the Company is entitled to relief under specific statutory provisions,
the Company also will be disqualified from taxation as a REIT for the four
taxable years following the year during which qualification was lost. It is not
possible to state whether in all circumstances the Company would be entitled to
such statutory relief. For example, if the Company fails to satisfy the gross
income tests because nonqualifying income that the Company intentionally incurs
exceeds the limit on such income, the IRS could conclude that the Company's
failure to satisfy the tests was not due to reasonable cause and disallow relief
on that basis. See "Risk Factors--Tax Risks; Risks Associated with REIT
Status--Adverse Consequences of the Failure to Maintain Qualification as a
REIT."
TAXATION OF U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of Common Stock
that for United States federal income tax purposes (a) is a citizen or resident
of the United States, (b) is a corporation or partnership (including an entity
treated as a corporation or partnership for United States federal income tax
purposes) created or organized in or under the laws of the United States,
unless, in the case of partnership, Treasury Regulations provide otherwise, (c)
is an estate, the income of which is subject to United States federal income
taxation regardless of its source, or (d) is a trust whose administration is
under the primary supervision of a court within the United States and over which
one or more United States persons have authority to control all substantial
decisions. Notwithstanding the preceding sentence, to the extent provided in
regulations, certain trusts in existence on August 20, 1996, and treated as
United States persons prior to such date that elect to continue to be treated as
United States persons, shall also be considered U.S. stockholders. For any
taxable year for which the Company qualifies for taxation as a REIT, amounts
distributed to taxable U.S. Stockholders will be taxed as follows.
DISTRIBUTIONS GENERALLY
Distributions to U.S. Stockholders, other than capital gain dividends
discussed below, will constitute dividends up to the amount of the Company's
current or accumulated earnings and profits and will be taxable to the
stockholders as ordinary income. For purposes of determining whether
distributions are out of current or accumulated earnings and profits, the
earnings and profits of the Company will be allocated first to the Company's
Preferred Stock, if any, and then allocated to the Common Stock. These
distributions are not eligible for the dividends-received deduction for
corporations. To the extent that the Company makes a distribution in excess of
its current or accumulated earnings and profits, the distribution will be
treated first as a tax-free return of capital, reducing the tax basis in the
U.S. Stockholder's Common Stock, and the distribution in excess of a U.S.
Stockholder's tax basis in its Common Stock will be taxable as capital gain
realized from the sale of its Common Stock. Dividends declared by the Company in
October, November or December of any year payable to a stockholder of record on
a specified date in any such month shall be treated as both paid by the Company
and received by the stockholder on December 31
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of the year, provided that the dividend is actually paid by the Company during
January of the following calendar year. Stockholders may not include on their
own federal income tax returns any losses of the Company.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed in
"--Federal Income Taxation of the Company" above. Moreover, any "deficiency
dividend" will be treated as an ordinary or capital gain dividend, as the case
may be, regardless of the Company's earnings and profits. As a result,
stockholders may be required to treat certain distributions that would otherwise
result in a tax-free return of capital as taxable dividends.
CAPITAL GAIN DIVIDENDS
Dividends to U.S. Stockholders that are properly designated by the Company
as capital gain dividends will be treated as long-term capital gains (to the
extent they do not exceed the Company's actual net capital gain) for the taxable
year without regard to the period for which the U.S. stockholder has held its
stock. It is not clear whether such amounts will be taxable at mid-term capital
gain rates (applicable to gains from the sale of assets held for more than one
year but not more than 18 months), long-term capital gain rates (applicable to
gains from the sale of assets held more than 18 months) or some other rate. This
uncertainty may be clarified by future legislation or regulations. However,
corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. Capital gain dividends are not eligible for
the dividends-received deduction for corporations.
PASSIVE ACTIVITY LOSS AND INVESTMENT INTEREST LIMITATIONS
Distributions from the Company and gain from the disposition of Common Stock
will not be treated as passive activity income, and therefore stockholders will
not be able to apply any "passive activity losses" against such income.
Dividends from the Company (to the extent they do not constitute a return of
capital) will generally be treated as investment income for purposes of the
investment income limitation on the deduction of investment interest. Under
recently enacted legislation, net capital gain from the disposition of Common
Stock and capital gain dividends generally will be excluded from investment
income.
CERTAIN DISPOSITIONS OF SHARES
In general, a U.S. Stockholder will realize capital gain or loss on the
disposition of shares of Common Stock equal to the difference between the sales
price for such shares and the adjusted tax basis for such shares. Gain or loss
realized upon a sale or exchange of Common Stock by a U.S. Stockholder who has
held such Common Stock as a capital asset, and, in the case of a taxable U.S.
stockholder who is an individual, will be mid-term or long-term gain or loss if
such shares have been held for more than one year or 18 months, respectively,
and otherwise will be treated as short-term capital gain or loss. However,
losses incurred on the sale or exchange of Common Stock held for less than six
months (after applying certain holding period rules) will be deemed long-term
capital loss to the extent of any capital gain dividends received by the selling
stockholder from those shares.
TREATMENT OF TAX-EXEMPT STOCKHOLDERS
Generally, a tax-exempt investor that is exempt from tax on its investment
income, such as an individual retirement account ("IRA") or a 401(k) plan, that
holds the Common Stock as an investment will not be subject to tax on dividends
paid by the Company. However, if such tax-exempt investor is treated as having
purchased its Common Stock with borrowed funds, some or all of its dividends
will be subject to tax. In addition, a portion of the dividends paid to certain
pension plans (including 401(k) plans but not including IRAs and government
pension plans) that own more than 10% (by value) of the
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Company's outstanding Common Stock will be taxed as unrelated business taxable
income if the Company is treated as predominantly owned within the meaning of
the Code by such pension plans.
RECENT LEGISLATION
On August 5, 1997, legislation was enacted which will be beneficial to the
Company and its shareholders because the relevant provisions would liberalize
several of the rules concerning the qualifications and taxation of the Company
as a REIT. These rules applicable to the Company will be effective for the
Company's taxable year beginning January 1, 1998. In addition, the legislation
reduces the rate of tax, in the case of individuals, on long-term capital gain
on property held for more than 18 months. Prospective holders are urged to
consult their own tax advisors regarding the new legislation.
SPECIAL TAX CONSIDERATIONS FOR FOREIGN STOCKHOLDERS
The rules governing United States federal income taxation of non-resident
alien individuals, foreign corporations, foreign partnerships and foreign trusts
and estates (collectively, "Non-U.S. Stockholders") are complex, and the
following discussion is intended only as a summary of these rules. Prospective
Non-U.S. Stockholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws on an investment in the
Company, including any reporting requirements.
In general, Non-U.S Stockholders will be subject to regular United States
federal income tax with respect to their investment in the Company if the
investment is "effectively connected" with the Non-U.S. Stockholder's conduct of
a trade or business in the United States. A corporate Non-U.S. Stockholder that
receives income that is (or is treated as) effectively connected with a U.S.
trade or business also may be subject to the branch profits tax under Section
884 of the Code, which is imposed in addition to regular United States federal
corporate income tax generally at the rate of 30%, subject to reduction under a
tax treaty, if applicable. The following discussion will apply to Non-U.S.
Stockholders whose investment in the Company is not so effectively connected.
A distribution by the Company that is not attributable to gain from the sale
or exchange by the Company of a United States real property interest and that is
not designated by the Company as a capital gain dividend will be treated as an
ordinary income dividend to the extent that it is made out of current or
accumulated earnings and profits. Generally, any ordinary income dividend will
be subject to a United States federal income tax equal to 30% of the gross
amount of the dividend unless this tax is reduced by an applicable tax treaty.
To the extent that the Company makes a distribution in excess of its current or
accumulated earnings and profits, the distribution will be treated first as a
tax-free return of capital, reducing a Non-U.S. Stockholder's basis in its
Common Stock (but not below zero), and the distribution in excess of a Non-U.S.
Stockholder's tax basis in its Common Stock will be treated as gain realized
from the sale of its Common Stock.
Distributions by the Company that are attributable to gain from the sale or
exchange of a United States real property interest will be taxed to a Non-U.S.
Stockholder under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S. Stockholder
as if the distributions were gains "effectively connected" with a United States
trade or business. Accordingly, a Non-U.S. Stockholder will be taxed at the
normal capital gain rates applicable to a U.S. Stockholder (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of non-resident alien individuals). Distributions subject to FIRPTA also
may be subject to the branch profits tax generally at the rate of 30%, subject
to reduction under a tax treaty, if applicable.
Although tax treaties may reduce the Company's withholding obligations, the
Company generally will be required to withhold from distributions to Non-U.S.
Stockholders, and remit to the IRS, (i) 35% of designated capital gain dividends
(or, if greater, 35% of the amount of any distributions that could be designated
as capital gain dividends) and (ii) 30% of all other distributions, unless
reduced by an applicable tax treaty. In addition, if the Company designates
prior distributions as capital gain dividends,
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subsequent distributions, up to the amount of such prior distributions, will be
treated as capital gain dividends for purposes of withholding. Because the
Company will withhold 30% of all other distributions, a Non-U.S. Stockholder
will be entitled to a refund from the IRS to the extent the distribution is not
a distribution out of earnings and profits.
Unless the Common Stock constitutes a "United States real property interest"
within the meaning of FIRPTA, a sale of Common Stock by a Non-U.S. Stockholder
generally will not be subject to United States federal income taxation. The
Common Stock will not constitute a United States real property interest if the
Company is a "domestically controlled REIT." A domestically controlled REIT is a
REIT in which at all times during a specified testing period less than 50% in
value of its shares is held directly or indirectly by Non-U.S. Stockholders. It
is currently anticipated that the Company will be a domestically controlled REIT
and therefore that the sale of Common Stock will not be subject to taxation
under FIRPTA. However, because the Common Stock is publicly traded, no assurance
can be given that the Company will continue to be a domestically controlled
REIT. If the Company were not a domestically controlled REIT, a sale of Common
Stock by a Non-U.S. Stockholder would not be subject to taxation under FIRPTA
provided that the Non-U.S. Stockholder does not beneficially own more than 5% of
the stock of the Company and the Common Stock of the Company continues to be
traded on an established securities market (e.g. the NYSE and the PSE) during
the shorter of (i) the period during which the taxpayer held such shares, or
(ii) the five-year period ending on the date of disposition of such shares. In
addition, a sale of Common Stock by a Non-U.S. Stockholder, regardless of
whether the 5% beneficial ownership level is exceeded, would not be subject to
the 10% withholding tax so long as the Common Stock continues to be traded on an
established securities market. Notwithstanding the foregoing, capital gains not
subject to FIRPTA will be taxable to a Non-U.S. Stockholder if (i) investment in
the stock is effectively connected with the Non-U.S. Stockholder's United States
trade or business (or, if an income tax treaty applies, is attributable to a
United States permanent establishment of a Non-U.S. stockholder), or (ii) the
Non-U.S. Stockholder is a non-resident alien individual who is present in the
United States for 183 days or more during the taxable year and certain other
conditions apply, in which case the non-resident alien individual will be
subject to a 30% tax on his or her U.S. source capital gains. If the Company
were not a domestically controlled REIT, gain on the sale of Common Stock would
be subject to taxation under FIRPTA, and a Non-U.S. Stockholder would be subject
to the same treatment as a U.S. Stockholder with respect to the gain (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of non-resident alien individuals). In such case, under FIRPTA the
purchaser of Common Stock may be required to withhold 10% of the purchase price
and remit this amount to the IRS.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under certain circumstances, U.S. Stockholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or cash proceeds
of a sale or exchange of, Common Stock. Backup withholding will apply only if
the holder (i) fails to furnish his or her taxpayer identification number
("TIN") (which, for an individual, would be his or her Social Security number),
(ii) furnishes an incorrect TIN, (iii) is notified by the IRS that he or she has
failed properly to report payments of interest and dividends or is otherwise
subject to backup withholding or (iv) under certain circumstances, fails to
certify, under penalties of perjury, that he or she has furnished a correct TIN
and (a) that he or she has not been notified by the IRS that he or she is
subject to backup withholding for failure to report interest and dividend
payments or (b) that he or she has been notified by the IRS that he or she is no
longer subject to backup withholding. Backup withholding will not apply with
respect to payments made to certain exempt recipients, such as corporations and
tax-exempt organizations.
U.S. Stockholders should consult their own tax advisors regarding their
qualifications for exemption from backup withholding and the procedure for
obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a U.S.
Stockholder will be allowed as a credit against the U.S. Stockholder's United
States federal income tax
31
<PAGE>
liability and may entitle the U.S. Stockholder to a refund, provided that the
required information is furnished to the IRS.
Additional issues may arise pertaining to information reporting and backup
withholding for Non-U.S. Stockholders. Non-U.S. Stockholders should consult
their tax advisors with regard to U.S. information reporting and backup
withholding.
STATE AND LOCAL TAX
The Company and its stockholders may be subject to state and local tax in
states and localities in which it does business or owns property. The tax
treatment of the Company and the stockholders in such jurisdictions may differ
from the federal income tax treatment described above. Consequently, prospective
stockholders should consult their own tax advisors regarding the effect of state
and local tax laws on an investment in the Company.
ERISA CONSIDERATIONS
The following is intended to be a summary only and is not a substitute for
careful planning with a professional. Employee benefit plans subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
various sections of the Code considering purchasing the shares of Common Stock
should consult with their own tax and other appropriate counsel regarding the
application of ERISA and the Code to their purchase of the Common Stock. Benefit
Plans (as defined below) should also consider the entire discussion under the
heading "Certain Federal Income Tax Considerations" as material contained
therein is relevant to any decision by a Plan to purchase the Common Stock.
FIDUCIARY CONSIDERATIONS
Certain employee benefit plans and individual retirement accounts and
individual retirement annuities ("IRAs") (collectively "Benefit Plans") are
subject to various provisions of ERISA and the Code. Before investing in the
Common Stock of the Company, a Benefit Plan fiduciary should ensure that such
investment is in accordance with ERISA's general fiduciary standards. In making
such a determination, a Benefit Plan fiduciary should ensure that the investment
is in accordance with the governing instruments and the overall policies of the
Benefit Plan, and that the investment will comply with the diversification and
composition requirements of ERISA. In addition, provisions of ERISA and the Code
prohibit transactions involving the assets of a Benefit Plan by persons who have
specified relationships with such Benefit Plan ("Parties in Interest" under
ERISA and "Disqualified Persons" under the Code, collectively referred to herein
as "Parties in Interest"), unless an exemption is available for such
transaction. The consequences of such prohibited transactions include the
imposition of excise taxes, possible disqualification of IRAs and other
liabilities. A Benefit Plan fiduciary should ensure that any investment in
shares of the Common Stock will not constitute or give rise to a direct or
indirect non-exempt prohibited transaction. A Benefit Plan fiduciary should also
consider prohibitions in ERISA relating to improper delegation of control over
or responsibility for "plan assets."
PLAN ASSETS ISSUE
In certain circumstances where a Benefit Plan holds an interest in an
entity, the assets of the entity are deemed to be "plan assets" (the
"Look-Through Rule") of such Benefit Plan for purposes of the prohibited
transactions provisions of the ERISA Code. In addition, under such
circumstances, any person that exercises authority or control with respect to
the management or disposition of such assets is a Benefit Plan fiduciary. "Plan
assets" are not defined in ERISA or the Code, but the United States Department
of Labor has issued a regulation, effective March 13, 1987 (the "Regulation"),
that outlines the circumstances under which a Plan's interest in an entity will
be subject to the Look-Through Rule.
32
<PAGE>
The Regulation applies to the purchase by a Benefit Plan of an "equity
interest" in an entity, such as common stock of a REIT. However, the Regulation
provides an exception to the Look-Through Rule for equity interests that are
"publicly-offered securities."
Under the Regulation, a "publicly-offered security" is a security that is
(1) freely transferable, (ii) part of a class of securities that is widely-held
and (iii) either (a) part of a class of securities that is registered under
section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or (b) sold to a Benefit Plan as part of an offering of
securities, and the class of securities of which such security is a part is
registered under the Exchange Act within 120 days (or such longer period allowed
by the Commission) after the end of the fiscal year of the issuer during which
the offering of such securities to the public occurred. Whether a security is
considered "freely transferable" depends on the facts and circumstances of each
case. Generally, if the security is part of an offering in which the minimum
investment is $10,000 or less, any restriction on or prohibition against
transfer or assignment of such security for the purposes of preventing a
termination or reclassification of the entity for federal or state tax purposes
will not itself prevent the security from being considered freely transferable.
A class of securities is considered "widely-held" if immediately after the
initial offering it is owned by 100 or more investors independent of the issuer
and of one another.
It is anticipated by the Company that the Common Stock will meet the
criteria of the publicly-offered securities exceptions to the Look-Through Rule.
Accordingly, the Company believes that, if a Benefit Plan purchases shares of
the Common Stock, the Company's assets should not be deemed to be "plan assets."
PLAN OF DISTRIBUTION
The Shares may be sold in or outside the United States by the Company and/or
the Selling Stockholders through agents, underwriters or dealers, directly to
one or more purchasers or directly by the Company through a dividend
reinvestment plan. The Prospectus Supplement with respect to the Shares offered
thereby will set forth the terms of the offering of such Shares, including the
name or names of any agents, underwriters, or dealers, the purchase price of
such Shares and the proceeds to the Company and/or the Selling Stockholders from
such sale, any delayed delivery arrangements, any underwriting discounts and
other items constituting underwriters' compensation, the public offering price,
and any discounts or concessions allowed or reallowed or paid to dealers.
If underwriters are used in the sale of the Shares, the Shares may be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The Shares may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more
firms acting as underwriters. The underwriter(s) with respect to a particular
underwritten offering of Shares will be named in the Prospectus Supplement
relating to such offering, and if an underwriting syndicate is used, the
managing underwriter(s) will be set forth on the cover of such Prospectus
Supplement. Unless otherwise set forth in the Prospectus Supplement relating
thereto, the obligations of the underwriters or agents to purchase the Shares
will be subject to conditions precedent, and the underwriters will be obligated
to purchase all the Shares if any are purchased. The public offering price and
any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
If dealers are utilized in the sale of Shares with respect to which this
Prospectus is delivered, such Shares will be sold to the dealers as principals.
The dealers may then resell such Shares to the public at varying prices to be
determined by such dealers at the time of resale. The names of the dealers and
the terms of the transactions will be set forth in the Prospectus Supplement
relating thereto.
Shares may be sold directly by the Company and/or the Selling Stockholders
or through agents designated by the Company and/or the Selling Stockholders from
time to time at fixed prices, which may be changed, or at varying prices
determined at the time of sale. Shares may also be sold directly by the
33
<PAGE>
Company pursuant to a dividend reinvestment plan. Any agent involved in the
offer or sale of the Shares with respect to which this Prospectus is delivered
will be named, and any commissions payable by the Company, with respect to the
Company Shares, or the Selling Stockholder, with respect to the Selling
Stockholder Shares, to such agent will be set forth, in the Prospectus
Supplement relating thereto. Unless otherwise indicated in the Prospectus
Supplement, any such agent will be acting on a best efforts basis for the period
of its appointment.
In connection with the sale of the Shares, underwriters or agents may
receive compensation from the Company, with respect to the Company Shares, or
the Selling Stockholder, with respect to the Selling Stockholder Shares, or from
purchasers of Shares for whom they may act as agents in the form of discounts,
concessions or commissions. Underwriters, agents and dealers participating in
the distribution of the Shares may be deemed to be underwriters and any
discounts or commissions received by them from the Company and/or the Selling
Stockholders and any profit on the resale of the Shares by them may be deemed to
be underwriting discounts or commissions under the Securities Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. Certain legal
matters related to the sale of the Shares will be passed upon for the Company by
Shearman & Sterling, San Francisco, California. In addition, the description of
federal income tax consequences contained in the section of the Prospectus
entitled "Certain Federal Income Tax Considerations" is based upon the opinion
of Shearman & Sterling. Certain legal matters related to the Offering will be
passed upon for the Underwriters, if any, by Brown & Wood LLP, San Francisco,
California.
EXPERTS
The consolidated financial statements and financial statement schedule of
Bedford Property Investors, Inc. as of December 31, 1996 and 1995 and for each
of the years in the three-year period ended December 31, 1996; the Combined
Historical Summary of Gross Income and Direct Operating Expenses of O'Toole
Business Center, Signal Systems Building and 6500 Kaiser Drive for the year
ended December 31, 1995, the Historical Summary of Gross Income and Direct
Operating Expenses of Orillia Office Park and the Combined Historical Summary of
Gross Income and Direct Operating Expenses of Executive Center at South Bank,
Bedford Fremont Business Center, U.S. Bank Centre, Scripps Wateridge Corporate
Center and Phoenix Airport Center have been incorporated by reference herein and
in the Registration Statements in reliance upon the reports of KPMG Peat Marwick
LLP, independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing. The
reports on the Summary of Gross Income and Direct Operating Expenses for O'Toole
Business Center, Signal Systems Building, 6500 Kaiser Drive, Orillia Office
Park, Executive Center at South Bank, Bedford Fremont Business Center, U.S. Bank
Centre, Scripps Wateridge Corporate Center and Phoenix Airport Center
(collectively referred to as the "Summaries") contain a paragraph that states
that the Summaries were prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission, as described in note A
thereto. The Summaries are not intended to be a complete presentation of income
and expenses of O'Toole Business Center, Signal Systems Building, 6500 Kaiser
Drive, Orillia Office Park, Executive Center at South Bank, Bedford Fremont
Business Center, U.S. Bank Centre, Scripps Wateridge Corporate Center and
Phoenix Airport Center.
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus. If given or made, such information or
representations must not be relied upon as having been authorized by the Company
or the Underwriters. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy, the Common
Stock in any jurisdiction where, or to any person to whom, it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus
Supplement or the Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has not been any change in the
facts set forth in this Prospectus Supplement or the Prospectus or in the
affairs of the Company since the date hereof.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Prospectus Supplement
Prospectus Supplement Summary..................... S-3
The Company....................................... S-12
Use of Proceeds................................... S-26
Price Range of Common Stock and Distribution
History......................................... S-27
Capitalization.................................... S-28
Management........................................ S-29
Underwriting...................................... S-31
Prospectus
Available Information............................. 2
Incorporation of Certain Information by
Reference....................................... 3
The Company....................................... 4
Risk Factors...................................... 5
Use of Proceeds................................... 16
Selling Stockholder............................... 16
Description of Capital Stock of the Company....... 17
Certain Provisions of Maryland Law and of the
Company's Charter and Bylaws.................... 20
Certain Federal Income Tax Considerations......... 23
ERISA Considerations.............................. 32
Plan of Distribution.............................. 33
Legal Matters..................................... 34
Experts........................................... 34
</TABLE>
6,300,000 SHARES
[LOGO]
B E D F O R D P R O P E R T Y
I N V E S T O R S, I N C.
COMMON STOCK
-------------------
PROSPECTUS SUPPLEMENT
, 1997
---------------------
LEHMAN BROTHERS
BANCAMERICA ROBERTSON STEPHENS
SMITH BARNEY INC.
SUTRO & CO. INCORPORATED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Bedford Property Investors,
Inc. (the "Registrant") in connection with the sale of Common Stock being
registered. All amounts are estimates except the SEC registration fee, the NASD
filing fee and the listing fees for the New York Stock Exchange and the Pacific
Stock Exchange.
<TABLE>
<S> <C>
SEC Registration Fee.................................................. $148,461
Legal Fees and Expenses............................................... $200,000
Printing and Engraving Costs.......................................... $475,000
Accounting Fees and Expenses.......................................... $100,000
Blue Sky Fees and Expenses............................................ $ 3,000
New York Stock Exchange Listing Fee................................... $ 34,800
Pacific Exchange Listing Fee.......................................... $ 7,500
Miscellaneous......................................................... $ 6,239
--------
Total............................................................. $975,000
--------
--------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper personal benefit or profit in
money, property or services or (b) active and deliberate dishonesty established
by a final judgment as being material to the cause of action. The Charter of the
Registrant contains such a provision which eliminates such liability to the
maximum extent permitted by the MGCL.
The Charter of the Registrant authorizes it, to the maximum extent permitted
by Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer or (b) any individual who, while the
director of the Registrant and at the request of the Registrant, serves or has
served another corporation, partnership, joint venture, trust, employee benefit
plan or any other enterprise as a director, officer, partner or trustee of such
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise. The Bylaws of the Registrant obligate it, to the maximum extent
permitted by Maryland law, without requiring a preliminary determination of the
ultimate entitlement to indemnification, to indemnify and to pay or reimburse
reasonable expense in advance of final disposition of a proceeding to (a) any
individual who is a present or former director or officer of the Registrant and
who is made a party to the proceeding by reason of his service in that capacity
or (b) any individual who, while a director of the Registrant and at the request
of the Registrant, serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The
Registrant's Charter and Bylaws also permit the Registrant to indemnify and
advance expenses to any person who served a predecessor of the Registrant in any
of the capacities described above and to any employee or agent of the Registrant
or a predecessor of the Registrant.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Registrant's Charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, and certain other parties, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them
II-1
<PAGE>
in connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or business of the indemnified party was material to the matter giving rise
to the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (b) the indemnified party actually received an
improper personal benefit in money, property or services or (c) in the case of
any criminal proceeding, the indemnified party had reasonable cause to believe
that the act or omission was unlawful. However, a Maryland corporation may not
indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that a personal benefit
was improperly received, unless in either case a court orders indemnification,
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written statement by or on his
behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
Peter B. Bedford's employment agreement provides that the Registrant shall
indemnify Mr. Bedford to the fullest extent permitted by law, provided that the
indemnification applies to Mr. Bedford only so long as he acts in good faith and
is not found to be guilty of recklessness or willful or wanton misconduct.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
ITEM 16. EXHIBITS.
(a) Exhibits
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C> <C>
1.1* -- Form of Underwriting Agreement.
4.1 -- Specimen Stock Certificate (incorporated herein by reference
to Exhibit 4.1 to the Registrant's Registration Statement on
Form S-2, Commission File No. 333-921).
4.2 -- Charter of the Registrant, as amended (incorporated herein
by reference to Exhibit 3.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997).
4.3 -- Amended and Restated Bylaws of the Registrant (incorporated
herein by reference to Exhibit 3.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995).
5.1* -- Opinion of Ballard Spahr Andrews & Ingersoll as to the
legality of the Registrant's Common Stock.
8.1* -- Opinion of Shearman & Sterling as to certain tax matters.
23.1 -- Consent of KPMG Peat Marwick LLP, independent certified
public accountants.
23.2* -- Consent of Ballard Spahr Andrews & Ingersoll (included in
the opinion filed as Exhibit 5.1).
23.3* -- Consent of Shearman & Sterling (included in the opinion
filed as Exhibit 8.1).
24.1* -- Powers of Attorney.
</TABLE>
- ------------------------
* Previously filed.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the change in volume represents no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in this Registration Statement;
provided, however, that paragraphs (i) and (ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Company's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as a part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
II-3
<PAGE>
(6) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions referred to in Item 15 or otherwise the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lafayette, State of
California, on the 29th day of October, 1997.
BEDFORD PROPERTY INVESTORS, INC.
By: /S/ HANH KIHARA
-----------------------------------------
Hanh Kihara
CONTROLLER (PRINCIPAL ACCOUNTING OFFICER)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below by the following
person in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ ------------------------------------------ -------------------
<C> <S> <C>
*
-------------------------------------- Chairman of the Board and Chief Executive October 29, 1997
Peter B. Bedford Officer (Principal Executive Officer)
/s/ SCOTT R. WHITNEY
-------------------------------------- Senior Vice President and Chief Financial October 29, 1997
Scott R. Whitney Officer (Principal Financial Officer)
/S/ HANH KIHARA
-------------------------------------- Controller (Principal Accounting Officer) October 29, 1997
Hanh Kihara
*
-------------------------------------- Director October 29, 1997
Claude M. Ballard
*
-------------------------------------- Director October 29, 1997
Anthony Downs
*
-------------------------------------- Director October 29, 1997
Thomas G. Eastman
*
-------------------------------------- Director October 29, 1997
Anthony M. Frank
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ ------------------------------------------ -------------------
<C> <S> <C>
*
-------------------------------------- Director October 29, 1997
Thomas H. Nolan, Jr.
*
-------------------------------------- Director October 29, 1997
Martin M. Zankel
*By /s/ HANH KIHARA
----------------------------------
Hanh Kihara
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1* -- Form of Underwriting Agreement.
4.1 -- Specimen Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-2, Commission File No. 333-921).
4.2 -- Charter of the Registrant, as amended (incorporated herein by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
4.3 -- Amended and Restated Bylaws of the Registrant (incorporated herein by reference to Exhibit 3.2 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995).
5.1* -- Opinion of Ballard Spahr Andrews & Ingersoll as to the legality of the Registrant's Common Stock.
8.1* -- Opinion of Shearman & Sterling as to certain tax matters.
23.1 -- Consent of KPMG Peat Marwick LLP, independent certified public accountants.
23.2* -- Consent of Ballard Spahr Andrews & Ingersoll (included in the opinion filed as Exhibit 5.1).
23.3* -- Consent of Shearman & Sterling (included in the opinion filed as Exhibit 8.1).
24.1* -- Powers of Attorney.
</TABLE>
* Previously filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Bedford Property Investors, Inc.:
We consent to the use of our report dated February 25, 1997, relating to the
consolidated financial statements and financial statement schedule of Bedford
Property Investors, Inc., incorporated by reference herein, and to the reference
to our firm under the heading "Experts" in the prospectus.
We also consent to the use of our reports dated January 31, 1997, relating
to the combined historical summary of gross income and direct operating expenses
of O'Toole Business Center, Signal Systems Building and 6500 Kaiser Drive;
August 1, 1997, relating to the historical summary of gross income and direct
operating expenses of Orillia Office Park; and August 1, 1997, relating to the
combined historical summary of gross income and direct operating expenses of
Executive Center at South Bank, Bedford Fremont Business Center, U.S. Bank
Centre, Scripps Wateridge Corporate Center and Phoenix Airport Center
(collectively, the Summaries), incorporated by reference herein. Our reports on
the Summaries contain a paragraph that states that the Summaries were prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission, as described in note A to the Summaries. The Summaries
are not intended to be complete presentations of income and expense of O'Toole
Business Center, Signal Systems Building, 6500 Kaiser Drive, Orillia Office
Park, Executive Center at South Bank, Bedford Fremont Business Center, U.S. Bank
Centre, Scripps Wateridge Corporate Center and Phoenix Airport Center.
/s/ KPMG Peat Marwick LLP
San Francisco, California
October 29, 1997
