SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission file number 1-12222
BEDFORD PROPERTY INVESTORS, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 68-0306514
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
270 Lafayette Circle, Lafayette, CA 94549
(Address of principal executive offices)
Registrant's telephone number, including area code (510) 283-8910
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $0.02 per share New York Stock Exchange
Pacific Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X] The aggregate market value
of the voting stock held by non-affiliates of Registrant as of March 14,
1997 was approximately $203,754,000. The number of shares of
Registrant's Common Stock, par value $0.02 per share, outstanding as of
March 14, 1997 was 11,126,450.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be mailed to stockholders
in connection with the Registrant's annual meeting of stockholders,
scheduled to be held on May 16, 1997, are incorporated by reference in
Part III of this report. Except as expressly incorporated by reference,
the Registrant's Proxy Statement shall not be deemed to be part of this
report.
PART I
ITEM 1. BUSINESS
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
metropolitan areas primarily in the Western United States. As of
December 31, 1996, the Company owned and operated 45 properties
aggregating approximately 3.9 million rentable square feet and comprised
of 36 industrial properties (the "Industrial Properties"), eight 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" or collectively as the
"Properties." As of December 31, 1996, the Properties were approximately
94% occupied by over 400 tenants. The Properties are located in Northern
and Southern California, Oregon, Washington, Arizona, Utah, Colorado 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. Our strategy is to operate in suburban
markets that are experiencing, or are expected to experience, superior
economic growth. We seek 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, we believe that certain supply-side
constraints, such as limited availability of undeveloped land in a market
and limited financing for speculative real estate construction, increase
a market's potential for higher average rents over time. We are
currently targeting selected markets proximate to metropolitan areas in
which our Properties are located. 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, and in particular in
California, provides the potential for attractive returns through
increased occupancy levels, rents and real estate values.
Business Objectives
The Company's business objectives are to increase funds available for
distribution to stockholders and to increase stockholders' long-term
total return through the appreciation in value of the Common Stock. To
achieve these objectives, we seek to (i) increase cash flow from our
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, (iii) the
negotiation of increases in rental rates and of contractual periodic rent
increases when market conditions permit, and (iv) the strict containment
of operating expenses and capital expenditures.
Acquisitions
The Company seeks to acquire industrial and suburban office properties
and/or portfolios of such properties. The Company believes that its (i)
experienced management team, (ii) conservative capital structure, (iii)
existing $100 million credit facility, (iv) relationships with private
and institutional real estate owners, (v) strong relationships with real
estate brokers, and (vi) 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 us to refine our 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 completion of the due diligence
process.
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., 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
has a term of one year, is renewable at the option of the Company for
additional one year terms, and will expire January 1, 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. Our management team has experience in all phases of the
development process, including market analysis, site selection, zoning,
design, pre-development leasing, construction 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 our markets will lead to additional attractive development
opportunities. We are currently in the process of developing properties
in Northern California, Arizona and Kansas. Our management team has
significant development experience in each of these markets.
Transactions and Significant Events During 1996
Acquisitions and Development
During the year, the Company acquired 16 Properties, including 13
Industrial Properties and 3 Suburban Office Properties aggregating
approximately 1.4 million rentable square feet, for a total investment
of approximately $96.5 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 10.6%. The
Company estimates the purchase price of acquisitions completed in 1996
to be approximately 76% of their replacement cost. One of these
properties was purchased using a Down REIT transaction, whereby the
Company issued partnership units in Bedford Realty Partners, L.P. which
are convertible into shares of Common Stock.
During 1996, the Company completed the development of a single-story
research and development facility in Milpitas, California. The facility
aggregates approximately 45,090 rentable square feet and was leased to
Fujitsu P.C. Corporation under a five year lease commencing on May 1,
1996. The unleveraged annual return on total project costs of
approximately $3.1 million was 13.9%.
In addition, the Company acquired five parcels of land aggregating
approximately 31.5 acres for a total investment of approximately $5.3
million, all of which are adjacent to existing Properties. We plan to
develop industrial properties on each of these parcels. We are currently
developing three of these parcels, with revenue generation from the
completion of the developments expected to begin in the second and third
quarters of 1997.
Property Disposition
On December 31, 1996, the Company sold its St. Paul Business Center in
St. Paul, Minnesota for approximately $6.7 million. The St. Paul
Business Center comprised two of 14 Properties acquired in December 1995
from Landsing Pacific Fund, Inc., formerly a publicly-traded REIT based
in San Mateo, California. The sale of the St. Paul Business Center
reflects our strategy to sell assets which are not within the Company s
geographic or asset focus. The sale proceeds from the St. Paul Business
Center were utilized to acquire other Industrial and Suburban Office
Properties in our target markets.
Improvement in the Company s Markets
The Company's Properties are located in selected markets proximate to
metropolitan areas in Northern and Southern California, Oregon,
Washington, Arizona, Utah, Colorado 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 State of California, in particular, where approximately 70% of the
Company's properties are located, has been experiencing economic growth
in excess of national averages, as the economy continues to recover from
the severe recession it experienced between 1990 and 1993. The
recession, as evidenced by the 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.
This recovery has had a positive effect on both 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 fourteen in the 1996 survey to
number eight.
Operating Performance
The Company's strong operating performance has generated increased
earnings and dividends. For the year ended December 31, 1996, the
Company reported net income of $11,021,000, or $1.13 per share on a
fully-diluted basis, on rental revenues of $27,541,000, compared with net
income of $2,895,000, or $.52 per share on a fully diluted basis, on
rental revenues of $11,695,000 for the year ended December 31, 1995. The
Company's Funds from Operations (see definition under "Selected Financial
Data") for the year ended December 31, 1996 was $13,645,000 as compared
to $5,021,000 for the year ended December 31, 1995.
Increase in Common Stock Distributions
On September 12, 1996, the Company announced an 8.3% increase in its
quarterly Common Stock dividend from $0.24 per share to $0.26 per share,
which is equal to $1.04 on an annualized basis. The higher dividend rate
commenced with the Company's third quarter of 1996 dividend. The Company
previously announced, in March 1996, a 14.3% increase in its quarterly
dividend from $0.21 per share to $0.24 per share (adjusted for the
Company's one-for-two reverse stock split in March 1996), which together
with the September increase, represents a total increase of 23.8% in the
Company's Common Stock dividend since March 1996.
Common Stock Offering
In April, 1996, the Company raised approximately $43.6 million in gross
proceeds from a common stock equity offering of 3,350,000 shares at $13
per share. The Company raised an additional $79.9 million in gross
proceeds from a common stock equity offering of 4,600,000 shares at $17
3/8 per share in February 1997. The proceeds from the offerings were
used primarily to pay down the Company's credit facility and to acquire
additional properties. The offerings strengthened the Company's equity
base.
Credit Facility
The Company increased the size of its credit facility from $60 million
to $100 million and lowered the interest rate. The larger credit
facility supports our acquisition and development strategy.
Mortgage Financing
In 1996, the Company obtained $50 million of mortgage financing (the
"Mortgage Loans") bearing interest at rates ranging from 7.02% to 7.5%
per annum and maturing in 2002 to 2003. The proceeds from the Mortgage
Loans were used to pay down a portion of the outstanding balance under
the credit facility.
Anticipated Expenses Associated with Tenant Turnover
The cash flow of a real estate asset can vary significantly from year to
year depending on tenant turnover. When a lease expires and a tenant
renews or vacates its space, costs associated with tenant improvements,
lease commissions and lost income due to vacancy or construction
down-time can significantly reduce the cash flow from a property. Due
to the capital intensive nature of suburban office properties and, to a
lesser degree, industrial properties, management believes that planning
and budgeting for future costs associated with tenant turnover is a
prudent component of evaluating investment yields and managing the cash
flow of properties. For its existing portfolio, the Company estimates
the future costs for tenant improvements, lease commissions and lost
income due to vacancy and construction down-time on a property by
property basis. Although these future costs are not accrued for
financial reporting purposes, the Company incorporates these estimates
in its annual cash budgets and long-term cash forecasts. The Company
believes that its ability to fund tenant improvements and pay lease
commissions helps to retain and attract tenants.
Dividends
The Company has made regular quarterly distributions to the holders of
the Common Stock in each quarter since the second quarter of 1993, having
increased the dividend six times since that time from $0.10 per share in
the second quarter of 1993 to $0.26 per share in each of the third and
fourth quarters of 1996. In March 1997, the Company declared a dividend
distribution for the first quarter 1997 to its stockholders in the amount
of $0.26 per share of Common Stock, payable 15 days after the quarter-
end.
The Company paid dividends to the holders of the 8,333,334 shares of its
Series A Convertible Preferred Stock par value $0.01 per share (the
"Convertible Preferred Stock") in the amount of $.135 per share for each
of the four quarters of 1996. In March 1997, the Company declared a
dividend distribution for the first quarter 1997 to the holders of the
Convertible Preferred Stock in an amount of $.135 per share of
Convertible Preferred Stock, payable 45 days after the quarter-end.
Dividends may be authorized, declared and paid on shares of Common Stock
in any fiscal quarter only if full cumulative dividends have been paid
on, or authorized and set apart on, all shares of Convertible Preferred
Stock for all prior dividend periods through and including the end of
such quarter. Holders of the Convertible Preferred Stock are entitled
to receive in each calendar quarter, when and as authorized and declared
by the Board of Directors, cumulative dividends in cash in an amount
equal to the greater of (i) an amount per share of $.135 or (ii) the
dividends payable with respect to such quarter on each share of the
Common Stock into which each share of the Convertible Preferred Stock is
convertible, plus, in both cases, the accumulated but unpaid dividends
on the Convertible Preferred Stock.
Distributions on the Common Stock by the Company to the extent of its
current and accumulated earnings and profits for federal income tax
purposes generally will be taxable to stockholders as ordinary income.
Distributions in excess of such earnings and profits generally will be
treated as a non-taxable reduction in the stockholder's basis in its
stock to the extent of such basis, and thereafter as gain from the sale
of such stock. For purposes of determining whether distributions are out
of current or accumulated earnings and profits, the earning and profits
of the Company will be allocated first to the Convertible Preferred
Stock, and then allocated to the Common Stock. Dividend distributions
made in 1996 were classified as ordinary income for federal income tax
purposes. All dividend distributions made in the years 1993, 1994 and
1995 were classified as a return of capital stock for federal income tax
purposes. However, it is likely that a substantial portion of the
Company's dividend distributions in 1997 will be taxable as ordinary
income.
The Company currently intends to continue paying regular quarterly
dividends and to distribute amounts sufficient to maintain its status as
a REIT. Dividends on the Common Stock by the Company are made at the
discretion of the Board of Directors and depend on the Board of
Directors' evaluation of the Company's results of operations, financial
condition and capital requirements, restrictions under the Convertible
Preferred Stock, the Credit Facility, and other debt instruments.
Tenants
Based on rentable square feet, as of December 31, 1996, the Suburban
Office Properties and Industrial Properties were approximately 99% and
93% occupied, respectively, by a total of 395 tenants of which 89 were
Suburban Office Property tenants and 306 were Industrial Property
tenants. As of December 31, 1996, the Retail Property was 100% occupied
by 16 tenants. The Company's tenants include local, regional, national
and international companies engaged in a wide variety of businesses.
Financing
The Company expects cash flow from operations to be sufficient to pay
operating expenses, real estate taxes, general and administrative
expenses, and interest on indebtedness and to make distributions to
stockholders required to maintain the Company's REIT qualification.
The Company expects to fund the cost of acquisitions, capital
expenditures, costs associated with lease renewals and reletting of
space, repayment of indebtedness, and development of properties from (i)
cash flow from operations, (ii) borrowings under the credit facility and,
if available, other indebtedness (which may include indebtedness assumed
in acquisitions), (iii) the sale of real estate investments, and (iv) the
sale of equity securities and, possibly, the issuance of equity
securities in connection with acquisitions.
The Company does not anticipate that cash flow from operations will be
sufficient to enable it to repay amounts outstanding under the credit
facility when they become due in 1999. The Company expects to make such
payment by refinancing or extending the credit facility or by raising
funds through the sale of equity securities or properties.
Insurance
The Company carries commercial general liability coverage with primary
limits of $1 million per occurrence and $2 million in the aggregate, as
well as a $20 million umbrella liability policy. This coverage protects
the Company against liability claims as well as the cost of defense. The
Company carries property insurance on a replacement value basis covering
both the cost of direct physical damage and the loss of rental income.
Separate flood and earthquake insurance is provided with an annual
aggregate limit of $10 million subject to a deductible of 5% to 10% of
total insurable value per building with respect to the earthquake
coverage. The Company also carries director and officer liability
insurance with an aggregate limit of $10 million. This coverage protects
the Company's directors and officers against liability claims as well as
the cost of defense.
Competition, Regulation, and Other Factors
The success of the Company depends upon, among other factors, general
economic conditions and trends, including real estate trends, interest
rates, government regulations and legislation, income tax laws and
zoning laws.
The Company's real estate investments are located in markets in which
they face significant competition for the rental revenues they generate.
Many of the Company's investments, particularly the office buildings, are
located in markets which have a significant supply of available space,
resulting in intense competition for tenants and low rents.
Government Regulations
The properties are subject to various federal, state and local regulatory
requirements such as local building codes and other similar regulations.
The Company believes that the Properties are currently in substantial
compliance with all applicable regulatory requirements, although
expenditures at Properties owned by the Company may be required to comply
with changes in these laws. No material expenditures are contemplated
at this time in order to comply with any such laws or regulations.
Under various federal, state and local laws, ordinances and regulations,
an owner or operator of real estate is liable for the costs of removal
or remediation of certain hazardous or toxic substances released on,
above, under, or in such property. Such laws often impose such liability
without regard to whether the owner knew of, or was responsible for, the
presence of such hazardous or toxic substances. The costs of such
removal or remediation could be substantial. Additionally, the presence
of such substances or the failure to properly remediate such substances
may adversely affect the owner's ability to borrow using such real estate
as collateral. All of the Company's properties have had Phase I
environmental site assessments (which involve inspection without soil
sampling or groundwater analysis) by independent environmental
consultants and have been inspected for hazardous materials as part of
the Company's acquisition inspections. None of these Phase I
assessments has revealed any environmental conditions requiring material
expenditures for remediation. The Phase I assessment for Milpitas Town
Center indicates that the ground water under the property either has been
or may in the future be impacted by the migration of contaminants
originating off-site. According to information available to the Company,
the responsible party for this off-site source has been identified and
has begun remediation pursuant to a clean-up program mandated by a
California environmental authority and the clean-up program is backed by
an insurance policy from CIGNA up to $10 million. The Company does not
believe that this environmental matter will impair the future value of
Milpitas Town Center in any significant respect.
The Company believes that it is in compliance in all material respects
with all federal, state and local laws regarding hazardous or toxic
substances, and the Company has not been notified by any governmental
authority of any non-compliance or other claim in connection with any of
its present or former properties. The Company does not anticipate that
compliance with federal, state and local environmental protection
regulations will have any material adverse impact on the financial
position, results of operations or liquidity of the Company.
Other Information
The Company currently employs twenty-six full time employees. The
Company is not dependent upon a single tenant or a limited number of
tenants.
ITEM 2. PROPERTIES
Real Estate Summary
As of December 31, 1996, the Company's real estate investments (net of
accumulated depreciation) were diversified by property type as follows:
<TABLE>
<S> <C> <C> <C>
Number of Investment
Properties Amount % of Total
Industrial Properties 36 $167,172,000 (1) 74
Suburban Office Properties 8 51,126,000 23
Retail Property 1 6,203,000 3
Total 45 $224,501,000 100
</TABLE>
As of December 31, 1996, the Company's real estate investments (net of
accumulated depreciation) were diversified by geographic region as
follows:
<TABLE>
<S> <C> <C> <C>
Number of Investment
Properties Amount % of Total
San Francisco Bay Area, California 23 $94,370,000 (1) 42
Greater Los Angeles Area, California 8 62,743,000 28
Kansas City, Kansas 6 18,048,000 (1) 8
Denver Metropolitan Area, Colorado 3 11,179,000 5
Greater Portland Area, Oregon 2 10,618,000 5
Salt Lake City, Utah 1 6,074,000 3
Greater Seattle Area, Washington 1 12,291,000 5
Greater Phoenix Area, Arizona 1 9,178,000 (1) 4
Total 45 $224,501,000 100
</TABLE>
(1) Amounts include investments in vacant land parcels.
<PAGE>
Percentage Leased and 10% Tenants
The following table sets forth the occupancy rates for each of the last five
years, the number of tenants occupying 10% or more of the developed square feet
at the Property as of the end of the year and the principal business of the
tenants in the Company's properties at December 31, 1996.
<TABLE>
Percentage Occupied/Number of Tenants Occupying 10% or more
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
Property % # % # % # % # % # Principal Business at December 31, 1996
INDUSTRIAL PROPERTIES
Greater San Francisco
Bay Area, California
Building #3 at Contra Costa
Diablo Ind. Park, Concord 100% 1 100% 1 100% 1 100% 1 100% 1 Production and assembly of robotic
parts and machines.
Building #8 at Contra Costa
Diablo Ind. Park, Concord 100% 1 100% 1 100% 1 100% 1 100% 1 Warehouse and storage of medical supplies.
Building #18 at
Mason Ind. Park, Concord 83% 2 100% 2 90% 2 83% 2 83% 2 Warehouse of scaffolding materials and
construction supplies.
115 Mason Circle, Concord N/A N/A N/A N/A 100% 5 Mechanical systems inculation and acoustical
contractor, pipeline servicing co., wholesale
distributor of computer peripherals and
software, distributor of fluid ceiling
products, manufacturer and
welder of pipes.
Auburn Court, Fremont N/A N/A N/A 100% 4 100% 4 Manufacturing of computer equipment,
assembly of cable items, lab engineering,
and marketing design.
47650 Westinghouse Drive,
Fremont N/A N/A N/A 100% 1 100% 1 Electronic personal computer board assembly.
47600 Westinghouse Drive,
Fremont N/A N/A N/A N/A 100% 1 Production and assembly of robotic parts and
machines.
47633 Westinghouse Drive,
Fremont N/A N/A N/A N/A 100% 1 Design and manufacture chemical vapor
equipment for semi-conductors.
Fourier Avenue, Fremont N/A N/A N/A N/A 100% 1 Manufacturer of testers and equipment for
semi-conductors.
Milpitas Town Center, Milpitas N/A N/A 100% 4 100% 4 100% 4 Manufacturing of blood glucose meters,
assembly and repair of
accelerator systems, light manufacturing of
OEM's and assembly
and manufacturing of vacuum components.
598 Gibraltar Drive, Milpitas N/A N/A N/A N/A 100% 1 Manufacturing of personal computers.
Doherty Avenue, Modesto N/A N/A N/A N/A 100% 1 Storing canned goods.
860-870 Napa Valley Corporate
Way, Napa N/A N/A N/A N/A 96% 3 Winery, engineering company and software developer.
350 East Plumeria Drive,
San Jose N/A N/A N/A 100% 1 100% 1 Developer of data transmission technology.
Lundy Avenue, San Jose N/A N/A N/A N/A 100% 2 Distributor of electronic components, manufacturer and
distributor of high quality personal computers.
O'Toole Business Center, San Jose N/A N/A N/A N/A 94% 0 N/A
301 East Grand, South
San Francisco N/A N/A N/A 71% 2 100% 3 Freight forwarding, furniture wholesale,
and distributor of MRI Equipment.
342 Allerton, South
San Francisco N/A N/A N/A 100% 4 100% 4 Freight forwarding.
400 Grandview, South N/A N/A N/A 100% 5 100% 5 Radiology research and developer, freight forwarding,
San Francisco packaging and distribution of video products.
410 Allerton, South
San Francisco N/A N/A N/A 100% 1 100% 1 Candy manufacturer and distributor.
417 Eccles, South N/A N/A N/A 100% 2 100% 2 Storage/distribution of food products and
San Francisco publishing/binding business.
Greater Los Angeles Area,
California
Dupont Industrial Center,
Ontario N/A N/A 91% 1 100% 1 59% 0 N/A
3002 Dow Business Center, N/A N/A N/A 83% 0 99% 0 N/A
Tustin
Carroll Tech Center, San Diego N/A N/A N/A N/A 100% 1 Bio-technology company.
Signal Systems Building,
San Diego N/A N/A N/A N/A 100% 1 Developer and manufacturer of avionic diagnostic
equipment.
Oak Ridge Business Center, Vista N/A N/A N/A N/A 100% 2 Manufacturer of heat sensitive film paper and graphite
golf club shaft.
Denver, Colorado
Bryant Street Annex, Denver N/A N/A N/A 100% 2 100% 2 Materials management for hospital and automotive paint
distributor.
Bryant Street Quad, Denver N/A N/A N/A 97% 3 100% 3 Auto parts, photo processing lab, and radiator coating
plant/distributor.
Greater Phoenix Area, Arizona
Westech Business Center, Phoenix N/A N/A N/A N/A 93% 0 N/A
Greater Portland Area, Oregon
Twin Oaks Technology Center,
Beaverton N/A N/A N/A 81% 2 91% 3 Software developer and telecommunications.
Twin Oaks Business Park,
Beaverton N/A N/A N/A 94% 3 80% 4 Electronic engineering, electronic equipment assembly,
and postal service.
Kansas City, Kansas
Panorama Business Center,
Kansas City N/A N/A N/A N/A 100% 2 Graphics and refrigeration companies.
Ninety-Ninth Street #1, Lenexa N/A N/A N/A 100% 2 100% 2 Tool distribution and surgical instrument manufacturing.
Ninety-Ninth Street #2, Lenexa N/A N/A N/A 100% 1 100% 1 Drug testing clinic.
Ninety-Ninth Street #3, Lenexa 100% 2 100% 2 100% 2 100% 2 89% 2 Warehouse for computer cables/wiring and storage of
corporate records/supplies.
<PAGE>
Lackman Business Center,
Lenexa N/A N/A N/A 98% 2 91% 2 Telemarketing and environmental testing and survey.
SUBURBAN OFFICE PROPERTIES
Greater Los Angeles Area,
California
Laguna Hills Square, Laguna N/A N/A N/A N/A 86% 2 Medical facility and securities brokerage firm.
1000 Town Center Drive,
Oxnard N/A 42% 1 98% 2 93% 2 100% 2 Law offices, photocopying and printing services.
Mariner Court, Torrance N/A N/A 96% 2 97% 1 100% 1 Insurance brokers.
Salt Lake City, Utah
Woodlands Tower II,
Salt Lake City N/A 96% 2 98% 2 95% 2 100% 2 Insurance services and health care staffing.
Kansas City, Kansas
6600 College Blvd.,
Overland Park N/A N/A N/A 100% 1 98% 1 Telecommunication.
Greater San Francisco
Bay Area, California
Village Green, Lafayette N/A N/A 82% 3 100% 2 100% 1 Software developer.
100 View Street, Mountain View N/A N/A N/A N/A 100% 4 Architectural servicing (two tenants), designing and
marketing of integrated circuits for semi-conductors,
research and development of governmental devices.
Greater Seattle Area,
Washington
Kenyon Center, Bellevue N/A N/A N/A N/A 100% 1 Manufacturer of aircraft.
RETAIL PROPERTY
Denver Metropolitan Area
Academy Place Shopping Center,
Colorado Springs N/A N/A N/A 99% 2 100% 2 Discount clothing store and restaurant.
</TABLE>
Lease Expirations - Real Estate Portfolio
The following table presents lease expirations for each of the ten
years beginning January 1, 1997. The table presents: (i) the number
of leases that expire each year, (ii) the square feet covered by such
expiring leases, (iii) the annualized base rent (the "Annualized Base
Rent") represented by such expiring leases and (iv) the percentage of
total Annualized Base Rent for expiring leases.
Number of Percentage
Leases Rentable Annualized of Annualized Base
Year Expiring Square Feet Base Rent Rent
1997 153 713,085 $ 5,898,168 19.6%
1998 111 813,802 6,393,720 21.2%
1999 72 568,893 4,597,524 15.3%
2000 43 399,347 4,202,484 14.0%
2001 29 426,704 3,921,954 13.0%
2002 10 91,063 1,445,400 4.8%
2003 4 89,342 904,368 3.0%
2004 2 107,170 990,648 3.3%
2005 3 50,497 370,372 1.2%
2006 and thereafter 5 367,090 1,380,780 4.6%
Total 432 3,626,993 $30,105,418 100.0%
<PAGE>
Principal Provisions of Leases
The following table sets forth the principal provisions of leases which
represent more than 10% of the gross leasable area ("GLA") of each of the
Company's Properties and the realty tax rate for each Property for 1996.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Annual # of Tenants Square Feet Contract Rent
Realty with 10% or Project of Each ($/Sq/Yr) Lease Renewal
Property Taxes/Rate More of GLA Square Feet Tenant At End of Year Expiration Options
INDUSTRIAL PROPERTIES
Greater San Francisco Bay Area,
California
Building #3 at Contra Costa $20,771 1 21,840 21,840 $6.64 Aug. 98 None
Diablo Ind. Park, Concord $1.04/100
Building #8 at Contra Costa $33,737 1 31,800 31,800 $6.00 Dec. 00 2-5 yr.
Diablo Ind. Park, Concord $1.04/100
Building #18 at Mason $19,871 2 28,836 7,225 $6.48 Nov. 98 None
Industrial Park, Concord $1.04/100 4,825 $7.39 Mar. 98 None
115 Mason Circle, Concord $20,126 5 35,000 5,833 $5.16 Jan. 97 None
$1.03/100 5,832 $6.00 Dec. 98 1-3 yr.
8,154 $6.72 Aug. 97 None
7,296 $6.00 Nov. 98 1-3 yr.
7,885 $6.12 Apr. 99 None
Auburn Court, Fremont $44,998 4 68,030 15,755 $5.76 Oct. 98 1-5 yr.
$1.07/100 16,095 $6.00 Sep. 98 1-5 yr.
12,060 $9.00 Apr. 98 None
12,060 $7.20 Jul. 00 None
47650 Westinghouse Drive, $14,905 1 24,030 24,030 $5.52 Sep. 97 1-3 yr.
Fremont $1.07/100
47600 Westinghouse Drive, $7,622 1 24,030 24,030 $5.94 Dec. 99 None
Fremont $1.07/100
47633 Westinghouse Drive, $26,564 1 50,088 50,088 $11.37 Oct. 03 1-3 yr.
Fremont $1.07/100
Fourier Avenue, Fremont $40,478 1 104,400 104,400 $8.99 Apr. 04 None
$1.07/100
Milpitas Town Center, $72,221 4 102,620 23,924 $8.78 Sep. 99 None
Milpitas $1.06/100 24,426 $8.24 Apr. 97 None
30,840 $7.68 Jul. 98 1-5 yr.
23,430 $7.52 Jan. 00 1-5 yr.
598 Gibraltar Drive, $8,661 1 45,090 45,090 $9.48 Apr. 01 1-5 yr.
Milpitas $1.10/100
Doherty Avenue, Modesto $28,042 1 251,308 251,308 $1.87 Dec. 06 None
$1.10/100
860-870 Napa Valley Corporate $45,893 3 67,775 13,111 $9.24 Dec. 00 1-5 yr.
Way, Napa $1.73/100 8,494 $9.60 Sep. 01 None
8,474 $9.26 June 97 1-3 yr.
350 East Plumeria Drive, $132,508 1 142,700 142,700 $7.80 Dec. 01 1-5 yr.
San Jose $1.05/100
Lundy Avenue, San Jose $29,811 2 60,428 11,086 $7.14 July 98 None
$1.10/100 49,342 $7.08 Apr. 99 1-5 yr.
O'Toole Business Center, $47,622 0 122,320 N/A N/A N/A N/A
San Jose $1.10/100
301 East Grand, $30,927 3 57,846 26,240 $6.24 Jun. 98 None
South San Francisco $1.00/100 14,400 $5.40 Oct. 99 None
17,206 $4.68 Aug. 98 None
342 Allerton, $48,153 4 69,312 19,751 $6.72 Mar. 97 None
South San Francisco $1.00/100 9,720 $7.80 Mar. 97 1-5 yr.
30,953 $7.28 Feb. 99 None
8,888 $7.20 Aug. 97 None
400 Grandview, $72,906 5 107,004 21,841 $6.72 Dec. 98 None
South San Francisco $1.00/100 26,800 $9.19 Jun. 97 None
20,710 $8.58 Aug. 97 1-3 yr.
18,789 $6.45 May 99 1-5 yr.
18,864 $6.00 Jan. 03 None
410 Allerton, $22,004 1 46,050 46,050 $5.16 Apr. 98 None
South San Francisco $1.00/100
417 Eccles, $12,314 2 24,624 12,960 $6.36 Dec. 97 1-5 yr.
South San Francisco $1.00/100 11,664 $5.62 Aug. 97 1-5 yr.
Greater Los Angeles Area,
California
Dupont Industrial Center, $209,780 0 451,192 N/A N/A N/A N/A
Ontario $1.01/100
3002 Dow Business Center, $193,609 0 192,125 N/A N/A N/A N/A
Tustin $1.01/100
Carroll Tech Center, $36,809 1 88,829 88,829 $10.35 Dec. 03 1-5 yr.
San Diego $1.12/100
Signal Systems Building, $78,528 1 109,780 109,780 $7.80 Aug. 06 None
San Diego $1.87/100
Oak Ridge Business Center,
Vista $32,116 2 90,058 42,508 $5.16 Nov. 05 None
$1.01/100 47,550 $6.36 Sep. 01 1-5 yr.
Denver Metropolitan Area
Bryant Street Annex, Denver $20,730 2 55,000 42,148 $4.05 Mar. 99 1-1 yr.
$8.08/100 12,852 $3.55 Apr. 98 1-2 yr.
Bryant Street Quad, Denver $68,789 3 155,536 17,440 $2.97 Mar. 97 1-3 yr.
$8.08/100 20,726 $3.30 Feb. 01 1-5 yr.
16,055 $3.25 Feb. 99 1-3 yr.
Greater Phoenix Area, Arizona
Westech Business Center,
Phoenix $82,123 0 143,940 N/A N/A N/A N/A
$13.32/100
Greater Portland Area, Oregon
Twin Oaks Technology Center, $50,628 3 95,173 10,780 $7.75 Aug. 97 None
Beaverton $1.32/100 11,460 $5.20 Nov. 98 None
14,690 $7.56 Aug. 98 None
Twin Oaks Business Park, $39,588 4 66,339 9,409 $5.14 Dec. 06 None
Beaverton $1.32/100 6,702 $9.00 Feb. 00 None
14,522 $10.67 Jul. 99 1-3 yr.
11,686 $7.48 May 99 1-2 yr.
Kansas City, Kansas
Panorama Business Center, $114,463 2 103,457 12,491 $5.95 Sep. 01 1-5 yr.
Kansas City $9.26/100 12,951 $5.15 Feb. 01 None
Ninety-Ninth Street #1, $44,820 2 35,516 19,019 $8.09 Sep. 98 1-5 yr.
Lenexa $12.09/100 13,305 $8.85 Oct. 97 None
Ninety-Ninth Street #2, $20,459 1 12,974 12,974 $8.62 Oct. 99 None
Lenexa $12.09/100
Ninety Ninth Street #3, $58,691 2 50,000 13,000 $7.10 Nov. 03 1-5 yr.
Lenexa $12.09/100 31,250 $5.38 May 98 None
Lackman Business Center, $61,607 2 45,956 5,510 $10.13 Jan. 97 None
Lenexa $12.09/100 5,132 $9.68 May 98 None
SUBURBAN OFFICE PROPERTIES
Greater Los Angeles Area,
California
Laguna Hills Square, Laguna $53,328 2 51,734 8,474 $29.40 June 02 None
$1.05/100 22,988 $27.31 Sep. 05 1-5 yr.
1000 Town Center Drive, $172,503 2 107,653 29,837 $25.70 May 00 2-5 yr.
Oxnard $1.05/100 49,391 $15.91 Sep. 99 1-5 yr.
Mariner Court, Torrance $88,345 1 105,436 14,761 $25.08 Dec. 02 None
$1.00/100
Salt Lake City, Utah
Woodlands Tower II, $125,262 2 114,352 42,590 $14.16 Feb. 02 1-5
Salt Lake City $1.32/100 22,599 $15.00 Jan. 98 None
Kansas City, Kansas
6600 College Blvd., $159,591 1 79,316 62,441 $11.80 Dec. 99 None
Overland Park $12.86/100
Greater San Francisco Bay Area,
California
Village Green, Lafayette $24,330 1 16,895 2,119 $21.00 Aug. 96 1-3 yr.
$1.11/100
100 View Street, $26,538 4 42,141 5,490 $19.68 July 01 1-5 yr.
Mountain View $1.08/100 7,453 $18.12 Oct. 97 1-2 yr.
14,302 $18.00 Mar. 00 1-3 yr.
5,070 $19.09 Apr. 99 1-3 yr.
Greater Seattle Area, Washington
Kenyon Center, Bellevue $122,565 1 94,840 94,840 $11.61 Feb. 00 1-5 yr.
$1.24/100
RETAIL PROPERTY
Denver Metropolitan Area
Academy Place Shopping Center, $70,168 2 84,347 38,703 $8.00 Jan. 00 1-5 yr.
Colorado Springs $6.88/100 10,826 $16.18 Dec. 01 1-5 yr.
</TABLE>
Average Effective Rent
The following table sets forth for each of the Properties the average
rent at the end of each year for the last five years.
<TABLE>
<S> <C> <C> <C>
Net Effective Rent Net Effective Rent
($/Sq/Yr) ($/Sq/Yr)
Properties At End of Year Properties At End of Year
INDUSTRIAL PROPERTIES:
Greater San Francisco Bay Area,
California
Building #3 at Contra Costa 47650 Westinghouse Drive
Diablo
1992 $8.35 1992 N/A
1993 $8.35 1993 N/A
1994 $8.35 1994 N/A
1995 $4.95 1995 $5.52
1996 $6.64 1996 $5.52
Building #8 at Contra Costa 47600 Westinghouse Drive
Diablo
1992 $7.08 1992 N/A
1993 $7.43 1993 N/A
1994 $7.81 1994 N/A
1995 $6.00 1995 N/A
1996 $6.00 1996 $5.94
Building #18 at Mason Industrial 47633 Westinghouse Drive
Park
1992 $6.28 1992 N/A
1993 $7.03 1993 N/A
1994 $6.95 1994 N/A
1995 $6.63 1995 N/A
1996 $6.78 1996 $11.37
115 Mason Circle Fourier Avenue
1992 N/A 1992 N/A
1993 N/A 1993 N/A
1994 N/A 1994 N/A
1995 N/A 1995 N/A
1996 $6.05 1996 $8.99
Auburn Court Milpitas Town Center
1992 N/A 1992 N/A
1993 N/A 1993 N/A
1994 N/A 1994 $7.11
1995 $6.54 1995 $7.35
1996 $6.78 1996 $8.03
<PAGE>
INDUSTRIAL PROPERTIES
(continued)
598 Gibraltar Drive 301 East Grand
1992 N/A 1992 N/A
1993 N/A 1993 N/A
1994 N/A 1994 N/A
1995 N/A 1995 $5.92
1996 $9.48 1996 $5.57
Doherty Avenue 342 Allerton
1992 N/A 1992 N/A
1993 N/A 1993 N/A
1994 N/A 1994 N/A
1995 N/A 1995 $6.88
1996 $1.87 1996 $7.18
860-870 Napa Valley Corporate 400 Grandview
1992 N/A 1992 N/A
1993 N/A 1993 N/A
1994 N/A 1994 N/A
1995 N/A 1995 $7.49
1996 $9.44 1996 $7.53
350 East Plumeria Drive 410 Allerton
1992 N/A 1992 N/A
1993 N/A 1993 N/A
1994 N/A 1994 N/A
1995 $7.80 1995 $5.16
1996 $7.80 1996 $5.16
Lundy Avenue 417 Eccles
1992 N/A 1992 N/A
1993 N/A 1993 N/A
1994 N/A 1994 N/A
1995 N/A 1995 $5.71
1996 $7.09 1996 $6.01
O'Toole Business Center
1992 N/A
1993 N/A
1994 N/A
1995 N/A
1996 $8.75
<PAGE>
INDUSTRIAL PROPERTIES
(continued)
Greater Los Angeles Area,
California
Dupont Industrial Center 3002 Dow Business Center
1992 N/A 1992 N/A
1993 N/A 1993 N/A
1994 $3.07 1994 N/A
1995 $3.17 1995 $8.88
1996 $3.53 1996 $8.55
Carroll Tech Center Signal Systems Building
1992 N/A 1992 N/A
1993 N/A 1993 N/A
1994 N/A 1994 N/A
1995 N/A 1995 N/A
1996 $10.35 1996 $7.80
Oak Ridge Business Center, Vista
1992 N/A
1993 N/A
1994 N/A
1995 N/A
1996 $5.79
Denver, Colorado
Bryant Street Annex Bryant Street Quad
1992 N/A 1992 N/A
1993 N/A 1993 N/A
1994 N/A 1994 N/A
1995 $4.02 1995 $3.09
1996 $3.93 1996 $3.39
Greater Phoenix Area, Arizona
Westech Business Center
1992 N/A
1993 N/A
1994 N/A
1995 N/A
1996 $8.85
<PAGE>
INDUSTRIAL PROPERTIES (continued):
Greater Portland Area, Oregon
Twin Oaks Technology Center Twin Oaks Business Park
1992 N/A 1992 N/A
1993 N/A 1993 N/A
1994 N/A 1994 N/A
1995 $7.27 1995 $7.75
1996 $7.32 1996 $8.35
Kansas City, Kansas
Panorama Business Center Ninety-Ninth Street #2
1992 N/A 1992 N/A
1993 N/A 1993 N/A
1994 N/A 1994 N/A
1995 N/A 1995 $7.56
1996 $6.54 1996 $8.62
Ninety-Ninth Street #1 Ninety-Ninth Street #3
1992 N/A 1992 $5.86
1993 N/A 1993 $5.86
1994 N/A 1994 $5.86
1995 $7.96 1995 $5.86
1996 $8.32 1996 $5.30
Lackman Business Center
1992 N/A
1993 N/A
1994 N/A
1995 $8.36
1996 $8.59
<PAGE>
SUBURBAN OFFICE PROPERTIES
Greater Los Angeles Area,
California
Laguna Hills Square 1000 Town Center Drive
1992 N/A 1992 N/A
1993 N/A 1993 $20.84
1994 N/A 1994 $17.11
1995 N/A 1995 $17.66
1996 $25.38 1996 $19.02
Mariner Court
1992 N/A
1993 N/A
1994 $19.32
1995 $17.67
1996 $17.10
Salt Lake City, Utah
Woodlands Tower II
1992 N/A
1993 $13.02
1994 $14.47
1995 $14.25
1996 $14.58
Kansas City, Kansas
6600 College Boulevard
1992 N/A
1993 N/A
1994 N/A
1995 $12.01
1996 $11.99
Greater San Francisco Bay Area,
California
Village Green 100 View Street
1992 N/A 1992 N/A
1993 N/A 1993 N/A
1994 $20.85 1994 N/A
1995 $18.23 1995 N/A
1996 $19.99 1996 $18.82
Greater Seattle Area, Washington
Kenyon Center
1992 N/A
1993 N/A
1994 N/A
1995 N/A
1996 $11.61
RETAIL PROPERTY:
Denver Metropolitan Area
Academy Place Shopping Center
1992 N/A
1993 N/A
1994 N/A
1995 $10.08
1996 $10.33
</TABLE>
<PAGE>
Tax Information
The following table sets forth tax information of the Company's real
estate investments at December 31, 1996, as follows: (i) Federal tax
basis, (ii) annual rate of depreciation, (iii) method of depreciation,
and (iv) life claimed, with respect to each property or component
thereof for purposes of depreciation (in thousands):
<TABLE>
<S> <C> <C> <C> <C>
Federal Annual Rate of Depreciation Life
Depreciable assets Tax Basis Depreciation Method In Years
INDUSTRIAL PROPERTIES
Greater San Francisco Bay Area, California $ 3,789 3.18% Straight Line 31.5
51,201 2.56% Straight Line 39
54,990
Greater Kansas City Area 2,132 3.18% Straight Line 31.5
6,974 2.56% Straight Line 39
9,106
Greater Los Angeles Area, California 29,940 2.56% Straight Line 39
Denver Metropolitan Area, Colorado 3,140 2.56% Straight Line 39
Phoenix, Arizona 4,619 2.56% Straight Line 39
Greater Portland Area, Oregon 8,167 2.56% Straight Line 39
Total depreciable assets for industrial
properties 109,962
SUBURBAN OFFICE PROPERTIES
Greater Los Angeles, California 13,436 2.56% Straight Line 39
Salt Lake City, Utah 6,250 2.56% Straight Line 39
Greater Kansas City Area, Kansas 3,994 2.56% Straight Line 39
Greater San Francisco Bay Area, California 4,914 2.56% Straight Line 39
Greater Seattle Area, Washington 7,250 2.56% Straight Line 39
Total depreciable assets for suburban
office properties 35,844
RETAIL PROPERTY
Denver Metropolitan Area 3,391 2.56% Straight Line 39
$149,197
</TABLE>
For additional information on the Company's real estate portfolio, see
Note 2 to the Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock of the Company trades on the New York Stock Exchange
and the Pacific Stock Exchange under the symbol "BED." As of February
24, 1997 the Company had 494 stockholders of record. A significant
number of these stockholders are also nominees holding stock in street
name for individuals. The following table shows the high and low sale
prices per share reported on the New York Stock Exchange and the
dividends declared per share by the Company on the Common Stock for
each quarterly period during 1995 and 1996. 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.
Dividend
High Low Per Share
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
Credit Facility
The Company currently has a $100 million credit facility with Bank of
America which is scheduled to mature on July 1, 1999 and bears
interest at a floating rate equal to either the lender's published
"reference rate" plus 0.25% or LIBOR plus 1.75%. The outstanding
balance under the credit facility at December 31, 1996 was $46.1
million. The credit facility contains various restrictive covenants
including, among other things, a covenant limiting quarterly dividends
to 95% of average Funds From Operations for the immediately preceding
two fiscal quarters.
Recent Sales of Unregistered Securities
On December 17, 1996, the Company caused to be issued 108,495 units of
limited partnership interest (the "Units") in Bedford Realty Partners,
L.P. (the "Partnership"). These Units were issued to the original
recipients of the Units in exchange for the contribution by such
recipients of an Industrial Property located on Doherty Ave. in
Modesto, California. The Units were sold pursuant to Rule 504 under
Regulation D of the Securities Act to a group of 17 investors, all of
whom the Company believes qualify as "accredited investors" as defined
in Rule 501 of the Securities Act, in a transaction meeting the
qualifications and limitations of Regulation D. Each holder of the
Units may, subject to certain limitations, require that the
Partnership redeem all or a portion of such holder's Units beginning
on March 17, 1997. Upon redemption, a holder will receive, at the
option of the Company, as general partner of the Partnership, either
(i) a number of shares of Common Stock equal to the number of Units
redeemed or (ii) cash in an amount equal to the market value of the
number of shares of Common Stock the holder would have received
pursuant to (i) above. In lieu of the Partnership redeeming Units,
the Company, as general partner, in its sole discretion, has the right
to assume directly and satisfy the redemption right of the holder of
the Units. The Company anticipates that it generally will elect to
assume directly and satisfy any redemption right exercised by a holder
of the Units through the issuance of shares of Common Stock. On March
20, 1997, the Company filed a registration statement with the
Securities and Exchange Commission to cover resales of such Common
Stock by the holders thereof upon redemption of the Units.
ITEM 6. SELECTED FINANCIAL DATA
Following is a table of selected financial data of the Company for the
last five years (which should be read in conjunction with the
discussion under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto contained herein):
(in thousands of dollars, except per share data)
<TABLE>
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
Operating Data:
Rental income $ 27,541 $ 11,695 $ 9,154 $ 7,207 $ 9,056
Income (loss) before
extraordinary item 11,021 2,895 3,609 3,147 (21,943)
Net income (loss) 11,021 2,895 3,609 3,147 (18,125)
Net income (loss) applicable
to common stockholders 6,516 1,607 3,609 3,147 (18,125)
Income (loss) before
extraordinary
item per common share -
assuming full dilution $ 1.13 $ 0.52 $ 1.17 $ 1.06 $ (7.34)
Net income (loss)
per common share -
assuming full dilution $ 1.13 $ 0.52 $ 1.17 $ 1.06 $ (6.06)
Balance Sheet Data:
Real estate investments $224,501 $ 128,964 $ 55,053 $ 35,962 $ 45,553
Bank loan payable 46,097 43,250 22,400 3,621 4,400
Mortgage loans payable 51,850 - - - 5,113
Redeemable preferred shares 50,000 50,000 - - -
Common and other
stockholders' equity 73,756 32,435 36,932 35,441 33,370
Other Data:
Net cash provided by
operating activities $ 14,378 $ 4,898 $ 2,716 $ 1,220 $ 198
Net cash provided (used)
by investing activities (96,964) (73,259) (19,720) 10,085 (1,750)
Net cash provided (used)
by financing activities 82,887 64,655 16,807 (6,550) 1,400
Funds From Operations(1) 13,645 5,021 3,622 1,964 879
Dividends declared per share $ 1.00 $ 0.82 $ 0.71 $ 0.36 $ -
</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 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The following should be read in conjunction with the Selected Financial
Data and the Consolidated Financial Statements and Notes thereto, all of
which are included herein.
When used in this annual report, the words "believes," "anticipates" and
similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected,
including, but not limited to, those set forth in the section entitled
"Potential Factors Affecting Future Operating Results" below. Readers
are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions
to these forward-looking statements which may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Results of Operations
The Company's operations consist of owning and operating industrial and
suburban office properties located primarily in the Western United
States.
Increases in revenues, expenses, net income and cash flows in the years
compared below were due primarily to the acquisition, development and
sale of operating properties as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994
Number of Square Number of Square Number of Square
Properties Feet Properties Feet Properties Feet
Acquisitions
Industrial 13 1,251,000 18 1,384,000 2 554,000
Office 3 189,000 1 79,000 2 122,000
Retail - - 1 84,000 - -
16 1,440,000 20 1,547,000 4 676,000
Development
Industrial 1 45,000 - - - -
Sales
Industrial 2 186,000 1 38,000 - -
Office - - 1 88,000 1 152,000
2 186,000 2 126,000 1 152,000
</TABLE>
Comparison of 1996 to 1995
Income from Property Operations
Income from property operations (defined as rental income less rental
expenses) increased $10,202,000 or 160% in 1996 compared with 1995. This
is due to an increase in rental income of $15,846,000 offset by an
increase in rental expenses (which include operating expenses, real
estate taxes and depreciation and amortization) of $5,644,000.
The increase in rental income and expenses is primarily attributable to
the acquisition and development of real estate investments. This
acquisition and development activity increased rental income and rental
expenses by $16,684,000 and $5,445,000, respectively. This was partially
offset by the sale of an office property and an industrial property in
1995 which generated a reduction in rental income and rental expenses of
$1,078,000 and $687,000, respectively.
Expenses
Interest expense, which includes amortization of loan fees, increased
$2,753,000 or 173% in 1996 compared with 1995. The increase is
attributable to the Company's higher level of borrowings to finance the
acquisition of properties in 1996, and higher financing costs incurred
in connection with its credit facility and mortgage loans. The
amortization of loan fees was $650,000 and $277,000 for 1996 and 1995,
respectively. General and administrative expenses increased $295,000 or
20% in 1996 compared with 1995, a result of managing a larger real estate
portfolio.
Gain on Sale
In April 1996, the Company sold 3.6 acres of land adjacent to its
suburban office property in Salt Lake City, Utah for $1,000,000,
receiving $950,000 in cash and a $50,000 note due in April 1997, with 10%
interest payable monthly. The sale resulted in a gain of $359,000. In
December 1996, the Company sold two industrial properties in St. Paul,
Minnesota for a cash sale price of $6,705,000. The sale resulted in a
gain of $47,000.
In 1995, the Company sold an office property located in Mississippi and
an industrial property located in Kansas for $8,000,000 cash. The sales
resulted in a loss of $642,000.
Dividends
Quarterly dividends declared for the first and second quarters of 1996
were $0.24 per share of common stock, and $0.26 per share of common stock
for the third and fourth quarters of 1996. Consistent with the Company's
policy, dividends are paid in the quarter after declared. In addition,
the Company declared a quarterly dividend of $1,125,000 on the Series A
Convertible Preferred Stock in each of the four quarters of 1996. The
preferred stock dividends are due and payable 45 days after the quarter
end.
Comparison of 1995 to 1994
Income from Property Operations
Income from property operations increased $1,738,000 or 38% in 1995
compared with 1994. This is due primarily to an increase in rental
income of $2,541,000 offset by an increase in rental expenses of
$803,000.
The increase in rental income and expenses is primarily attributable to
the acquisition of real estate investments. These acquisitions increased
rental income and rental expenses by $2,832,000 and $938,000,
respectively.
The effect of these acquisitions was partially offset by the sale of an
office property and an industrial property, generating a reduction of
rental income and rental expenses of $345,000 and $206,000.
Expenses
Interest expense, which includes amortization of loan fees, increased
$639,000 or 67% in 1995 compared with 1994. The increase is attributable
to the Company's higher level of borrowing on its credit facility to
finance the acquisition of properties. Loan fee amortization expense for
1995 and 1994 was $277,000 and $231,000, respectively. General and
administrative expenses remained relatively unchanged in 1995 compared
with 1994. In 1995, the increase of $363,000 in personnel costs
associated with a larger real estate portfolio was offset by the reversal
of a $245,000 income tax liability assessed in 1993 by the state of New
Jersey and the decrease of $62,000 in directors and officers (D & O)
insurance expense. D & O insurance was renewed at a lower premium due
to the Company's improved operating performance in the recent years.
Gain (Loss) on Sale
In September 1995, the Company sold an industrial property located in
Overland Park, Kansas for $1,500,000, resulting in a loss of $12,000.
In October 1995, the Company sold a suburban office property located in
Jackson, Mississippi for $6,500,000, resulting in a loss of $630,000.
In anticipation of such sale the Company recorded a provision for
possible loss of $630,000 in the third quarter of 1995.
In January 1994, the Company sold a suburban office property located in
San Antonio, Texas for $8,500,000 and recorded a gain of $1,193,000. The
gain on sale of this property primarily resulted from the improvement in
the local real estate economy subsequent to a 1992 write down of this
asset by $3,631,000.
Dividends
Quarterly dividends declared for the first quarter of 1995 were $0.19 per
share of common stock and $0.21 per share of common stock for the second,
third and fourth quarters of 1995. Consistent with the Company's policy,
dividends are paid in the quarter after declared. Dividends of $163,000
and $1,125,000 were declared on the Series A Convertible Preferred Stock
for the third and fourth quarters of 1995, respectively. They were paid
45 days after each quarter ended.
Financial Condition
Total assets of the Company at December 31, 1996 increased by $98,346,000
compared with December 31, 1995, primarily as a result of an increase in
real estate investments (net of depreciation) of $95,537,000. Total
liabilities at December 31, 1996 increased by $55,316,000 compared with
December 31, 1995, primarily as a result of increased borrowings under
the Company's credit facility in order to finance the acquisition of real
estate investments.
Liquidity and Capital Resources
During the year ended December 31, 1996, the Company's operating
activities provided net cash flow of $14,378,000. Investing activities
provided cash flow of $7,519,000 from the sale of properties and utilized
$104,483,000 to acquire and improve real estate investments. Financing
activities provided net cash flow of $82,887,000 consisting of the
proceeds from mortgage loans of $49,384,000, bank borrowings of
$101,189,000 and net proceeds from the sale of common stock of
$40,476,000, offset by repayment of bank borrowings of $99,048,000 and
payment of dividends of $9,114,000.
On September 18, 1995, the Company completed the sale of $50,000,000 of
Series A Convertible Preferred Stock to an entity beneficially owned by
an investment fund managed by AEW Capital Management. A portion of net
cash proceeds from the sale was used to pay off outstanding borrowings
under the Company's credit facility. The Series A Convertible Preferred
Stock contains financial covenants and conditions that if the Company
fails to maintain or achieve, its holders have the right to cause the
Company to redeem all of the outstanding shares of Series A Convertible
Preferred Stock at a redemption price of $6.00 per share plus all accrued
dividends payable.
In 1996, the Company obtained two mortgage loans of $25,000,000 each.
They are secured by 12 properties (which Properties collectively
accounted for approximately 31% of the Company's Annualized Base Rent and
30% of the Company's total assets as of December 31, 1996). The loans
bear interest at 7.02% and 7.5% per annum and have a seven and five year
term, respectively. Interest is due and payable monthly. The proceeds
of the mortgage loans were used to pay down a portion of the outstanding
borrowings under the credit facility.
On April 24, 1996, the Company completed the sale of 3,350,000 shares of
common stock at $13 per share. On February 18, 1997, the Company
completed the sale of an additional 4,600,000 shares of the common stock
at $17 per share. A portion of the net cash proceeds from each of
these offerings was used to pay off the outstanding borrowings under the
Company's expanded credit facility of $100 million. The expanded
facility, which matures on July 1, 1999 bears interest at a floating rate
equal either to the lenders' published "reference rate" plus 0.25% or
LIBOR plus 1.75%. The credit facility is secured by mortgages on 26
properties (which Properties collectively accounted for approximately 55%
of the Company's Annualized Base Rent and 49% of the Company's total
assets as of December 31, 1996), together with rental proceeds from such
properties. The credit facility contains various restrictive covenants
including, among other things, a covenant limiting quarterly dividends
to 95% of average Funds From Operations for the immediately preceding two
fiscal quarters. At December 31, 1996 the Company was in compliance with
the covenants and requirements of the credit facility. As of March 15,
1997 the outstanding balance of the credit facility was $2,000,000.
The Company anticipates that the cash flow generated by its real estate
investments will be sufficient to meet its short-term liquidity
requirements. The Company expects to fund the cost of acquisitions,
capital expenditures, costs associated with lease renewals and reletting
of space, repayment of indebtedness, and development of properties from
(i) cash flow from operations, (ii) borrowings under the credit facility
and, if available, other indebtedness (which may include indebtedness
assumed in acquisitions), (iii) the sale of real estate investments, and
(iv) the sale of equity securities and, possibly, the issuance of equity
securities in connection with acquisitions.
The ability to obtain mortgage loans on income-producing property is
dependent upon the ability to attract and retain tenants and the
economics of the various markets in which the properties are located, as
well as the willingness of mortgage-lending institutions to make loans
secured by real property. The ability to sell real estate investments
is partially dependent upon the ability of purchasers to obtain financing
at commercially reasonable rates.
Potential Factors Affecting Future Operating Results
At the present time, borrowings under the Company's credit facility bear
interest at a floating rate. Results from operations in 1997 may be
negatively impacted if interest rates increased in the future.
While the Company has historically been successful in renewing and
releasing space, the Company will be subject to the risk that certain
leases expiring in 1997 may not be renewed or the terms of renewal may
be less favorable than current lease terms. However, the Company expects
to release the vacant spaces without any material adverse impact on 1997
operations. In addition, the Company expects to incur costs in making
improvements or repairs to its portfolio of properties required by new
or renewing tenants and expenses associated with brokerage commissions
payable in connection with the reletting of space.
Many other factors affect the Company's actual financial performance and
may cause the Company's future results to be markedly outside of the
Company's current expectations.
Government Regulations
The Properties are subject to various federal, state and local regulatory
requirements such as local building codes and other similar regulations.
The Company believes that the Properties are currently in substantial
compliance with all applicable regulatory requirements, although
expenditures at Properties may be required to comply with changes in
these laws. No material expenditures are contemplated at this time in
order to comply with any such laws or regulations.
Under various federal, state and local laws, ordinances and regulations,
an owner or operator of real estate is liable for the costs of removal
or remediation of certain hazardous or toxic substances released on,
above, under, or in such property. Such laws often impose such liability
without regard to whether the owner knew of, or was responsible for, the
presence of such hazardous or toxic substances. The costs of such
removal or remediation could be substantial.
Additionally, the presence of such substances or the failure to properly
remediate such substances may adversely affect the owner's ability to
borrow using such real estate as collateral.
The Company believes that it is in compliance in all material respects
with all federal, state and local laws regarding hazardous or toxic
substances, and the Company has not been notified by any governmental
authority of any non-compliance or other claim in connection with any of
its present or former properties. The Company does not anticipate that
compliance with federal, state and local environmental protection
regulations will have any material adverse impact on the financial
position, results of operations or liquidity of the Company.
<PAGE>
General Litigation
The Company is involved in various legal matters in the ordinary course
of business. In the opinion of management, none of these matters could
have a material impact on the Company's financial statements.
Inflation
Most of the Company's leases require the tenants to pay their share of
operating expenses, including common area maintenance, real estate taxes
and insurance, thereby reducing the Company's exposure to increases in
costs and operating expenses resulting from inflation. Inflation,
however, could result in increases in the Company's borrowing costs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Schedule Covered by Reports of
Independent Public Accountants
Report of Independent Public Accountants 38
Consolidated Balance Sheets as of December 31, 1996 and 1995 39
For the Years Ended December 31, 1996, 1995 and 1994:
- - Consolidated Statements of Income 40
- - Consolidated Statements of Stockholders' Equity 41
- - Consolidated Statements of Cash Flows 42
Notes to Consolidated Financial Statements 43
Financial Statement Schedule:
- - Schedule III - Real Estate and Accumulated Depreciation 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Items 10 through 13 of Part III is
incorporated by reference from the Registrant's Proxy Statement which
will be mailed to stockholders in connection with the Registrant's annual
meeting of stockholders scheduled to be held on May 16, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) 1. Financial Statements
Report of independent public accountants.
The following consolidated financial statements of the
Company and its subsidiaries are included in Item 8 of this
report:
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Income for the years ended December
31, 1996, 1995, and 1994.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation
All other schedules have been omitted as they are not
applicable, or not required or because the information is
given in the Consolidated Financial Statements or related
Notes to Consolidated Financial Statements.
3. Exhibits
Exhibit No. List of Exhibits
3.1 Charter of the Company, as amended, is incorporated
herein by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-2, Registration No. 333-
921.
3.2 Amended and Restated Bylaws of the Company are
incorporated herein by reference to Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995.
10.1 The Company's Automatic Dividend Reinvestment and Share
Purchase Plan, as adopted by the Company, is incorporated
herein by reference to Exhibit 4.1 to Amendment No. 2 to
Registration Statement No. 2-94354 of ICM Property
Investors Incorporated.
10.2 The Company's Employee Stock Option Plan, as amended and
restated, is incorporated herein by reference to Exhibit
10.2 to the Company's Registration Statement on Form S-2,
Registration No. 333-921.
10.3 The Company's 1992 Directors' Stock Option Plan, as
amended and restated, is incorporated herein by reference
to Exhibit 10.3 to the Company's Registration Statement
on Form S-2, Registration No. 333-921.
10.4 Second Amended and Restated Credit Agreement dated as of
June 26, 1996, by and between the Company, as Borrower,
Bank of America National Trust and Savings Association
and the several financial institutions (the "Banks") is
incorporated herein by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997.
10.5 Sale and Option Agreement dated as of August 26, 1995, by
and between Kemper Investors Life Insurance Company, on
behalf of itself and Participants (as defined therein),
as Lender, the Company, as Purchaser, and Tustin
Properties, as Owner, for 3002 Dow Business Center is
incorporated herein by reference to Exhibit 10.19 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995.
10.6 BPIA Agreement dated as of January 1, 1995, by and
between Westminster Holdings, Inc., a California
corporation and the Company is incorporated herein by
reference to Exhibit 10.14 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1995.
10.7 Employment Agreement made as of February 17, 1993, by and
between ICM Property Investors Incorporated and Peter B.
Bedford is incorporated by reference to Exhibit 10.14 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, as amended by Form 10-K/A
filed on May 1, 1995, and Form 10-K/A-2 filed on August
8, 1995.
10.8 Amendment No. 1 to Employment Agreement dated as of
September 18, 1995, by and between Peter B. Bedford and
the Company is incorporated herein by reference to
Exhibit 10.10 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995.
10.9 Series A Convertible Preferred Stock Purchase Agreement,
among the Company, AEW Partners, L.P. and Peter B.
Bedford dated as of May 18, 1995, is incorporated herein
by reference to Exhibit 10.15 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995.
10.10 Amendment No. 1 to the Series A Convertible Preferred
Stock Purchase Agreement dated September 11, 1995, among
the Company, AEW Partners, L.P. and Peter B. Bedford, is
incorporated herein by reference to Exhibit 10.12 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995.
10.11 Standstill Agreement dated as of September 18, 1995, by
and between the Company and Peter B. Bedford is
incorporated herein by reference to Exhibit 10.13 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995.
10.12 Purchase and Sale Agreement dated as of October 19, 1995,
between Landsing Pacific Fund, Inc., a Maryland
corporation as Seller, and the Company, the Buyer, as
amended, is incorporated herein by reference to Exhibit
2.1 to the Company's Current Report on Form 8-K filed on
December 27, 1995.
10.13 Amended and Restated Promissory Note date May 24, 1996
executed by the Company and payable to the order of
Prudential Insurance Company of America is incorporated
herein by reference to Exhibit 10.13 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
10.14* Loan Agreement dated as of December 24, 1996 between
Bedford Property Investors, Inc. as Borrower and Union
Bank of California, N.A. as Lender.
11* Statement of Computation of Earnings Per Share.
12* Ratio of Earnings to Fixed Charges.
21.1* Subsidiaries of the Company.
23.1* Consent of KPMG Peat Marwick LLP, independent auditors.
27* Financial Data Schedule
* Filed herewith
<PAGE>
B. Reports on Form 8-K
During the quarter ended December 31, 1996 the Company
filed on November 26, 1996, a report on Form 8-K dated
March 27, 1996, reporting items 5 and 7 and announcing
all the Company's acquisitions from March 27, 1996
through October 17, 1996.
<PAGE>
Report of Independent Public Accountants
To the Stockholders and the Board of Directors of
Bedford Property Investors, Inc.:
We have audited the consolidated financial statements of Bedford Property
Investors, Inc. and subsidiaries as listed in the accompanying index.
In connection with our audits of the consolidated financial statements,
we also have audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Bedford Property Investors, Inc. and subsidiaries as of December 31, 1996
and 1995, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
San Francisco, California
February 25, 1997
<PAGE>
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(in thousands, except share and per share amounts)
1996 1995
Assets:
Real estate investments:
Industrial buildings $170,062 $ 94,897
Office buildings 53,071 30,025
Retail buildings 6,281 6,261
229,414 131,183
Less accumulated depreciation 4,913 2,219
224,501 128,964
Cash 1,328 1,027
Other assets 5,995 3,487
$231,824 $133,478
Liabilities and Stockholders' Equity:
Bank loan payable 46,097 43,250
Mortgage loan payable 51,850 -
Accounts payable and accrued expenses 2,214 1,451
Dividend and distribution payable 2,827 1,765
Acquisition payable - 3,000
Other liabilities 3,371 1,577
Total liabilities 106,359 51,043
Redeemable preferred stock:
Series A convertible preferred stock,
par value $0.01 per share; authorized
10,000,000 shares, issued and
outstanding 8,333,334 shares;
aggregate redemption amount $50,000;
aggregate liquidation preference
$52,500 50,000 50,000
Minority interest in consolidated
partnership 1,709 -
Common stock and other
stockholders' equity:
Common stock, par value $0.02 per share;
authorized 15,000,000 shares, issued
and outstanding 6,526,325 shares in
1996, 3,045,325 shares in 1995 131 61
Additional paid-in capital 147,622 107,214
Accumulated losses and distributions in
excess of net income (73,997) (74,840)
Total common stock and other
stockholders' equity 73,756 32,435
$231,824 $133,478
See accompanying notes to consolidated financial statements.
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(in thousands, except share and per share amounts)
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Property operations:
Rental income $27,541 $11,695 $ 9,154
Rental expenses:
Operating expenses 5,352 2,744 2,408
Real estate taxes 2,595 1,105 916
Depreciation and amortization 3,030 1,484 1,206
Income from property operations 16,564 6,362 4,624
General and administrative expenses (1,752) (1,457) (1,309)
Interest income 150 226 56
Interest expense (4,347) (1,594) (955)
Income before gain (loss) on sales of real
estate investments 10,615 3,537 2,416
Gain (loss) on sales of real estate investments 406 (642) 1,193
Net income $11,021 $ 2,895 $ 3,609
Net income applicable to common
stockholders(1) $ 6,516 $ 1,607 $ 3,609
Primary earnings per common and common
equivalent share(2) $ 1.18 $ 0.52 $ 1.17
Primary weighted average number of common and
common equivalent shares outstanding 5,531,438 3,089,549 3,073,832
Earnings per common share -
assuming full dilution(2) $ 1.13 $ 0.52 $ 1.17
Weighted average number of common shares
assuming full dilution 9,765,303 3,089,549 3,073,832
</TABLE>
See accompanying notes to consolidated financial statements.
1 Reflects reduction for dividends and distributions of $4,505 and $1,288
for the years ended December 31, 1996 and 1995, respectively.
2 Reflects the one-for-two reverse stock split effective March 29, 1996.
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands, except share and per share amounts)
<TABLE>
<S> <C> <C> <C> <C>
Total
Accumulated common
losses and stock and
Additional distributions other stock-
Common paid-in in excess of holders'
stock capital net income equity
Balance, December 31, 1993 $ 60 $107,147 $(71,766) $35,441
Issuance of common stock - 4 - 4
Net income - - 3,609 3,609
Dividends to common stockholders
($0.71 per share) - - (2,122) (2,122)
Balance, December 31, 1994 60 107,151 (70,279) 36,932
Issuance of common stock 1 63 - 64
Costs of issuance of preferred stock - - (3,631) (3,631)
Redemption of rights - - (60) (60)
Net income - - 2,895 2,895
Dividends to common stockholders
($0.82 per share) - - (2,477) (2,477)
Dividends to preferred
stockholders (9%) - - (1,288) (1,288)
Balance, December 31, 1995 61 107,214 (74,840) 32,435
Issuance of common stock 70 43,778 - 43,848
Costs of issuance of preferred stock - - (2) (2)
Costs of issuance of common stock - (3,370) - (3,370)
Net income - - 11,021 11,021
Dividends to common stockholders
($1.00 per share) - - (5,671) (5,671)
Distributions to limited partnership
unit holders - - (5) (5)
Dividends to preferred
stockholders (9%) - - (4,500) (4,500)
Balance, December 31, 1996 $ 131 $147,622 $(73,997) $73,756
</TABLE>
See accompanying notes to consolidated financial statements.
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Operating Activities:
Net income $11,021 $2,895 $3,609
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization 3,757 1,806 1,463
Loss (gain) on sale of real estate investments (406) 642 (1,193)
Change in other assets (2,118) (1,679) (930)
Change in accounts payable and accrued expenses 763 601 (615)
Change in other liabilities 1,361 633 382
Net cash provided by operating activities 14,378 4,898 2,716
Investing Activities:
Investments in real estate (104,483) (81,173) (28,009)
Proceeds from sales of real estate investments 7,519 7,914 8,289
Net cash used by investing activities (96,964) (73,259) (19,720)
Financing Activities:
Proceeds from bank loan 101,189 47,100 36,138
Repayment of bank loan (99,048) (26,250) (17,359)
Proceeds from mortgage loans 49,384 - -
Issuance of common stock 40,476 64 -
Net proceeds from sale of preferred stock - 46,369 -
Redemption of rights - (60) -
Payment of dividends (9,114) (2,568) (1,972)
Net cash provided by financing activities 82,887 64,655 16,807
Net increase (decrease) in cash 301 (3,706) (197)
Cash at beginning of year 1,027 4,733 4,930
Cash at end of year $1,328 $1,027 $4,733
Supplemental disclosure of cash flow information
a) Non-cash investing and financing activities:
Debt incurred with real estate acquired $2,283 $3,000 $ 600
Issuance of limited partnership units
for real estate acquired 1,709 - -
Note receivable from sale of real
estate investment 50 - -
b) Cash paid during the year for interest $3,380 $1,283 $ 585
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
The Company
Bedford Property Investors Inc. (the Company) is a Maryland real estate
investment trust with investments primarily in industrial and suburban
office properties concentrated in the Western United States. The
Company's Common Stock trades under the symbol "BED" on both the New York
and Pacific Stock Exchanges.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries and its general partnership
interest in Bedford Realty Partners, L.P. All significant inter-entity
balances have been eliminated in consolidation.
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management of the
Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of financial statements and the reported
amount of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
Federal Income Taxes
The Company has qualified as a real estate investment trust under
Sections 856 to 860 of the Internal Revenue Code of 1986, as amended
("the Code"). A real estate investment trust is generally not subject
to Federal income tax on that portion of its real estate investment trust
taxable income ("Taxable Income") which is distributed to its
stockholders, provided that at least 95% of Taxable Income is
distributed. No provision for Federal income taxes has been made in the
consolidated financial statements, as the Company believes it is in
compliance with the Code.
Taxable income differs from net income for financial reporting purposes
primarily because of the different methods of accounting for
depreciation. As of December 31, 1996, for Federal income tax purposes,
the Company had an ordinary loss carry forward of approximately
$39,400,000 and a capital loss carry forward of approximately $2,500,000.
All dividend distributions made for 1996 were classified as ordinary
income for Federal income tax purposes.
Real Estate Investments
Buildings and improvements are carried at cost less accumulated
depreciation. Buildings are depreciated on a straight-line basis over
45 years. Upon the acquisition of an investment by the Company,
acquisition related costs are added to the carrying cost of that
investment. These costs are being depreciated over the useful lives of
the buildings. Leasing commissions and improvements to tenants' space
incurred subsequent to the acquisition are amortized over the terms of
the respective leases. Expenditures for repairs and maintenance, which
do not add to the value or prolong the useful life of a property, are
expensed as incurred. When the Company concludes that the recovery of
the carrying amount of a real estate investment is permanently impaired,
it reduces such carrying amount to the estimated fair value of the
investment. Investments which have been classified as offered for sale
are reported at the lower of the carrying amount or fair value less costs
to sell.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of (FAS 121). The
adoption of FAS 121 did not have a material impact on the Company's
financial statements.
Income Recognition
Rental income from operating leases is recognized in income on a
straight-line basis over the period of the related lease agreement. The
aggregate rental income exceeded contractual rentals by $573,000 and
$377,000 for 1996 and 1995, respectively.
<PAGE>
Per Share Data
Per share data are based on the weighted average number of common and
common equivalent shares outstanding during the year. Per share data
reflects the retroactive application of the one-for-two reverse stock
split which took place on March 29, 1996. Stock options issued under the
Company's stock option plans are considered common stock equivalents and
are included in the calculation of per share data if, upon exercise,
they would have a dilutive effect. The fully diluted earnings per share
calculation assumes conversion of the Series A Convertible Preferred
Stock of the Company and the limited partnership units of Bedford Realty
Partners, L.P.. If exercised, both the Series A Convertible Preferred
Stock and the limited partnership units would have dilutive effects.
Dividends accrued on the Series A Convertible Preferred Stock and
distributions accrued on the limited partnership units are deducted from
net income for purposes of determining net income applicable to common
stockholders.
Note 2 - Real Estate Investments
The following table sets forth the Company's real estate investments as
of December 31, 1996 (in thousands):
<TABLE>
<S> <C> <C> <C> <C>
Less
Accumulated
Land Building Depreciation Total
Industrial
Greater San Francisco Bay Area, California $34,588 $ 54,728 $1,481 $ 87,835
Greater Los Angeles Area, California 13,582 29,998 661 42,919
Denver, Colorado 1,911 3,140 75 4,976
Phoenix, Arizona 4,628 4,619 69 9,178
Greater Portland Area, Oregon 2,652 8,167 201 10,618
Greater Kansas City Area 2,805 9,244 403 11,646
Total Industrial 60,166 109,896 2,890 167,172
Suburban Office
Greater Los Angeles Area, California 7,442 13,467 1,085 19,824
Salt Lake City, Utah 359 6,269 554 6,074
Greater Kansas City Area, Kansas 2,518 3,994 110 6,402
Greater San Francisco Bay Area, California 1,763 4,914 142 6,535
Greater Seattle Area, Washington 5,095 7,250 54 12,291
Total Suburban Office 17,177 35,894 1,945 51,126
Retail
Colorado Springs, Colorado 2,890 3,391 78 6,203
Total $80,233 $149,181 $4,913 $224,501
</TABLE>
The Company internally manages all but seven of its properties from its
regional offices in Lafayette, CA; Tustin, CA; Phoenix, AZ; and Lenexa,
Kansas. For the seven properties located in markets not served by a
regional office, the Company has subcontracted on-site maintenance to
local firms. All financial record-keeping is centralized at the
Company's corporate office in Lafayette, CA.
Note 3 - Consolidated Partnership
In December, 1996 the Company formed Bedford Realty Partners, L.P. (the
"Operating Partnership"), with the Company as the sole general partner,
for the purpose of acquiring real estate. In exchange for contributing
a property into the Operating Partnership, the owners of the property
receive limited partnership units ("OP Units"). A limited partner can
seek redemption of the OP Units at any time after 90 days. The Company,
at its option, may redeem the OP Units by either (i) issuing common stock
at the rate of one share of common stock for each OP Unit, or (ii) paying
cash to a limited partner based on the average trading price of its
common stock. Each OP Unit is allocated partnership income and cash flow
at a rate equal to the dividend being paid by the Company on a share of
common stock. Additional partnership income and cash flow is allocated
99% to the Company and 1% to the limited partners.
This acquisition strategy is referred to as a "Down REIT" transaction;
as long as certain tax attributes are maintained, the income tax
consequences to a limited partner are generally deferred until such time
as the limited partner redeems their OP Units.
On December 17, 1996, the Company acquired a $3.6 million industrial
property located in Modesto, California utilizing the Operating
Partnership. The sellers of the property received 108,495 OP Units. A
director of the Company was a 9% owner of the property, but did not
participate in the approval of the acquisition.
Note 4 - Leases
Minimum future lease payments to be received as of December 31, 1996 are
as follows (in thousands):
1997 $27,197
1998 22,006
1999 16,462
2000 11,480
2001 8,517
Thereafter 14,655
$100,317
The total minimum future lease payments shown above do not include
tenants' obligations for reimbursement of operating expenses or taxes as
provided by the terms of certain leases.
Note 5 - Related Party Transactions
Due to the Company's limited financial resources existing in prior years,
its activities relating to the acquisition of new properties and debt and
equity financings have been performed by Bedford Acquisitions, Inc. (BAI)
pursuant to a written contract dated January 1, 1995. The contract
provides that BAI is obligated to provide services to the Company with
respect to the Company's acquisition and financing activities, and that
BAI is responsible for the payment of its expenses incurred in connection
therewith. The contract provides that BAI is to be paid a fee in an
amount equal to the lesser of (i) 1 1/2% of the gross amount raised in
financings or the aggregated purchase price of the property for
acquisitions, or (ii) an amount equal to (a) the aggregate amount of
expenses funded by BAI through the time of such acquisition or financing
minus (b) the aggregate amount of fees previously paid to BAI pursuant
to such arrangement. In no event will the aggregate amount of fees paid
to BAI exceed the aggregate amount of costs funded by BAI. The agreement
with BAI had an initial term of one year, is renewable at the option of
the Company for additional one-year terms, and will expire no later than
January 1, 1998.
From February 1993 through December 1994, the Company's activities
relating to debt and equity financings and the acquisition of new
properties were handled under arrangements similar to the current
arrangement with BAI through BPI Acquisitions, a separate division within
the Company. This division operated under an arrangement with Mr.
Bedford whereby he provided acquisitions and financing personnel,
allocable overhead costs and the costs of all due diligence conducted
prior to an acquisition. Upon the completion of a financing or the
acquisition of a property, Mr. Bedford was paid a fee by the Company
substantially identical to that described above. In no event could the
aggregate amount of fees paid to Mr. Bedford exceed the aggregate amount
of costs funded by Mr. Bedford.
As of December 31, 1996, the Company had paid Mr. Bedford and BAI an
aggregate of $4,853,000 for acquisition and financing activities
performed since February 1993 pursuant to the foregoing arrangements.
The Company believes that since the fees charged under the foregoing
arrangements (i) have been and continue to be comparable to those charged
by other sponsors of real estate investment entities or other third party
service providers and (ii) have been and continue to be charged only for
services on acquired properties or completed financings, such fees were
and continue to be properly includable in direct acquisition costs and
capitalized as part of the asset or financing activities.
Note 6 - Stock Option Plans
A total of 900,000 shares of the Company's Common Stock have been
reserved for issuance under the Employee Stock Option Plan (the "Employee
Plan"). The Employee Plan expires by its own terms in 2003. The
Employee Plan provides for non-qualified stock options and incentive
stock options.
The Employee Plan is administered by the Compensation Committee of the
Board of Directors, which determines the terms of options granted,
including the exercise price, the number of shares subject to the option,
and the exercisability of the options. Options granted to employees are
exercisable upon vesting, and typically vest over a four-year period.
The Employee Plan requires that the exercise price of incentive stock
options be at least equal to the fair market value of such shares on the
date of grant and that the exercise price of non-qualified stock options
be equal to at least 85% of the fair market value of such shares on the
date of the grant. The maximum term of options granted is ten years.
Initially 250,000 shares of the Company's Common Stock were reserved for
issuance under the Directors' Stock Option Plan (the "Directors' Plan").
On May 16, 1996 the shareholders approved an additional 250,000 shares.
The Directors' Plan expires by its own terms in 2002. The Directors'
Plan provides for the grant of non-qualified stock options to directors
of the Company. The Directors' Plan contains an automatic grant feature
whereby a director receives a one-time "initial option" to purchase
25,000 shares upon a director's appointment to the Board of Directors and
thereafter receives automatic annual grants of options to purchase 10,000
shares upon re-election to the Board of Directors. Options granted are
generally exercisable six months from the date of grant.
The Directors' Plan requires that the exercise price of options be equal
to the fair market value of the underlying shares on the date of grant.
The maximum term of options granted is ten years.
In September 1995, the Company established a Management Stock Acquisition
program. Under the program, options exercised by key members of
management shortly after the grant date may be exercised either in cash
or with a note payable to the Company. Such note bears interest at 7.5%
or the Applicable Federal Rate as defined by the Internal Revenue
Service, whichever is higher. The note is due in five years or within
ninety days from termination of employment, with interest payable
quarterly. During 1996 and 1995, options for 155,000 shares of Common
Stock were exercised in exchange for notes payable to the Company. The
notes bear interest at 7.5%. The unpaid balance of the notes is
$1,787,000 and is included in the accompanying consolidated balance sheet
as a reduction of additional paid-in capital.
The Company applies APB Opinion No. 25 and related interpretation in
accounting for its plans. Accordingly, compensation costs have not been
recognized for either the Employee or Directors' Plan. Had compensation
costs for the plans been determined consistent with FASB Statement No.
123, the Company's net income would have been reduced to the pro forma
amounts indicated below:
1996 1995 1994
Net income
As reported $11,021 $2,895 $ 3,609
Pro forma 10,831 2,821 3,518
<PAGE>
For the years ended December 31, 1996, 1995 and 1994, the effect of
determining compensation cost consistent with
FASB Statement No. 123 on primary earnings per share and fully diluted
earnings per share was not material.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 1996, 1995 and 1994, respectively:
dividend yield of 6.9%, 6.7% and 5.8%; expected volatility of 18.1%,
19.4% and 21.9%; risk-free interest rates of 6.3%, 5.3% and 7.8%; and
expected lives of five years for each period.
A summary of the status of the Company's plans as of December 31, 1996,
1995 and 1994 and changes during the years ended on those dates is
presented below:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994
Weighted Avg. Weighted Avg. Weighted Avg.
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Employee Plan
Outstanding at beginning
of year 93,750 $ 12.78 107,500 $ 13.04 17,500 $ 8.50
Granted 267,000 13.00 86,000 11.50 90,500 13.93
Exercised (106,000) 12.96 (56,875) 11.14 - -
Forfeited (12,500) 12.92 (42,875) 12.91 (500) 14.00
Outstanding at end of year 242,250 $ 12.94 93,750 $ 12.78 107,500 $ 13.04
Options exercisable 45,063 25,875 6,875
Weighted average fair value
of options granted during
the year $ 1.37 $ 1.19 $ 2.45
Directors' Plan
Outstanding at beginning
of year 250,000 $ 8.28 175,000 $ 6.76 150,000 $ 5.73
Granted 70,000 14.22 75,000 11.84 25,000 $ 12.97
Exercised (25,000) 5.33 - - - -
Outstanding at end of year 295,000 $ 9.94 250,000 $ 8.28 175,000 $ 6.76
Options exercisable 295,000 175,000 175,000
Weighted average fair value
of options granted during
the year $ 1.06 $ 1.16 $ 2.81
</TABLE>
The following table summarizes information about stock options
outstanding on December 31, 1996:
<TABLE>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
Employee Plan
$ 8.50 2,750 1.4 $ 8.50 1,813 $ 8.50
13.75 to 14.00 53,500 3.8 13.93 34,500 13.95
11.50 35,000 8.7 11.50 8,750 11.50
13.00 151,000 9.3 13.00 - -
$ 8.50 to 14.00 242,250 7.9 $ 12.94 45,063 $ 13.25
Directors' Plan
$ 5.33 100,000 1.9 $ 5.33 100,000 $ 5.33
7.71 25,000 1.9 7.71 25,000 7.71
12.97 25,000 2.8 12.97 25,000 12.97
11.82 to 11.85 75,000 4.2 11.84 75,000 11.84
14.22 70,000 9.8 14.22 70,000 14.22
$ 5.33 to 14.22 295,000 4.4 $ 9.94 295,000 $ 9.94
</TABLE>
Note 7 - Bank Loan Payable
During 1996, the Company expanded its secured revolving credit facility
with Bank of America to $100 million. The expanded facility, which
matures on July 1, 1999, bears interest at a floating rate equal to
either the lender's published "reference rate" plus 0.25% or LIBOR plus
2% (lowered to LIBOR plus 1.75% in January, 1997). The credit facility
is secured by mortgages on 26 properties (which Properties collectively
accounted for approximately 55% of the Company's Annualized Base Rent and
approximately 49% of the Company's total assets as of December 31, 1996),
together with the rental proceeds from such properties. The credit
facility contains various restrictive covenants including, among other
things, a covenant limiting quarterly dividends to 95% of average Funds
From Operations for the immediately preceding two fiscal quarters.
The daily weighted average amount owing to the bank was $10,997,000 and
$15,003,000 in 1996 and 1995, respectively. The weighted average
interest rates in these periods were 8.03% and 8.65%, respectively. The
effective interest rate at December 31, 1996 was 7.7%.
Note 8 - Mortgage Loans Payable
Mortgage loans payable at December 31, 1996 consist of the following (in
thousands):
Floating rate note due December 15, 1999
current rate of 8.5% $ 1,850
7.5% note due January 1, 2002 25,000
7.02% note due March 15, 2003 25,000
$51,850
The mortgage loans are collaterized by 13 properties (which Properties
collectively accounted for approximately 32% of the Company's
Annualized Base Rent and approximately 32% of the Company's total assets
as of December 31, 1996).
The following table presents scheduled principal payments on mortgage
loans as of December 31, 1996 (in thousands):
1997 $ 381
1998 692
1999 2,609
2000 874
2001 879
Thereafter 46,415
$51,850
Note 9 - Redeemable Preferred Stock
On September 18, 1995, the Company issued and sold 8,333,334 shares of
Series A Convertible Preferred Stock (the "Convertible Preferred Stock")
for $6.00 per share. Holders of the Convertible Preferred Stock are
entitled to cumulative quarterly dividends in cash in an amount equal to
the greater of (i) $0.135 per share or (ii) the dividends payable in such
quarter on the Common Stock into which the Convertible Preferred Stock
is convertible plus, in both cases, the accumulated but unpaid dividends
on the Convertible Preferred Stock. Dividends may be declared and paid
on shares of Common Stock only if full cumulative dividends have been
paid or authorized and set apart on all shares of Convertible Preferred
Stock. Each share of Convertible Preferred Stock is convertible at any
time after September 18, 1997 into one-half share of Common Stock. The
conversion rate may be adjusted under certain conditions.
The Convertible Preferred Stock is redeemable at the option of the
Company: (i) after September 18, 1997 but before September 18, 2000, in
whole at a redemption price providing an internal rate of return to the
holder of Convertible Preferred Stock of 25% per annum for the period
from September 18, 1995 to September 18, 1997 and 20% per annum from and
after September 18, 1997 until the date of redemption, but not beyond
September 18, 2000; (ii) after September 18, 2000, in whole or in part
at a redemption price of $6.30 per share, declining $0.06 per share per
year for each of the next five years. Prior to any redemption by the
Company, the holders of the Convertible Preferred Stock may convert their
shares of the Convertible Preferred Stock to shares of Common Stock.
Redemption of the preferred stock is required, at the option of the
preferred shareholders, after one year at a redemption price of $6.00 per
share plus accrued and unpaid dividends upon the occurrence of any of the
following: failure to pay preferred dividends for two consecutive
quarters; default on payment of certain debt; failure to obtain certain
required consents of the preferred shareholders; or failure to meet
certain financial targets. In the event of liquidation, the holders of
the preferred stock are entitled to receive $6.30 per share plus any
accrued and unpaid dividends.
Note 10 - Sales of Common Stock
In April of 1996, the Company completed the sale of 3,350,000 shares of
common stock at $13 per share. The net proceeds were used primarily to
pay off the outstanding borrowings under the Company's credit facility
and to acquire additional properties.
In February of 1997, the Company completed the sale of 4,600,000 shares
of common stock at $17 per share. The net proceeds were used primarily
to pay off the outstanding borrowings under the Company's expanded credit
facility.
Note 11 - Quarterly Financial Data-Unaudited
The following is a summary of quarterly results of operations for 1996
and 1995 (in thousands of dollars, except per share data):
<TABLE>
<S> <C> <C> <C> <C>
1996 Quarters Ended 3/31 6/30 9/30 12/31
Rental income $5,709 $6,369 $7,090 $8,373
Income from property operations 3,347 3,857 4,230 5,130
Income before gain on sale of real
estate investments 1,953 2,621 2,932 3,109
Net income $1,953 $2,980 $2,932 $3,156
Net income applicable to common
stockholders(1) $ 828 $1,855 $1,807 $2,026
Primary earnings per common and common
equivalent share(2) $ 0.26 $ 0.33 $ 0.27 $ 0.30
Earnings per common share -
assuming full dilution(2) $ 0.26 $ 0.30 $ 0.27 $ 0.29
1995 Quarters Ended 3/31 6/30 9/30 12/31
Rental income $2,662 $2,616 $2,774 $3,643
Income from property operations 1,427 1,366 1,369(4) 2,200
Income before loss on sales of real
estate investments 606 616 669(4) 1,646
Net income $ 606 $ 616 $ 27 $1,646
Net income (loss) applicable to common
stockholders(3) $ 606 $ 616 $ (133) $ 518
Net income (loss) per common and
common equivalent share(2) $ 0.20 $ 0.20 $(0.04) $ 0.16
</TABLE>
1 Reflects reduction for dividends and distributions of $1,130 for the
fourth quarter of 1996 and $1,125 each for the first, second and third
quarter of 1996.
2 Reflects the one-for-two reverse stock split effective March 29, 1996.
3 Reflects reduction for dividends of $160 and $1,128 for the third and
fourth quarters of 1995, respectively, on $50,000 of Series A Convertible
Preferred Stock issued on September 18, 1995.
4 These amounts were reported in the third quarter of 1995, net of a
provision for loss on sale of real estate investment of $630.
<PAGE>
BEDFORD PROPERTY INVESTORS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(in thousands of dollars)
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Cost Gross Amount Accumu-
Cost to Company Capitalized Carried at lated Date Date Depreciable
Buildings & Subsequent to Close of Period Depre- Con- Ac- Life
Description Land Improvement Acquisition Land Building Total ciation structed quired (Years)
INDUSTRIAL PROPERTIES AND
VACANT LAND PARCELS:
Greater San Francisco Area,
California
Building #3 at Contra Costa
Diablo Industrial Park,
Concord $ 495 $ 1,159 $ 77 $ 495 $ 1,236 $ 1,731 $ 186 1983 12/90 45
Building #8 at Contra Costa
Diablo Industrial Park,
Concord 877 1,548 142 877 1,690 2,567 241 1981 12/90 45
Building #18 at Mason
Industrial
Park, Concord 610 1,265 60 610 1,325 1,935 195 1984 12/90 45
115 Mason Circle, Concord 697 854 9 697 863 1,560 6 1971 9/96 45
Auburn Court, Fremont 1,391 2,473 230 1,415 2,679 4,094 59 1983 12/95 45
47650 Westinghouse Drive,
Fremont 267 893 24 271 913 1,184 21 1982 12/95 45
47600 Westinghouse Drive,
Fremont 356 1,067 7 356 1,074 1,430 8 1982 9/96 45
47633 Westinghouse Drive,
Fremont 1,051 3,239 11 1,051 3,250 4,301 18 1983 10/96 45
Westinghouse Land 1,624 - 5 1,629 - 1,629 - N/A 10/96 N/A
Fourier Avenue, Fremont 2,120 7,018 - 2,120 7,018 9,138 91 1982 5/96 45
Milpitas Town Center,
Milpitas 1,400 4,421 87 1,400 4,508 5,908 239 1983 8/94 45
598 Gibraltar Drive,
Milpitas 535 2,522 - 535 2,522 3,057 58 1996 5/96 45
Doherty Avenue, Modesto 464 3,178 53 470 3,225 3,695 - 1963-71 12/96 45
860-870 Napa Valley
Corporate Way, Napa 933 3,515 86 933 3,601 4,534 20 1984 9/96 45
Napa Lot A 961 - - 961 - 961 - N/A 12/96 N/A
Napa Lots 12J & K 1,151 - - 1,151 - 1,151 - N/A 12/96 N/A
350 E. Plumeria Drive,
San Jose 3,621 4,704 151 3,683 4,793 8,476 134 1983 9/95 45
Lundy Avenue, San Jose 2,055 2,184 161 2,055 2,345 4,400 25 1982 7/96 45
O'Toole Business Center,
San Jose 3,934 5,748 - 3,934 5,748 9,682 - 1984 12/96 45
301 East Grand, South
San Francisco 2,036 959 160 2,070 1,085 3,155 26 1974 12/95 45
342 Allerton, South
San Francisco 2,516 1,542 295 2,558 1,795 4,353 38 1969 12/95 45
400 Grandview, South
San Francisco 3,246 3,517 165 3,300 3,628 6,928 83 1976 12/95 45
410 Allerton, South
San Francisco 1,333 889 39 1,356 905 2,261 21 1970 12/95 45
417 Eccles, South
San Francisco 649 510 27 661 525 1,186 12 1964 12/95 45
Greater Los Angeles Area,
California
Dupont Industrial Center,
Ontario 3,588 6,162 15 3,588 6,177 9,765 410 1989 5/94 45
3002 Dow Business Center,
Tustin 4,209 7,291 493 4,305 7,688 11,993 210 1987-89 12/95 45
Carroll Tech Center,
San Diego 2,249 4,902 - 2,249 4,902 7,151 27 1984 10/96 45
Signal Systems Building,
San Diego 2,228 7,264 - 2,228 7,264 9,492 - 1990 12/96 45
Oak Ridge Business Center,
Vista 1,212 3,967 - 1,212 3,967 5,179 14 1990 10/96 45
Denver Metropolitan Area
Bryant Street Annex, Denver 487 866 21 495 879 1,374 20 1968 12/95 45
Bryant Street Quad, Denver 1,394 2,181 102 1,416 2,261 3,677 55 1971-73 12/95 45
Greater Phoenix Area,
Arizona
Westech Business Center,
Phoenix 3,531 4,422 197 3,531 4,619 8,150 69 1985 4/96 45
Phoenix land, Phoenix 1,033 - 64 1,097 - 1,097 - N/A 7/96 N/A
Greater Portland Area,
Oregon
Twin Oaks Technology
Center, Beaverton 1,444 4,836 369 1,469 5,180 6,649 129 1984 12/95 45
Twin Oaks Business Center,
Beaverton 1,163 2,847 160 1,183 2,987 4,170 72 1984 12/95 45
Greater Kansas City Area
Panorama Business Center,
Kansas City 675 3,098 - 675 3,098 3,773 - 1984 12/96 45
Ninety-Ninth Street #3,
Lenexa 360 2,167 129 360 2,296 2,656 293 1990 12/90 45
Ninety-Ninth Street #1,
Lenexa 404 1,547 22 408 1,565 1,973 44 1988 9/95 45
Ninety-Ninth Street #2,
Lenexa 180 555 13 183 565 748 16 1988 9/95 45
Lackman Business Center,
Lenexa 619 1,631 98 628 1,720 2,348 50 1985 9/95 45
Lenexa land, Lenexa 519 - 32 551 - 551 - N/A 6/96 N/A
SUBURBAN OFFICE PROPERTIES:
Greater Los Angeles Area,
California
Laguna Hills Square,
Laguna 2,436 3,655 342 2,436 3,997 6,433 69 1983 3/96 45
1000 Town Center Drive,
Oxnard 1,785 3,315 1,519 1,785 4,834 6,619 660 1990 12/93 45
Mariner Court, Torrance 3,221 4,279 357 3,221 4,636 7,857 356 1989 1/94 45
Salt Lake City, Utah
Woodlands II, Salt
Lake City 359 5,805 464 359 6,269 6,628 554 1990 8/93 45
Kansas City, Kansas
6600 College Blvd.,
Overland Park 2,480 3,880 152 2,518 3,994 6,512 110 1982-83 10/95 45
Greater San Francisco
Bay Area, California
Village Green, Lafayette 547 1,245 496 743 1,545 2,288 95 1983 7/94 45
100 View Street,
Mountain View 1,020 3,144 225 1,020 3,369 4,389 47 1985 5/96 45
Greater Seattle Area,
Washington
Kenyon Center, Bellevue 5,095 7,250 - 5,095 7,250 12,345 54 1987 9/96 45
RETAIL PROPERTY
Denver Metropolitan Area
Academy Place Shopping
Center, Colorado
Springs, CO 2,844 3,339 98 2,890 3,391 6,281 78 1980-82 12/95 45
$79,404 $142,853 $7,157 $80,233 $149,181 $229,414 $4,913
(A) (B)
</TABLE>
<PAGE>
NOTES TO SCHEDULE III
(in thousands of dollars)
(A) An analysis of the activity in real estate investments for the
years ended December 31, 1996, 1995 and 1994 is presented below:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Investment Accumulated Depreciation
1996 1995 1994 1996 1995 1994
BALANCE AT BEGINNING OF PERIOD $131,183 $ 58,203 $41,225 $2,219 $3,150 $5,263
Add (deduct):
Sale of Texas Bank North (C) - - (10,131) - - (3,035)
Acquisition of Mariner Court - - 7,500 - - -
Acquisition of Dupont
Industrial Center (D) - - 9,750 - - -
Acquisition of Village Green - - 1,792 - - -
Acquisition of Milpitas
Town Center - - 6,320 - - -
Acquisition of Lackman
Business Center - 2,250 - - - -
Acquisition of 350 E.
Plumeria Drive - 8,325 - - - -
Sale of Cody Street Park,
Building 6 (E) - (1,639) - - (203) -
Acquisition of Ninety-Ninth
Street, Building 1 - 1,951 - - - -
Acquisition of Ninety-Ninth
Street, Building 2 - 735 - - - -
Sale of IBM Building (F) - (8,325) - - (2,024) -
Acquisition of 6600 College
Boulevard - 6,360 - - - -
Acquisition of 3002 Dow
Business Center - 11,500 - - - -
Acquisition of Landsing
Pacific Portfolio - 49,708 - - - -
Acquisition of Laguna
Square Hills 6,091 - - - - -
Acquisition of Westech
Business Center 7,953 - - - - -
Acquisition of 100
View Street 4,164 - - - - -
Acquisition of Fourier
Avenue 9,138 - - - - -
Acquisition of 598 Gibraltar 1,743 - - - - -
Acquisition of Lundy Avenue 4,239 - - - - -
Acquisition of Kenyon Center 12,345 - - - - -
Acquisition of 47600
Westinghouse Drive 1,423 - - - - -
Acquisition of 860-870 Napa
Valley Corp. Way 4,448 - - - - -
Acquisition of 115 Mason
Circle 1,551 - - - - -
Acquisition of Oak Ridge
Business Center 5,179 - - - - -
Acquisition of Carroll
Tech Center 7,151 - - - - -
Acquisition of 47633
Westinghouse Drive 4,290 - - - - -
Acquisition of Panorama
Business Center 3,774 - - - - -
Acquisition of Signal
Systems Building 9,492 - - - - -
Acquisition of O'Toole
Business Center 9,681 - - - - -
Acquisition of Doherty
Avenue 3,642 - - - - -
Acquisition of
Westinghouse Land 1,625 - - - - -
Acquisition of Napa Lot 10A 961 - - - - -
Acquisition of Napa
Lots 12J & K 1,151 - - - - -
Acquisition of Lenexa Land 518 - - - - -
Acquisition of Phoenix Land 1,033 - - - - -
Sale of Woodland Land (G) (614) - - - - -
Sale of St. Paul East (H) (2,792) - - (45) - -
Sale of St. Paul West (H) (3,839) - - (36) - -
Capitalized costs 3,884 2,115 1,747 - - -
Depreciation - - - 2,775 1,296 922
BALANCE AT END OF PERIOD $229,414 $131,183 $58,203 $4,913 $2,219 $3,150
</TABLE>
(B) The aggregate cost for Federal income tax purposes is $229,834,000.
(C) The property was sold on January 14, 1994.
(D) Rental income guarantee in the amount of $264,000 was received from the
seller and accounted for as a reduction of the cost of the property.
(E) In the third quarter 1995, the Company decided to sell the Cody Street
Park, Building 6. The property was sold on September 20, 1995.
(F) During 1995, the Company continued to offer for sale the IBM Building
located in Jackson, Mississippi. This property was first offered for
sale in 1991, at which time the Company's investment in the property was
written down by $2,113,000. The property sold on October 2, 1995.
(G) The property was sold in April 1996.
(H) The properties were sold in December 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BEDFORD PROPERTY INVESTORS, INC.
By: /s/ Peter B. Bedford
Peter B. Bedford
Chairman of the Board and
Chief Executive Officer
Dated: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person on behalf of
the Registrant and in the capacity and on the date indicated.
/s/ Peter B. Bedford March 28, 1997
Peter B. Bedford, Chairman of the Board
and Chief Executive Officer
/s/ Claude M. Ballard March 28, 1997
Claude M. Ballard, Director
/s/ Anthony Downs March 28, 1997
Anthony Downs, Director
/s/ Anthony M. Frank March 28, 1997
Anthony M. Frank, Director
/s/ Martin I. Zankel March 28, 1997
Martin I. Zankel, Director
/s/ Thomas H. Nolan, Jr. March 28, 1997
Thomas H. Nolan, Jr., Director
/s/ Thomas G. Eastman March 28, 1997
Thomas G. Eastman, Director
/s/ Donald A. Lorenz March 28, 1997
Donald A. Lorenz,
Executive Vice President and
Chief Financial Officer
/s/ Hanh Kihara March 28, 1997
Hanh Kihara, Controller
<PAGE>
Exhibit 11
Bedford Property Investors, Inc.
Statement of Computation of Earnings per Share
(in thousands, except share and share amounts)
<TABLE>
<S> <C> <C> <C>
Year Ended December 31,
1996 1995 1994
Primary:
Net income $ 11,021 $ 2,895 $ 3,609
Less: Dividends on the Series A Convertible
Preferred Stock 4,500 1,288 -
Distributions to Operating
Partnership Unit Holders 5 - -
Net income applicable to common stockholders 6,516 1,607 3,609
Weighted average shares outstanding 5,405,727 3,005,950 2,988,387
Weighted average shares of dilutive
stock options using average stock price
under the treasury stock method 125,711 83,599 85,445
Primary weighted average number of common
and common equivalent shares outstanding 5,531,438 3,089,549 3,073,832
Primary earnings per common
and common equivalent share $ 1.18 $ 0.52 $ 1.17
Fully Diluted:
Adjusted shares - primary, from above 5,531,438 3,089,549 -
Weighted average shares issuable upon
conversion of the Series A Convertible
Preferred Stock(2) 4,166,667 1,198,630 -
Additional weighted average shares of
dilutive stock options using end of period
stock price under the treasury stock method 62,751 17,375 -
Weighted average shares issuable upon the
conversion of operating partnership units(3) 4,447 - -
Weighted average number of common shares
assuming full dilution 9,765,303 4,305,554 N/A
Earnings per common
share - assuming full dilution $ 1.13 $ 0.52(1) N/A
</TABLE>
Per share amounts and number of shares have been adjusted to
reflect the one-for-two reverse stock split effective March 29, 1996.
(1) For 1995, the Series A Convertible Preferred Stock was
antidilutive and, accordingly, the results of the primary earnings
per common and common equivalent share is reported for earnings
per common share - assuming full dilution.
(2) Not applicable before 1995. The Series A Convertible Preferred Stock
was issued in September 1995.
(3) Not applicable before 1996. The Operating Partnership Units were
issued in December 1996.
Exhibit 12
Bedford Property Investors, Inc.
Computation of Ratio of Earnings to Fixed Charges and Preferred
Dividends and Limited Partner Distributions
(in thousands, except for ratio)
Year Ended December 31,
1996 1995 1994
Net income $ 11,021 $ 2,895 $ 3,609
Fixed charges - interest 4,347 1,594 955
Net income including fixed charges 15,368 4,489 4,564
Preferred dividends and limited
partner distributions 4,505 1,288 -
Net income including fixed charges,
preferred dividends and limited
partner distributions $ 19,873 $ 5,777 $ 4,564
Ratio of earnings to fixed charges,
including preferred dividends and
limited partner distributions 2.25 2.00 4.78
Ratio of earnings to fixed charges,
excluding preferred dividends and
limited partner distributions 3.54 2.82 4.78
<PAGE>
Exhibit 21.1
Subsidiaries of Bedford Property Investors, Inc.
<TABLE>
<S> <C> <C>
Name Under
Subsidiary Which Subsidiary is
Name State ofIncorporation doing Business
1. ICMPI (Concord Diablo 3), Inc. Delaware ICMPI (Concord Diablo 3), Inc.
2. ICMPI (Concord Diablo 8), Inc. Delaware ICMPI (Concord Diablo 8), Inc.
3. ICMPI (Concord Mason 18), Inc. Delaware ICMPI (Concord Mason 18), Inc.
4. ICMPI (Overland Park), Inc. Delaware ICMPI (Overland Park), Inc.
5. ICMPI (Lenexa), Inc. Delaware ICMPI (Lenexa), Inc.
6. ICMPI (Jackson), Inc. Delaware ICMPI (Jackson), Inc.
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Bedford Property Investors, Inc.:
We consent to incorporation by reference in the registration statement
(No. 33-15233) on Form S-3, the registration statement (No. 333-18215)
on Form S-8 and the registration statement (No. 333-23687) on Form S-3
of Bedford Property Investors, Inc. of our report dated February 25,
1997, relating to the consolidated balance sheets of Bedford Property
Investors, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31,
1996, and the related financial statement schedule as of December 31,
1996, which report appears in the December 31, 1996 annual report on
Form 10-K of Bedford Property Investors, Inc.
KPMG Peat Marwick LLP
San Francisco, California
March 28, 1997
EXHIBIT 10.14
LOAN AGREEMENT
Dated as of December 24, 1996
Between
BEDFORD PROPERTY INVESTORS, INC.
as Borrower
and
UNION BANK OF CALIFORNIA, N.A.
as Lender
<PAGE>
LOAN AGREEMENT
This Loan Agreement ("Agreement") is made and entered into as of
December 24, 1996, between BEDFORD PROPERTY INVESTORS, INC., a
Maryland corporation ("Borrower"), and UNION BANK OF CALIFORNIA, N.A.
("Lender").
R E C I T A L S:
A. Borrower has requested that Lender provide certain secured
credit accommodations to Borrower.
B. Lender is willing to provide such secured credit
accommodations to Borrower, on the terms and conditions set forth in
this Agreement. (Unless otherwise indicated, all Section references
herein refer to provisions of this Agreement.)
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following words and phrases shall
have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Affiliate", as applied to any Person, means any other Person
directly or indirectly controlling, controlled by or under common
control with, that Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms
"controlling", "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting
securities, by contract or otherwise.
"Appraisal" means a written appraisal prepared by an MAI appraiser
acceptable to Lender in its sole discretion and subject to Lender's
customary independent appraisal requirements and prepared in
compliance with all applicable regulatory requirements, including,
without limitation, FIRREA.
"Appraised Value" means, as to any Property, the fair market value
of such Property as reflected in the then most-recent Appraisal of
such Property, as the same may have been adjusted by Lender based upon
its internal review of such Appraisal.
"Business Day" means any day excluding Saturday, Sunday and any
day which is a legal holiday under the laws of the State of
California, or which is a day on which banking institutions located in
the State of California are required or authorized by law or other
governmental action to close.
"Closing Date" means the date on which all of the conditions
precedent to Lender's obligations set forth in Section 3.01 shall have
been satisfied, as determined by Lender in its sole discretion, but in
no event later than January 15, 1997.
"Collateral" means, collectively, the Property, the Personal
Property and any other real or personal property in or upon which a
Lien is granted by Borrower, or as to which an assignment for security
purposes is made by Borrower from time to time, pursuant to this
Agreement, the Deeds of Trust or any other Loan Document.
"Contractual Obligation" as applied to any Person, means any
indenture, mortgage, deed of trust, lease, contract, undertaking,
document or instrument to which that Person is a party or by which it
or any of its properties is bound, or to which it or any of its
properties is subject (including, without limitation, any restrictive
covenant affecting such Person or any of its properties).
"Court Order" means any judgment, writ, injunction, decree, rule
or regulation of any court or Governmental Authority binding upon or
applicable to the Person in question.
"Debt Service" means, for the relevant one-year period, total
principal and interest due and payable on the Loan based upon a rate
of interest equal to the greater of (i) the Fixed Rate, or (ii) a rate
equal to two percent (2.00%) in excess of the then prevailing yield
(as published in The Wall Street Journal) for on-the-run (i.e., the
most recently auctioned) ten (10) year United States Treasury Notes,
as determined by Lender. In determining Debt Service, the outstanding
principal amount of the Loan shall be fully amortized over a twenty-
five year (25) term in equal monthly payments of principal and
interest.
"Debt Service Coverage Ratio" means the ratio of the Net Operating
Income for the relevant one-year period to Debt Service for the
relevant period.
"Deeds of Trust" mean, collectively, the Deeds of Trust,
Assignments of Rents, Security Agreements and Fixture Filings executed
and delivered by Borrower in favor of Lender pursuant to this
Agreement and encumbering all right, title and interest of Borrower in
the Property.
"Event of Default" means any of the events of default specified in
Section 7.01 of this Agreement.
"FIRREA" means the Financial Institutions Recovery, Reform and
Enforcement Act of 1989, as amended from time to time.
"Fixed Rate" means an interest rate equal to seven and one-half
percent (7.50%).
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board, or in
such other statements by such other entity as may be in general use by
significant segments of the accounting profession, which are
applicable to the circumstances as of the date of determination.
"Governmental Authority" means any federal, state or local
governmental or quasi-governmental agency, authority, board, bureau,
commission, department, instrumentality or public body, court,
administrative tribunal or public utility.
"Hazardous Substance" shall have the meaning given to it in the
Environmental Compliance Agreement of even date herewith executed by
Borrower in favor of Lender.
"Indebtedness", as applied to any Person, means (a) all
indebtedness, obligations or other liabilities of such Person with
respect to borrowed money created, incurred, assumed or guaranteed by
such Person, (b) all indebtedness, obligations or other liabilities of
such Person or others secured by a Lien on any asset of such Person,
whether or not such indebtedness, obligations or liabilities are
assumed by, or are a personal liability of, such Person (including,
without limitation, the principal amount of any assessment or similar
indebtedness encumbering any property), and (c) all other
indebtedness, obligations or other liabilities of such Person.
"Lease" means a lease, occupancy agreement or other agreement
creating possessory rights in all or any portion of a Property,
including any improvements included in a Property.
"Liabilities and Costs" means losses, costs, claims, damages,
liabilities and causes of action (including, without limitation, the
fees and costs of attorneys, expert witnesses and consultants, and the
cost of investigation and feasibility studies), direct or indirect,
known or unknown, absolute or contingent, post, present or future.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional
sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan" means the secured credit accommodation in the principal
amount of Twenty-Five Million Dollars ($25,000,000) which Lender has
agreed to provide to Borrower pursuant to this Agreement.
"Loan Documents" means this Agreement, the Note, the Deeds of
Trust, the Environmental Compliance Agreement, the Alternative Dispute
Resolution Agreement and the Agreement to Furnish Insurance, and all
other agreements, instruments and documents (together with all
amendments thereto and modifications and replacements thereof) now or
hereafter executed by Borrower, which evidence, guarantee or secure
the Obligations. Notwithstanding the inclusion of the Environmental
Compliance Agreement within the Loan Documents, all obligations of
Borrower under the Environmental Compliance Agreement shall at all
times be and remain unsecured.
"Major Agreement" means (a) any Lease covering more than 20,000
net rentable square feet, (b) any reciprocal easement agreement,
cross-parking or access agreement, covenants, conditions or
restrictions or other material agreement binding upon a Property, (c)
any management agreement with respect to a Property that (i) provides
for the payment of management fees in excess of five percent (5%) of
gross rents (including expense reimbursements accounted for as rent),
or (ii) is not terminable by Borrower (or any successor or assign of
Borrower) on not more than thirty days' prior written notice, and (d)
unless terminable by Borrower (or any successor or assign of Borrower)
on not more than thirty days' prior written notice: (i) any leasing
agreement with respect to a Property, and (ii) any other agreement,
contract or document or instrument material to the use, operation,
management or maintenance of a Property.
"Material Adverse Effect" means, with respect to a Person or
Property, a material adverse effect upon the business, the assets, the
condition (financial or otherwise), the income or the prospects of
such Person or Property, as determined by Lender.
"Net Operating Income" means the actual net cash flow derived by
Borrower from the relevant Property, before payment of principal and
interest under the Loan, as determined by Lender in its reasonable
discretion, and shall be further defined as follows: (i) the sum of
(A) stabilized and recurring cash rentals received by Borrower from
tenants occupying space in such Property; (B) cash reimbursements of
operating expenses, including real estate taxes and assessments and
premiums on casualty and liability insurance, received by Borrower
from such tenants; and (C) other normal and recurring operating income
received by Borrower from such Property and approved by Lender, less
(ii) all ownership and operating expenses of such Property, whether or
not recoverable from tenants, including, without limitation, real
estate taxes and assessments; premiums on casualty, liability and
other insurance carried by Borrower; utility, maintenance, repair,
janitorial, security, landscaping and general building costs and
expenses; and administrative costs and management fee.
"Note" means the Promissory Note Secured by Deeds of Trust of even
date herewith, in the aggregate principal amount of the Loan, executed
by Borrower in favor of Lender, as hereafter amended, supplemented,
replaced or modified.
"Obligations" means, from time to time, all Indebtedness of
Borrower owing to Lender (or any Person entitled to indemnification
pursuant to Section 8.02) pursuant to this Agreement or any other Loan
Document, or any of their respective transferees, successors or
assigns, of every type and description. The term includes, without
limitation, all principal, interest, charges, expenses, fees,
attorneys' fees and disbursements, expert witness fees and
disbursements, other consultant fees and disbursements, and any other
sum now or hereafter chargeable to Borrower under or in connection
with this Agreement or any other Loan Document.
"Person" means and includes any natural person, corporation,
limited partnership, general partnership, limited liability company,
joint stock company, joint venture, association, company, trust, bank,
trust company, land trust, business trust or other organization,
whether or not a legal entity, and any Governmental Authority.
"Personal Property" means the tangible and intangible personal
property of any Borrower in which Lender shall be granted a Lien
pursuant to the Deeds of Trust or any other Loan Document.
"Potential Event of Default" means a condition or event which
would constitute an Event of Default specified in Section 7.01 of this
Agreement following the giving of any notice and/or the passage of any
time period applicable to such condition or event.
"Property" means, collectively, the parcels of real property owned
by Borrower listed on Exhibit A attached hereto (subject to additions
and deletions in accordance with Sections 2.07 and 2.08), and more
particularly described in the Deeds of Trust under which Lender shall
be granted Liens pursuant to this Agreement.
ARTICLE II
LOAN
Section 2.01 Loan.
Subject to the terms of this Agreement, on the Closing Date,
Lender agrees to lend to Borrower and Borrower agrees to borrow from
Lender the principal sum of TWENTY-FIVE MILLION DOLLARS ($25,000,000);
said sum to be evidenced by the Note of even date herewith. The
Maturity Date under the Note is January 1, 2002. The Note shall be
secured by the Collateral. Notwithstanding any of the terms and
provisions of this Agreement or the Deeds of Trust, the Deeds of Trust
shall not secure the obligations of Borrower under the Environmental
Compliance Agreement.
Section 2.02
Use of Loan Proceeds. Amounts disbursed to or on behalf of Borrower
pursuant to the Note shall be used to leverage Borrower's prior
acquisition of the Property listed on Exhibit A hereto (for which cash
was previously paid).
Section 2.03
Debt Service on the Loan; Disqualification of the Property.03 Debt Service on
the Loan; Disqualification of the Property.
(a) Interest shall accrue on the Loan at the Fixed Rate, as
provided in the Note, and principal and interest shall be paid by
Borrower in the amounts and at the times provided for in the Note, all
the terms and provisions of which are fully incorporated into this
Agreement. The monthly amortization required under the Note will be
recalculated in the event of any prepayment of principal thereunder.
(b) Upon the occurrence of:
(i) a material uninsured casualty affecting any Property;
or
(ii) a (A) taking by any public authority through
condemnation, eminent domain or otherwise, or (B) casualty in
respect of which Borrower maintains insurance, in either such
case, if the improvements located on the affected Property
cannot be repaired or restored within nine (9) months after the
date of such taking or casualty to substantially the same
condition as that existing prior to such taking or casualty at a
cost that does not exceed the sum of (1) the net condemnation
award or insurance proceeds payable to Borrower with respect
thereto, plus (2) such additional amount for which Borrower
provides Lender with adequate security as to the availability of
funds for application to such restoration and/or repair; or
(iii) the discovery of any material Hazardous Substances
on any Property;
Lender may, in its sole discretion, determine to disqualify such
Property as Collateral for the Loan by written notice to Borrower.
Not later than ninety (90) days following delivery by Lender to
Borrower of such written notice of disqualification, Borrower shall
either (i) comply with all conditions applicable to a voluntary
release of such disqualified Property (including payment of the
applicable Release Price) as set forth in Section 2.07, or (ii) cause
a New Property to be substituted for such disqualified Property in
compliance with the requirements of Section 2.08.
Section
2.04 No Revolving Loan. The Loan is not a revolving loan, and
amounts repaid from time to time may not be reborrowed.
Section
2.05 Fees
(a) Loan Fee. On the Closing Date, Borrower shall pay to
Lender a loan fee in an amount of Two Hundred Fifty Thousand Dollars
($250,000), less any amount previously paid by Borrower to Lender
under the November 6, 1996 letter from Lender to Borrower. Borrower
hereby authorizes Lender to disburse on the Closing Date a portion of
the proceeds of the Loan in such amount directly to Lender in payment
of such loan fee.
(b) Payment of Fees. The fees described in this Section
2.05 and in any other provision of this Agreement represents
compensation for services rendered and to be rendered separate and
apart from the lending of money or the provision of credit and do not
constitute compensation for the use, detention or forbearance of
money, and the obligation of Borrower to pay the fees described herein
shall be in addition to, and not in lieu of, the obligation of
Borrower to pay interest, other fees and expenses otherwise described
in this Agreement or any other Loan Documents. Such fees shall be
payable when due in immediately available funds and shall be non-
refundable when paid.
Section
2.06 Payments.
(a) Manner and Time of Payment. All payments of principal,
interest and fees hereunder payable to Lender shall be made without
condition or reservation of right and free of set-off or counterclaim,
in immediately available funds, delivered to Lender not later than
2:00 p.m. (San Francisco, California time) on the date due; and funds
received by Lender after that time and date shall be deemed to have
been paid on the next succeeding Business Day.
(b) Prepayments. Borrower may at any time and from time to time
prepay all or any portion of the outstanding principal balance of the
Loan; provided, however, that, upon any such prepayment, Borrower
shall pay to Lender a prepayment fee (the "Prepayment Fee") equal to
the discounted present value of the excess, if any, of (i) the
interest that would have accrued on the prepaid amount from the
prepayment date to the Maturity Date under the Note, over (ii) the
interest that would accrue on such amount over such period using a per
annum interest rate equal to one and forty one-hundredths percent
(1.40%) plus the then prevailing yield (as published in The Wall
Street Journal) on United States Treasury Notes having a time to
maturity closest to the remaining term of the Loan, as determined by
Lender; provided further, however, that in no event shall the
Prepayment Fee be less than twenty-five one hundredths percent (0.25%)
of the amount prepaid in the case of any prepayment made prior to the
second anniversary of the Closing Date. In no event shall Lender be
obligated to make any payment or refund to Borrower, nor shall
Borrower be entitled to any setoff or other claim against Lender,
should the Prepayment Fee be less than zero. In addition to the
foregoing voluntary prepayments of principal under the Note, the
Prepayment Fee shall also be due and owing in the case of any
involuntary prepayment of principal under the Note as a consequence of
acceleration under the Note, application of proceeds of foreclosure
upon any Collateral, or otherwise. Notwithstanding the foregoing, the
Prepayment Fee shall not be due in connection with any prepayment
effected with insurance or condemnation proceeds pursuant to Lender's
election to require that such proceeds be so applied.
Section 2.07 Release of Property. Provided that no Event of Default or
Potential Event of Default then exists, at Borrower's written request
from time to time Lender shall cause a Property to be released from
the Lien of the Deed of Trust encumbering such Property, upon
satisfaction of the following conditions precedent:
(a) Borrower shall provide Lender with written notice of
Borrower's request for a release of a Property not less than thirty
(30) days prior to the date on which Borrower desires such release to
become effective;
(b) Borrower shall represent and warrant to Lender that (i)
no Event of Default or Potential Event of Default exists as of the
date of such release, and (ii) there has been no declared event of
default under Borrower's line of credit agented by Bank of America
NT&SA (or any successor facility) as of the date of such release;
(c) For the Property to be released, Lender shall have been
paid an amount equal to the release price allocable to such Property
as shown on Exhibit A hereto (the "Release Price"); provided, however,
that Borrower shall have the right to prepay additional outstanding
principal under the Loan in order to comply with subparagraph (d)
and/or subparagaph (e) below;
(d) The Debt Service Coverage Ratio applicable to the
Property remaining subject to the Lien of the Deeds of Trust shall be
equal to or greater than 1.3:1 as of the date of such release; in
calculating such Debt Service Coverage Ratio, (i) Net Operating Income
shall be calculated with reference to the Property remaining subject
to the Lien of the Deeds of Trust following the requested release,
(ii) the outstanding principal under the Loan shall reflect the
prepayment of principal required under subparagraph (c) above, and
(iii) Net Operating Income shall be determined by Lender on the basis
of the one-year ended as of the most recent calendar quarter for which
the Lender shall have received operating statements for such Property;
(e) In connection with (i) the first requested release of
Property for which the Release Price, when aggregrated with the
Release Prices for all Property previously released, would exceed
$6,250,000, and (ii) each requested release of Property thereafter:
(1) Lender shall have the right, in its sole discretion, to conduct
Appraisals of any or all of the Property that will remain part of the
Collateral following the requested release, and (2) the outstanding
principal balance of the Loan, immediately after giving effect to such
requested release (taking into account all prepayments to be effected
in connection therewith, and whether or not Lender has conducted new
Appraisals of any Property), shall not exceed sixty-five percent (65%)
of the aggregate Appraised Value of all such remaining Property; and
(f) Lender shall have been paid the applicable Prepayment
Fee, if any, with respect to all principal repaid pursuant to
subparagraph (c) above (including any amount prepaid in order to
comply with subparagraph (d) and/or subparagaph (e) above), together
with all escrow, closing and recording costs, the costs of preparing
and delivering a reconveyance of the Deed of Trust encumbering
released Property, and the costs of any title insurance endorsements
required by Lender.
Section 2.08 Substitution of Property. Provided that no Event of Default
or Potential Event of Default then exists, Borrower shall have the
right to substitute (a "Substitution") one of the Properties listed on
Exhibit A (the "Old Property") with other real property owned by
Borrower (the "New Property"), upon satisfaction of the following
conditions precedent:
(a) Approval by Lender of the New Property in its sole discretion,
including all matters pertaining thereto as referred to in Section
3.01(b); without limiting the foregoing, Borrower shall provide Lender
with any and all leases, financial statements, tenant credit reports,
rent rolls, preliminary title reports, licenses, permits and any other
documents, instruments or reports requested by Lender relating to the
New Property;
(b) Borrower shall make no more than (i) three (3) Substitutions
during the term of the Loan nor (ii) one (1) Substitution during any
one calendar year; provided, however, that a Substitution pursuant to
Section 2.03(b) shall not constitute a "Substitution" for purposes of
this Section 2.08(b);
(c) Borrower shall provide Lender with written notice of Borrower's
request for a Substitution not less than ninety (90) days prior to the
date on which Borrower desires such Substitution to become effective;
(d) The Net Operating Income attributable to the New
Property shall be equal to or greater than the Net Operating Income of
the Old Property, in each case for the one-year period ended as of the
most recent calendar quarter for which Lender has received operating
statements for each such Property;
(e) The then Appraised Value of the New Property shall be
equal to or greater than the original Appraised Value of the Old
Property;
(f) Lender shall have been paid a fee of twenty one-
hundredths of one percent (0.20%) multiplied by the Release Price
applicable to the Old Property as shown on Exhibit A hereto, together
with all appraisal, escrow, closing and recording costs, the costs of
preparing and delivering a reconveyance of the Deed of Trust
encumbering the Old Property, the costs of any title insurance
endorsements required by Lender, the costs of preparing and recording
a Deed of Trust to encumber the New Property, title insurance with
respect to the New Property acceptable to Lender, and all other costs
and expenses incurred by Lender in the connection with the
Substitution; and
(g) Borrower shall represent and warrant to Lender that (i)
no Event of Default or Potential Event of Default exists as of the
date of such Substitution, and (ii) there has been no declared event
of default under Borrower's line of credit agented by Bank of America
NT&SA (or any successor facility) as of the date of the such
Substitution.
The Release Price applicable to the Old Property as shown on Exhibit A
hereto shall be the applicable Release Price for the New Property.
Each Deed of Trust and other document or instrument executed and
delivered by Borrower in connection with the addition of the New
Property as Collateral shall constitute a Loan Document.
Section 2.09 Limitation on Borrower's Liability.09 Limitation on
Borrower's Liability. Lender's recovery
against Borrower under the Loan Documents shall be limited solely to
the Collateral (including all rents, issues, profits and income
therefrom and proceeds thereof) given to Lender as security for
Borrower's performance under the Loan Documents, and such recovery
shall not be a lien, or the basis of a claim of lien or levy of
execution, against the general assets of Borrower. Notwithstanding
the foregoing, Borrower and the general assets of Borrower shall be
fully and personally liable to Lender to the same extent that Borrower
would be liable absent the foregoing limitation of this paragraph for:
(a) fraud, willful misrepresentation, gross negligence or waste, to
the full extent of Lender's loss attributable thereto;
(b) failure to pay taxes, assessments or other charges attributable to
Borrower which can create liens on any portion of the Collateral
senior in priority to the lien of the Deed of Trust encumbering the
affected Collateral, including mechanic's liens, stop notices or
contractor's liens (to the full extent of any such taxes, assessments
or other charges);
(c) any loss which would have been covered by any policy of insurance
that Borrower is required to maintain, but failed to maintain, under
this Agreement or any of the other Loan Documents;
(d) tenant security deposits held by Borrower upon foreclosure of the
subject Property;
(e) any inaccuracy in or breach of any representation or warranty
pertaining to any Hazardous Substance or any failure in the due,
prompt and complete observance and performance of any covenant or any
other obligation imposed upon Borrower under or pursuant to the
Environmental Compliance Agreement;
(f) retention of any rents or other income, insurance proceeds,
condemnation or eminent domain awards or other similar funds or
payments attributable to any Collateral which, under the terms of any
Loan Document, should have been paid to Lender;
(g) the full amount of the Loan and all other obligations evidenced or
secured by the Loan Documents, in the event of any transfer of all or
any part of the Property without Lender's prior written approval; or
(h) all costs and expenses (including, without limitation,
attorneys' fees) incurred by Lender in enforcing its rights and
remedies under the Loan Documents subsequent to any of the following:
(i) an Event of Default under Section 7.01(e) below; (ii) an Event of
Default under Section 7.01(d) if the filing is made against Borrower
by any third party which was solicited or induced to do so by
Borrower; or (iii) after the occurrence of any Event of Default under
7.01(d) or 7.01(e): (A) any objection by Borrower to (1) any request
by Lender for the dismissal of any proceeding referred to in Section
7.01(d) or 7.01(e); (2) any attempt by Lender to obtain relief from
the automatic stay; or (3) any attempt by Lender to secure the
continuation of any receiver appointed pre-petition or to obtain
control, directly or through a receiver, of the rents, issues and
profits of any Property; (B) any request by Borrower for authority to
use cash collateral over Lender's objection; (C) any action brought by
Borrower or on its behalf against Lender; (D) any request by Borrower
to sell Collateral over Lender's objection; or (E) Borrower's taking
of any position adverse to Lender with respect to any plan of
reorganization proposed in any such proceedings.
The limitations of this Section 2.09 shall not be deemed to limit:
(i) any right Lender might otherwise have to obtain injunctive relief
against Borrower; (ii) any suit or action in connection with the
preservation, enforcement or foreclosure of the liens, mortgages,
assignments and security interests now or at any time hereafter
securing the payment and performance of the Obligations; or (iii) the
collection of amounts which may become owing or payable under or on
account of insurance, condemnation awards or damages for other public
actions or surety bonds maintained or provided by Borrower. In
addition, nothing herein shall be deemed to constitute a waiver of any
obligation evidenced by the Loan Documents, nor limit, amend, alter or
diminish any right which Lender may have under the provisions of
Sections 506(a), 506(b), 1111(b) or any other provision of the
Bankruptcy Reform Act of 1978, or any successor statute thereto, or
any similar provision under applicable state law, to file a claim for
the full amount of the Obligations or to require that all Collateral
shall continue to secure the Loan owing to Lender in accordance with
the Loan Documents.
ARTICLE III
CONDITIONS TO LOAN
Section
3.01 Conditions to Disbursement of Loan. The obligation of
Lender to make the Loan shall be subject to satisfaction of each of
the following conditions precedent on or before the Closing Date:
(a) Loan Documents. Borrower shall have executed,
acknowledged (if appropriate) and delivered to Lender each of the
following, in form and substance acceptable to Lender:
(i) this Agreement;
(ii) the Note;
(iii) the Deeds of Trust (which shall be executed
and acknowledged by Borrower as to each Property listed on
Exhibit A hereto);
(iv) UCC-1 Financing Statements with respect to
the Liens on the Personal Property granted under the Deeds
of Trust;
(v) each other Loan Document, including, without
limitation, the Environmental Compliance Agreement; and
(vi) all other documents, instruments or other items
to be executed and/or delivered by or on behalf of Borrower
pursuant to this Agreement or as Lender shall otherwise
require.
(b) Property Documents. Lender shall have received the
following documents with respect to each Property, in form and
substance acceptable to Lender:
(i) an Appraisal;
(ii) an ALTA Loan Policy of Title Insurance in the
amount of the Commitment (but with title insurance coverage
afforded thereby aggregated with the title insurance coverage
under the ALTA Loan Policy of Title Insurance for each other
Property by means of an appropriate tie-in indorsement),
issued by a title insurance company acceptable to Lender,
insuring Lender that the Deed of Trust encumbering such
Property constitutes a valid first priority Lien upon such
Property, subject only to such title exceptions as Lender
shall approve in its sole discretion, with such additional
endorsements, with such reinsurance and reinsurers and
otherwise in such form and substance as shall be acceptable to
Lender;
(iii) (A) Lessee Estoppel Certificates, in form and
substance approved by Lender, executed by each tenant marked
with an asterisk on Exhibit B hereto, (B) a Subordination and
Nondisturbance and Attornment Agreement from The Boeing
Company, and (C) to the extent obtained by Borrower on or
before the Closing Date: Lessee Estoppel Certificates
executed by other tenants shown Exhibit B, each of which shall
be in form and substance approved by Lender;
(iv) an environmental assessment for such Property,
prepared by an environmental consultant acceptable to Lender,
and satisfactory evidence that such Property is in compliance
with all laws and regulations is pertaining to Hazardous
Substances; and
(v) such other documents with respect to such
Property as are required pursuant to this Agreement or as
Lender shall otherwise require.
(c) Corporate Documents. Lender shall have received such
corporate documents with respect to Borrower as Lender shall require,
including evidence of authorization and incumbency of all Persons
executing the Loan Documents on behalf of Borrower.
(d) Performance. Borrower shall have performed in all
material respects all agreements and covenants to be performed by them
under this Agreement or the other Loan Documents on or before the
Closing Date.
(e) Material Adverse Changes. No change in Borrower or any
Property, as determined by Lender, shall have occurred which has a
Material Adverse Effect.
(f) Litigation, Other Proceedings. There shall not have
been instituted or threatened any litigation or proceeding in any
court or by or before any Governmental Authority affecting or
threatening to affect Borrower or any Property which has a Material
Adverse Effect, as determined by Lender.
(g) Perfection of Liens. All Deeds of Trust and financing
statements shall have been recorded or filed, as applicable, and
Lender shall have a valid, perfected first priority Lien on all of the
Property, the Personal Property and any other Collateral.
(h) No Event of Default. On the Closing Date, no Event of
Default or Potential Event of Default shall exist.
(i) Fees. On the Closing Date, Lender shall have received
the loan fee described in Section 2.05(a) and any other fees or other
amounts then due to Lender under this Agreement and the other Loan
Documents, and all expenses of Lender incurred prior to the Closing
Date (including without limitation all attorneys' and appraisers'
fees, environmental review costs and market study costs) shall have
been paid by Borrower.
(j) Consents and Approvals. Any licenses, permits,
consents and approvals of Governmental Authorities, and all corporate
action necessary to enable Borrower to enter into the financing
transactions contemplated by this Agreement shall have been obtained
and/or taken by Borrower (including, without limitation, any required
consents of shareholders).
(k) Insurance. Lender shall have received evidence that
Borrower has, with respect to the Collateral, property, casualty and
liability insurance satisfactory to Lender and issued by insurance
companies acceptable to Lender, and loss payable endorsements in form
and substance satisfactory to Lender naming Lender as loss payee with
respect to property and casualty insurance shall have been executed
and delivered to Lender, together with such certificates of insurance
and binders as are requested by Lender naming Lender as additional
insured with respect to liability insurance.
(l) Due Diligence. Lender shall have obtained and
completed its review of Appraisals of the Property and determination
of Appraised Values therefor and its review of the other Collateral,
and Lender shall have completed such other due diligence
investigations as it deems necessary, and such review and
investigations shall provide Lender with results and information
which, in Lender's determination, are satisfactory to permit Lender to
enter into this Agreement and fund the Loan.
(m) Representations and Warranties. All representations
and warranties of Borrower contained in this Agreement or the other
Loan Documents shall be true and correct in all material respects.
(n) Opinion(s) of Counsel. Lender shall have received an
opinion or opinions of counsel for Borrower dated as of the Closing
Date as to such matters as Lender shall require, in form and substance
satisfactory to Lender and its counsel.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01 Representations and Warranties. In order to induce
Lender to make the Loan, Borrower hereby represents and warrants to
Lender as follows as of the Closing Date:
(a) Organization; Power. (i) Borrower is a corporation,
duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its organization, (ii) is duly qualified
to do business in and is in good standing under the laws of each
jurisdiction other than California in which it owns or leases real
property or in which the nature of its business requires it to be so
qualified, except for those jurisdictions where failure to so qualify
and be in good standing would not have a Material Adverse Effect on
Borrower, and (iii) has all requisite corporate power and authority to
own, operate and encumber its property and assets and to conduct its
business as presently conducted and as proposed to be conducted in
connection with and following the consummation of the Loan
contemplated by the Loan Documents. Borrower has heretofore provided
to Lender true, correct and complete copies of the formation and other
organizational documents, and all amendments thereto, of Borrower; all
such formation and other organizational documents remain in full force
and effect and have not been amended or modified since the date on
which copies thereof were delivered to Lender.
(b) Authority. Borrower has the requisite legal, corporate
power and authority to execute, deliver and perform each of the Loan
Documents. The execution, delivery and performance thereof, and the
consummation of the transactions contemplated thereby, have been duly
authorized by all requisite corporate action of Borrower, and no other
corporate proceedings or authorizations on the part of Borrower are
necessary to consummate such transactions. Each of the Loan Documents
has been duly executed and delivered by Borrower and constitutes its
legal, valid and binding obligation, enforceable against it in
accordance with its terms, subject to bankruptcy, insolvency and other
laws affecting creditors' rights generally.
(c) No Conflict. The execution, delivery and performance
by Borrower of the Loan Documents, and the transactions contemplated
thereby, do not and will not (i) conflict with or violate Borrower's
articles of incorporation, by-laws, or other organizational documents,
or (ii) conflict with, result in a breach of or constitute (with or
without notice or lapse of time or both) a default under any (A)
Contractual Obligation, (B) statute, ordinance, rule or regulation of
any Governmental Authority applicable to Borrower, the Property or its
other properties or assets or (C) Court Order, or (iii) result in or
require the creation or imposition of any Lien whatsoever upon any of
the properties or assets of Borrower (other than Liens in favor of
Lender arising pursuant to the Loan Documents).
(d) Consents and Authorizations. Borrower has obtained all
consents and authorizations required pursuant to its Contractual
Obligations with any other Person, and shall have obtained all
consents and authorizations of, and effected all notices to and
filings with, any Governmental Authority, as may be necessary to allow
Borrower to lawfully execute, deliver and perform its obligations
under the Loan Documents.
(e) Financial Statements. Borrower has heretofore
furnished to Lender its financial statements. Such financial
statements and related schedules and reports have been prepared in
accordance with GAAP, are true, correct and complete and present
fairly and accurately the financial condition of Borrower as of the
dates and the for periods indicated. There has been no change that
would have a Material Adverse Effect on Borrower, or the ability of
Borrower to perform its obligations under the Loan Documents, since
the date of such financial statements. There are no known material
unrealized or anticipated losses of Borrower.
(f) Projections and Forecasts. Each of the projections
delivered to Lender has been prepared by Borrower in light of the past
business and performance of Borrower and represents the reasonable
good faith estimates of Borrower's financial personnel.
(g) Litigation; Adverse Effects.
(i) There is no action, suit, proceeding,
governmental investigation or arbitration, at law or in
equity, or before or by any Governmental Authority, pending
or, to the best of Borrower's knowledge, threatened against
Borrower or any Property which could (A) result in a Material
Adverse Effect on Borrower or any Property, or (B) materially
and adversely affect the ability of Borrower to perform its
obligations contemplated in the Loan Documents.
(ii) Borrower is not (A) in violation of any
applicable law, which violation would have a Material Adverse
Effect on Borrower or any Property, or (B) subject to or in
default with respect to any Court Order which would have a
Material Adverse Effect on Borrower or any Property. There
are no proceedings pending or, to the best of Borrower's
knowledge, threatened against Borrower or any Property, which,
if adversely decided, would have a Material Adverse Effect on
Borrower or any Property.
(h) Payment of Taxes. All tax returns and reports to be
filed by Borrower have been timely filed, and all taxes, assessments,
fees and other governmental charges shown on such returns or otherwise
payable by Borrower have been paid when due and payable, except such
taxes, if any, as are being contested in good faith by appropriate
proceedings, and subject to such extensions of the filing and/or due
date thereof as Borrower shall have obtained. Borrower has no
knowledge of any proposed tax assessment against Borrower that will
have a Material Adverse Effect on Borrower, which is not being
actively contested in good faith by Borrower.
(i) Material Adverse Agreements. Borrower is not a party
to or subject to any Contractual Obligation or to any restriction
contained in its organizational documents which has a Material Adverse
Effect on Borrower.
(j) Performance.
(i) Borrower is not in default in the performance,
observance or fulfillment of any Contractual Obligation of
Borrower in favor of Bank of America NT & SA.
(ii) Borrower is not in default in the performance,
observance or fulfillment of any Contractual Obligation of
Borrower in favor of any other Person, and no condition exists
which, with the giving of notice or the passage of time or both,
would constitute such a default, in each case, except where the
consequences, direct or indirect, of such default or defaults, if
any, will not have a Material Adverse Effect on Borrower.
(k) Disclosure. The representations and warranties of
Borrower contained in this Agreement and the other Loan Documents and
all certificates, financial statements and other documents delivered
to Lender in connection therewith, do not contain any untrue statement
of a material fact or omit to state a material fact necessary in order
to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. All
organizational documents, financial statements, Leases, agreements and
other documents and instruments delivered by Borrower to Lender
pursuant to this Agreement and the other Loan Documents are true,
correct and complete copies of the originals. Borrower has not
intentionally withheld any material fact from Lender in regard to any
matter addressed in or material to the Loan Documents.
(l) Requirements of Law. Borrower is in compliance with
all statutes, ordinances, rules and regulations of Governmental
Authorities applicable to Borrower or to the Property (including,
without limitation, the Americans with Disabilities Act of 1990, 42
U.S.C. 12101, et seq.), in each case, where the failure to so
comply will have a Material Adverse Effect on Borrower.
(m) Major Agreements; Leases. With respect to each
Property, Lender has received true, complete and correct copies of
each Major Agreement. All such Major Agreements are in full force and
effect and have not been modified or terminated, and no default or
event of default (or event or occurrence which with the passage of
time or the giving of notice, or both, will constitute a default or
event of default) exists or will exist under such Major Agreements as
a result of the consummation of the transactions contemplated by the
Loan Documents. Lender has also received true, correct and complete
copies of all Leases currently in effect and of the form lease, as
applicable, used for each Property. Except as reflected on the most
current rent rolls delivered to Lender, all Leases are in full force
and effect and no default or event or default (or event or occurrence
which with the passage of time or the giving of notice, or both, will
constitute a default or event of default) exists or will exist
thereunder as a result of the consummation of the transactions
contemplated by the Loan Documents. Other than the Leases provided to
Lender, there are no leases, occupancy agreements or other possessory
rights relating to the maintenance, occupancy, use or operation of any
of the Properties which are not terminable by Borrower upon thirty
(30) days or less notice, with penalty or premium.
(n) Title to Assets; No Liens. Borrower has good,
indefeasible and merchantable title to the Collateral and to all other
properties and assets owned by Borrower, and all of the Collateral is
free and clear of all Liens, except for any Liens permitted by Lender.
(o) Location of Borrower. Borrower's place of business
(or, if the Borrower has more than one place of business, its chief
executive office) is located at the address listed under Borrower's
signature on this Agreement.
(p) Status as a REIT. The Borrower (i) is a real estate
investment trust as defined in Section 856 of the Internal Revenue
Code (the "Code") (or any successor provision thereto), (ii) has not
revoked its election to be a real estate investment trust, (iii) has
not engaged in any "prohibited transactions" as defined in Section
856(b)(6)(iii) of the Code (or any successor provision thereto), and
(iv) for its current "tax year" (as defined in the Code) is and for
all prior tax years subsequent to its election to be a real estate
investment trust has been entitled to a dividends paid deduction which
meets the requirements of Section 857 of the Code.
(q) NYSE Listing. The common stock of Borrower is listed
for trading and traded on the New York Stock Exchange.
ARTICLE V
REPORTING COVENANTS
Borrower covenants and agrees that, on and after the Closing Date and
until payment in full of the Obligations and the termination of this
Agreement:
Section 5.01 Financial Statements and Other Financial and
Operating Information. Borrower shall deliver or cause to be
delivered to Lender:
(a) Quarterly Property Statements. As soon as practicable,
and in any event within twenty (20) days after the end of each
calendar quarter, operating statements for each Property in a form
approved by Lender, and rent rolls and lease status reports in the
form customarily generated by Borrower for such Property, or other
form required by Lender, dated as of the last day of such quarter, in
form and substance satisfactory to Lender, certified by the Borrower.
(b) Quarterly Financial Statements. Within thirty (30)
days after the close of each calendar quarter, quarterly financial
statements of Borrower, consisting of a balance sheet, income
statement and statement of sources and uses of funds, together with
related schedules and supporting reports, when applicable. Such
financial statements shall be prepared in accordance with GAAP and
shall be accompanied by a certificate executed by the chief financial
officer of Borrower certifying the completeness, fairness and
consistency thereof without qualification or limitation.
(c) Annual Financial Statements. Within ninety (90) days
after the close of each calendar year, annual audited financial
statements of Borrower, consisting of a balance sheet, income
statement and statement of sources and uses of funds, together with
related schedules and supporting reports, when applicable. Such
financial statements shall be prepared in accordance with GAAP and
shall be accompanied by a certificate executed by Borrower's
independent public accountant certifying the completeness, fairness
and consistency thereof without qualification or limitation.
(d) Cash Flow Projections. Not later than thirty (30) days
prior to the end of each calendar year, a projection of Borrower
detailing expected sources and uses of funds from the Property for the
next calendar year, as well as cumulative actual cash flow statements
for the immediately preceding twelve (12)-month period, accompanied by
a certificate executed by the chief financial offficer of Borrower
certifying (i) as to the completeness, fairness and consistency of
such cash flow statements, and (ii) that such projection has been
prepared by Borrower in light of the past business and performance of
Borrower and represents the reasonable good faith estimates of
Borrower's financial personnel. With respect to the foregoing cash
flow statements, Borrower shall provide such additional supporting
details as Lender shall reasonably request.
(e) Knowledge of Event of Default. Promptly upon Borrower
obtaining knowledge of (i) any condition or event which constitutes an
Event of Default or Potential Event of Default, or (ii) any condition
or event which has a Material Adverse Effect on Borrower or any
Property, written notice specifying the nature and period of existence
of any such condition or event and what action Borrower has taken, is
taking and proposes to take with respect thereto. Each delivery of
quarterly financial statements by Borrower pursuant to subparagraph
(b) above shall be deemed to constitute a representation and warranty
by Borrower that there then exists no Event of Default or Potential
Event of Default, unless the same shall be qualified pursuant to a
written notice delivered with such financial statements in accordance
with this subparagraph (e).
(f) Litigation, etc. Promptly upon Borrower obtaining
knowledge of (i) the institution of, or threat of, any material
action, suit, proceeding, governmental investigation or arbitration
against or affecting Borrower or any Property not previously disclosed
in writing by Borrower to Lender pursuant to this Agreement, including
any casualty or eminent domain or other condemnation proceeding
affecting any Property, or (ii) any material development in any
action, suit, proceeding, governmental investigation or arbitration
already disclosed, which, in either case, has a Material Adverse
Effect on Borrower or any Property, written notice thereof to Lender
and such other information as may be reasonably available to Borrower
to enable Lender and its counsel to evaluate such matters.
(g) Election to Terminate Status as a REIT. Promptly upon
Borrower's election to revoke its election to be a real estate
investment trust (which election shall be made only upon the basis of
a resolution of Borrower's Board of Directors finding that it would be
in Borrower's best interests to revoke such election), written notice
thereof to Lender of such election.
(h) Other Information. Such other information, reports,
contracts, schedules, lists, documents, agreements and instruments in
the possession of Borrower with respect to (i) the Collateral, or (ii)
Borrower's business, assets, condition (financial or otherwise),
income or prospects as Lender may from time to time reasonably
request, including, without limitation, annual information with
respect to cash flow projections, budgets, operating statements
(current year and immediately preceding year), rent rolls, lease
expiration reports, leasing status reports, equity funding
requirements, contingent liability summaries, projections of leasing
fees and overhead budgets.
ARTICLE VI
OTHER COVENANTS
Borrower covenants and agrees that, on and after the Closing Date and
until payment in full of the Obligations and the termination of this
Agreement:
Section 6.01 Existence, etc. Borrower shall at all times
maintain its corporate existence and shall do or cause to be done all
things necessary to preserve and keep in full force and effect its
rights to do business in, and shall remain in good standing in, each
jurisdiction in which the character of the properties owned or leased
by it therein or in which the transaction of its business makes such
qualification necessary. In addition, Borrower shall take such
actions as may be required to ensure that Borrower's common stock is
at all times listed for trading and traded on the New York Stock
Exchange, the American Stock Exchange, or the Nasdaq National Markets
System.
Section 6.02 Taxes. (i) Borrower shall pay and discharge all
taxes, assessments and other governmental charges assessed against or
imposed upon any Property or other properties or assets of Borrower
prior to the date on which any penalty or interest accrues thereon;
and (ii) Borrower shall pay and discharge all claims (including,
without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law
have or may become a Lien upon any Property or other properties or
assets of Borrower, prior to the time when any penalty or fine shall
be incurred with respect thereto; provided, however, that each of the
foregoing covenants shall be subject to the right of Borrower to
contest such taxes, assessments, other governmental charges and claims
in good faith by appropriate proceedings, and subject to such
extensions of the filing or due date thereof as Borrower shall have
obtained.
Section 6.03 Insurance. Borrower shall maintain with respect to
the Property such property, casualty and liability insurance in such
amounts, with such forms of coverage and with such insurance companies
as Lender shall from time to time require in accordance with the
provisions of the Deeds of Trust. In addition, Borrower shall file
with Lender, from time to time upon Lender's request, a detailed list
of the insurance then in effect and stating the names of the insurance
companies, the amounts and rates of the insurance, deductibles and co-
insurance features, if any, dates of the expiration thereof and the
properties and risks covered thereby.
Section 6.04 Compliance with Law. Borrower shall comply with
all statutes, ordinances, rules and regulations of Governmental
Authorities applicable to the Property, and Borrower shall obtain as
needed all licenses, permits and approvals of Governmental Authorities
necessary for Borrower's operation of the Property and maintain such
permits, licenses and approvals in good standing.
Section 6.05 Inspection of Properties; Books and Records.
Borrower shall permit any authorized representative designated by
Lender to visit and inspect any Property upon reasonable prior notice,
to inspect financial and accounting records and Leases, and to make
copies and take extracts therefrom, all at such times during normal
business hours and as often as Lender may reasonably request.
Section 6.06 Conduct of Business. Borrower shall engage
principally in the business of direct ownership, operation and
development of suburban office and industrial properties of the
general type owned by Borrower as of the Closing Date in the Western
United States, and any other business activities of Borrower will
remain incidental thereto.
Section 6.07 Tenant Estoppel Certificates; Subordination,
Nondisturbance and Attornment Agreements. Borrower shall exercise due
diligence to obtain as expeditiously as possible Tenant Estoppel
Certificates and Subordination, Nondisturbance and Attornment
Agreements, in form and substance approved by Lender, with respect to
all tenants listed on Exhibit B hereto, to the extent Borrower did not
obtain the same prior to the Closing Date.
Section 6.08 Leases; Major Agreements. Borrower shall at all
times comply with all obligations imposed upon it under all Leases
constituting Major Agreements and under all other Major Agreements,
and shall not enter into any such Lease or other Major Agreement
without Lender's prior written consent, which shall not be
unreasonably withheld or delayed. Borrower shall not enter into any
Lease, whether or not such Lease constitutes a Major Agreement, that
does not contain provisions pursuant to which the tenant thereunder
agrees to attorn to a mortgagee in the event of a foreclosure, subject
only to customary conditions.
Section 6.09 Chief Executive Office. Borrower shall not
relocate its place of business (or, if Borrower has more than one
place of business, its chief executive office), except upon prior
written notice to Lender.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.01 Events of Default. Each of the following events or
occurrences shall constitute an Event of Default under this Agreement:
(a) Payment. Borrower shall fail to pay any installment of
the principal of or interest on the Loan when and as the same shall
become due and payable, whether on the due date thereof, by
acceleration or otherwise, or Borrower shall fail to make payment of
any other amount payable under this Agreement or the other Loan
Documents when and as the same shall become due and payable, and any
such failure shall continue for a period of five (5) days following
written notice thereof from Lender to Borrower; provided, however,
that following the first occasion during each year of the term of the
Loan for which Lender shall have given to Borrower such written notice
of Borrower's failure to pay any such amount when due and payable,
Borrower's failure to pay when due and payable any such amount shall
constitute an Event of Default without the requirement of any notice
from Lender.
(b) Other Covenants. Borrower shall fail to perform any
other covenant or obligation to be performed by Borrower under this
Agreement or any other Loan Document, including, without limitation,
the Environmental Compliance Agreement, and such failure shall
continue for thirty (30) days after written notice thereof from Lender
to Borrower specifying the failure and demanding that Borrower remedy
the same; provided, however, that if (i) Lender determines in good
faith that such failure can be cured within ninety (90) days, (ii) no
lien or security interest created by the Loan Documents will be
impaired, and (iii) Borrower diligently commences to cure such failure
within thirty (30) days after the date of Lender's notice and
thereafter diligently prosecutes such cure, such failure shall not
constitute an Event of Default unless it continues for ninety (90)
days after Lender's initial notice.
(c) Representations and Warranties. Any representation or
warranty made by Borrower in this Agreement or in the other Loan
Documents, or in any certificate, document or instrument furnished in
connection with this Agreement or the transactions contemplated
hereby, shall prove to have been false or misleading in any material
respect when made.
(d) Involuntary Bankruptcy; Appointment of Receiver.
(i) An involuntary case shall be commenced against
Borrower and the petition shall not be dismissed within thirty
(30) days after commencement of the case, or a court having
jurisdiction shall enter a decree or order for relief in
respect of Borrower in an involuntary case, under any
applicable bankruptcy, insolvency or other similar law now or
hereinafter in effect; or
(ii) A decree or order of a court for the
appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers shall be
entered against Borrower or over all or a substantial part of
the property of Borrower; or a warrant of attachment,
execution or similar process against any substantial part of
the property of Borrower shall be issued and the same shall
not be stayed, vacated, dismissed, bonded or discharged within
thirty (30) days of entry, appointment or issuance.
(e) Voluntary Bankruptcy; Appointment of Receiver.
Borrower shall have an order for relief entered with respect to it or
commence a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or shall consent to
the entry of an order for relief in an involuntary case, or to the
conversion of an involuntary case to a voluntary case, under any such
law, or shall consent to the appointment of or taking of possession by
a receiver, trustee or other custodian for all or a substantial part
of its property; or Borrower shall make any assignment for the benefit
of creditors or shall be unable or fail, or admit in writing its
inability, to pay its debts as such debts become due.
(f) Solvency; Material Adverse Change. There shall have
occurred any change in the business, operations, properties, assets or
condition (financial or otherwise) of Borrower which Lender determines
could have a Material Adverse Effect upon Borrower.
Section 7.02 Rights and Remedies.
(a) Acceleration. Upon the occurrence of any Event of
Default described in Sections 7.01(d) or (e) of this Agreement with
respect to Borrower, the unpaid principal amount of and any and all
accrued interest on the Loan shall automatically become immediately
due and payable, with all additional interest from time to time
accrued thereon and without presentment, demand or protest or other
requirements of any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or
accelerate or notice of acceleration), all of which are hereby
expressly waived by Borrower. Upon the occurrence of any other Event
of Default, Lender, by written notice to Borrower, may declare the
unpaid principal amount of, any and all accrued and unpaid interest
on, the Loan and all of the other Obligations to be, and the same
shall thereupon be, immediately due and payable with all additional
interest from time to time accrued thereon and without presentment,
demand or protest or other requirements of any kind (including without
limitation, valuation and appraisement, diligence, presentment, notice
of intent to demand or accelerate and of acceleration), all of which
are hereby expressly waived by Borrower. Without limiting Lender's
authority hereunder, on or after the Maturity Date, Lender may
exercise any or all rights and remedies under the Loan Documents or
applicable law, including, without limitation, foreclosure upon all or
any part of the Collateral.
(b) Waiver of Demand. Demand, presentment, protest and
notice of nonpayment are hereby waived by Borrower. Borrower also
waives, to the extent permitted by law, the benefit of all valuation,
appraisal and exemption laws.
(c) Environmental Assessment. As part of a foreclosure
upon any Property or the acceptance by Lender of any deed in lieu of
foreclosure, Lender shall have the right to cause an environmental
assessment for such Property to be prepared by an environmental
consultant acceptable to Lender, the cost of which shall constitute an
Obligation of Borrower hereunder.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Expenses.
(a) Generally. Borrower shall pay, or reimburse Lender
for, all of Lender's reasonable audit, legal, appraisal, valuation and
investigation expenses and for all other reasonable out-of-pocket
costs and expenses of every type and nature (including, without
limitation, the fees, expenses and disbursements of Lender's internal
appraisers, environmental advisors or legal counsel) incurred by
Lender in connection with (i) the negotiation, preparation and
execution of this Agreement, the Deeds of Trust and the other Loan
Documents, the obtaining of compliance with the closing conditions and
the making of the Loan; (ii) the pre-closing investigation and review
of Borrower and the Property, including appraisal fees and costs of
environmental assessment; (iii) title insurance premiums and
endorsement charges for the title insurance described in Section
3.01(b), recording fees and attorneys' fees and costs incurred in
connection therewith; (iv) the creation, perfection or protection of
Lender's Liens on the Collateral; (v) obtaining Appraisals of the
Properties (A) periodically, but not more frequently than once in any
calendar year, in order to comply with regulatory requirements
applicable to Lender, or (B) pursuant to Section 2.07(e) above, or (C)
during the continuance of an Event of Default; and (vi) the
protection, collection or enforcement of any of the Obligations or the
Collateral. On the Closing Date, Borrower shall pay, or reimburse
Lender for, all such costs and expenses paid or incurred by Lender as
of such date, and all other such costs and expenses shall be paid or
reimbursed by Borrower to Lender on demand.
(b) After Event of Default. Borrower further agrees to
pay, or reimburse Lender for, all reasonable out-of-pocket costs and
expenses, including, without limitation, attorneys' fees and
disbursements incurred by Lender after the occurrence of an Event of
Default (i) in enforcing any Obligations or in foreclosing against the
Collateral or exercising or enforcing any other right or remedy
available by reason of such Event of Default; (ii) in connection with
any refinancing or restructuring of the credit arrangements provided
under this Agreement in the nature of a "work-out" or in any
insolvency or bankruptcy proceeding; (iii) in commencing, defending or
intervening in any litigation or in filing a petition, complaint,
answer, motion or other pleadings in any legal proceeding relating to
Borrower and related to or arising out of the transactions
contemplated hereby; (iv) in taking any other action in or with
respect to any suit or proceeding (whether in bankruptcy or
otherwise); (v) in protecting, preserving, collecting, leasing,
selling, taking possession of, or liquidating any of the Collateral;
or (vi) in attempting to enforce or enforcing any Lien on any of the
Collateral or any other rights under the Deeds of Trust.
Section 8.02 Indemnity. Borrower shall indemnify, defend and
hold harmless Lender and its Affiliates and participants and each of
the respective officers, directors, employees, agents, shareholders,
representatives, attorneys and consultants of each of the foregoing
(collectively called the "Indemnitees") from and against any and all
Liabilities and Costs imposed on, incurred by, or asserted against
such Indemnitees in any manner relating to or arising out of this
Agreement, the Deeds of Trust or the other Loan Documents, or any act,
event or transaction related or attendant thereto, the making of the
Loan and the management of the Loan, or the use or intended use of the
proceeds of the Loan (collectively, the "Indemnified Matters");
provided, however, that Borrower shall have no obligation to an
Indemnitee hereunder with respect to Indemnified Matters to the extent
caused by or resulting from the willful misconduct or gross negligence
of that Indemnitee, as determined by a court of competent jurisdic-
tion.
Section 8.03 Notices and Delivery. Unless otherwise
specifically provided herein, any consent, notice or other
communication herein required or permitted to be given shall be in
writing and may be personally served, telecopied or sent by courier
service or United States mail and shall be deemed to have been given
when delivered in person or by courier service, upon receipt of a
telecopy (or on the next Business Day if such telecopy is received on
a non-Business Day or after 5:00 p.m. on a Business Day) or three (3)
Business Days after deposit in the United States mail (registered or
certified, with postage prepaid and properly addressed). For the
purposes hereof, the addresses of the parties hereto (until notice of
a change thereof is delivered as provided in this Section 8.03) shall
be as set forth below each party's name on the signature pages hereof,
or, as to each party, at such other address as may be designated by
such party in a written notice to the other party.
Section 8.04 Survival of Warranties, Indemnities and Agreements.
All agreements, representations, warranties and indemnities made or
given herein shall survive the execution and delivery of this
Agreement and the other Loan Documents and the making and repayment of
the Loan hereunder and such indemnities shall survive termination
hereof.
Section 8.05 No Waiver; Remedies Cumulative. No failure or
delay on the part of Lender in the exercise of any power, right or
privilege under any of the Loan Documents shall impair such power,
right or privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise
thereof or of any other right, power or privilege. All rights and
remedies existing under the Loan Documents are cumulative to and not
exclusive of any rights or remedies otherwise available.
Section 8.06 Marshalling; Recourse to Security; Payments Set
Aside. Lender shall not be under any obligation to marshall any
assets in favor of Borrower or any other party or against or in
payment of any or all of the Obligations. To the extent that Borrower
makes a payment or payments to Lender, or Lender shall enforce its
Liens or exercise its rights of setoff, and such payment or payments
or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any
other party under any bankruptcy law, state or federal law, common law
or equitable cause, then to the extent of such recovery, the Obliga-
tions or part thereof originally intended to be satisfied, and all
Liens, rights and remedies therefor, shall be revived and continued in
full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
Section 8.07 Severability. In case any provision of this
Agreement or the other Loan Documents shall be held to be invalid,
illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired
thereby.
Section 8.08 Headings. Section headings in this Agreement are
included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given
any substantive effect.
Section 8.09 Governing Law. This Agreement shall be governed
by, and shall be construed and enforced in accordance with, the laws
of the State of California.
Section 8.10 Successors and Assigns. This Agreement and the
other Loan Documents shall be binding upon the parties hereto, and
their respective successors and assigns, and shall inure to the
benefit of the parties hereto and their respective successors and
permitted assigns. Notwithstanding the foregoing, Borrower's rights
hereunder, and Borrower's duties and Obligations hereunder, shall not
be assigned without the prior written consent of Lender.
Section 8.11 Sale of Loan, Participations. Lender may, at any
time, sell, transfer, assign, dispose of, grant participations in or
syndicate the Loan and the Loan Documents, provided that, unless
otherwise consented to by Borrower (such consent not to be
unreasonably withheld): (a) no more than three (3) Persons shall hold
interests in the Loan (as Lender, assignee or participant), and (b)
(i) Lender, or an assignee of Lender reasonably acceptable to
Borrower, shall at all times retain an interest in the Loan that is
greater than 50% (the "Majority Lender"), and (ii) Borrower shall not
be required to communicate with any Person holding an interest in the
Loan other than the Majority Lender. Lender shall have the right to
forward to any prospective purchaser, co-lender or participant all
documents and information relating to the Loan and the Loan Documents,
Borrower and the Collateral, whether furnished by Borrower or
otherwise, as Lender deems necessary or desirable. Borrower shall
reasonably cooperate with Lender in any efforts by Lender to sell,
transfer, assign, dispose of, grant participations in or syndicate the
Loan and the Loan Documents, including, without limitation, by
executing and delivering to Lender replacement a promissory note or
notes in the form of the Note and in the aggregate principal amount of
then outstanding principal amount of the Loan.
Section 8.12 Counterparts; Inconsistencies. This Agreement and
any amendments, waivers, consents or supplements may be executed in
counterparts, each of which when so executed and delivered shall be
deemed an original, but all of which together shall constitute but one
and the same instrument. This Agreement and each of the other Loan
Documents shall be construed to the extent reasonable to be consistent
one with the other, but to the extent that the terms and provisions of
this Agreement are actually and directly inconsistent with the terms
and provisions of any other Loan Document, the terms and provisions of
this Agreement shall govern.
Section 8.13 Construction. The parties acknowledge that each
party has reviewed and participated in preparing, and has had the
opportunity to have such party's counsel review and participate in
preparing, the Loan Documents and that the normal rule of construction
to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of the Loan
Documents or any amendments or exhibits thereto.
Section 8.14 Entire Agreement. This Agreement, taken together
with all of the other Loan Documents and all certificates and other
documents delivered by Borrower to Lender, embodies the entire
agreement, and supersedes all prior agreements, written and oral,
relating to the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed on
the date set forth above.
BORROWER:
BEDFORD PROPERTY INVESTORS, INC.,
a Maryland corporation
By: /s/ Donald A. Lorenz
Its: Chief Financial Officer and
Executive Vice President
ADDRESS FOR NOTICE AND DELIVERY FOR
BORROWER:
Bedford Property Investors, Inc.
270 Lafayette Circle
Lafayette, CA 94549
Attn: Donald Lorenz
Tel: (510) 283-8910
Fax: (510) 283-5697
LENDER:
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Annette L. Billingsley
Its: Vice President
ADDRESS FOR NOTICE AND DELIVERY TO
LENDER:
Union Bank of California, N.A.
Real Estate Industries Group
350 California Street, 7th Floor
Attn: Annette L. Billingsley
Tel: (415) 705-5075
Fax: (415) 433-7438
<PAGE>
EXHIBIT A
PROPERTIES AND RELEASE PRICES
PROPERTY RELEASE PRICE
1. Kenyon Center, Bellevue, WA. $8,184,000
2. Vista, San Diego, CA. $3,366,000
3. Napa Corporate Center, Napa, CA. $3,082,200
4. Carroll Tech Center, San Diego, CA. $4,691,800
5. 47633 Westinghouse Drive, Fremont, CA. $2,788,500
6. 47650 Westinghouse Drive, Fremont, CA. $957,000
7. 47600 Westinghouse Drive, Fremont, CA. $924,000
8. 115 Mason Circle, Concord, CA. $1,006,500
$25,000,000<PAGE>
EXHIBIT B
PROPERTY TENANT
1. Kenyon Center, Bellevue, WA. *Boeing
2. Vista, San Diego, CA. *Mark Sensing Western USA, Inc.
*Fujikura Composite America, Inc.
3. Napa Corporate Center, Napa,
CA. PPI Engineering
*Robert Mondavi Winery
Pinkerton's Inc.
Bay-Tec Engineering Co.
Enterprise Productivity System
Ratnor Garage Doors
4. Carroll Tech Center, San Diego,
CA. *Hybritech, Incorporated (3 Leases)
5. 47633 Westinghouse, Fremont,
CA. *Quester Technology, Inc.
6. 47650 Westinghouse, Fremont,
CA. *SMT Unlimited, L.P.
7. 47600 Westinghouse, Fremont,
CA. *Phase Metrics, Inc.
8. 115 Mason, Concord, CA. Performance Contracting, Inc.
*Koppl Industrial Systems, Inc.
Cables Unlimited
LMH, Inc.
Space Focus, Inc.
____________________
* See Section 3.01(b)(iii)
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS . . . . . . . . . . 1
ARTICLE II
LOAN . . . . . . . . . . . . 5
2.01 Loan. . . . . . . . . . . . . . . . . . . . 5
2.02 Use of Loan Proceeds. . . . . . . . . . . . 5
2.03 Debt Service on the Loan; Disqualification of the
Property 6
2.04 No Revolving Loan . . . . . . . . . . . . . 6
2.05 Fees. . . . . . . . . . . . . . . . . . . . 6
2.06 Payments. . . . . . . . . . . . . . . . . . 7
2.07 Release of Property . . . . . . . . . . . . 8
2.08 Substitution of Property. . . . . . . . . . 9
2.09 Limitation on Borrower's Liability. . . . . 10
ARTICLE III
CONDITIONS TO LOAN. . . . . . . . 12
3.01 Conditions to Disbursement of Loan. . . . . 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . 14
4.01 Representations and Warranties. . . . . . . 14
ARTICLE V
REPORTING COVENANTS . . . . . . . . . 18
5.01 Financial Statements and Other Financial and
Operating Information . . . . . . . . . . . 18
(a) Quarterly Property Statements. . . . . 18
(b) Quarterly Financial Statements . . . . 18
(c) Annual Financial Statements. . . . . . 19
(d) Cash Flow Projections. . . . . . . . . 19
(e) Knowledge of Event of Default. . . . . 19
(f) Litigation, etc. . . . . . . . . . . . 19
(g) Election to Terminate Status as a REIT 20
(h) Other Information. . . . . . . . . . . 20
ARTICLE VI
OTHER COVENANTS. . . . . . . . . . . 20
6.01 Existence, etc. . . . . . . . . . . . . . . 20
6.02 Taxes . . . . . . . . . . . . . . . . . . . 20
6.03 Insurance . . . . . . . . . . . . . . . . . 21
6.04 Compliance with Law . . . . . . . . . . . . 21
6.05 Inspection of Properties; Books and Records 21
6.06 Conduct of Business . . . . . . . . . . . . 21
6.07 Tenant Estoppel Certificates; Subordination,
Nondisturbance and . . . . . . . . . . . . . . . .Attornment
Agreements 21
6.08 Leases; Major Agreements. . . . . . . . . . 21
6.09 Chief Executive Office. . . . . . . . . . . 22
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES. . . . . . 22
7.01 Events of Default . . . . . . . . . . . . . 22
(b) Other Covenants. . . . . . . . . . . . 22
(c) Representations and Warranties . . . . 22
(d) Involuntary Bankruptcy; Appointment of
Receiver 23
(e) Voluntary Bankruptcy; Appointment of
Receiver 23
(f) Solvency; Material Adverse Change. . . 23
7.02 Rights and Remedies . . . . . . . . . . . . 23
(a) Acceleration . . . . . . . . . . . . . 23
(b) Waiver of Demand . . . . . . . . . . . 24
(c) Environmental Assessment . . . . . . . 24
<PAGE>
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . 24
8.01 Expenses. . . . . . . . . . . . . . . . . . 24
(a) Generally . . . . . . . . . . . . 24
(b) After Event of Default. . . . . . 25
8.02 Indemnity . . . . . . . . . . . . . . . . . 25
8.03 Notices and Delivery. . . . . . . . . . . . 25
8.04 Survival of Warranties, Indemnities and
Agreements . 26
8.05 No Waiver; Remedies Cumulative. . . . . . . 26
8.06 Marshalling; Recourse to Security; Payments Set
Aside 26
8.07 Severability. . . . . . . . . . . . . . . . 26
8.08 Headings. . . . . . . . . . . . . . . . . . 26
8.09 Governing Law . . . . . . . . . . . . . . . 27
8.10 Successors and Assigns. . . . . . . . . . . 27
8.11 Sale of Loan, Participations. . . . . . . . 27
8.12 Counterparts; Inconsistencies . . . . . . . 27
8.13 Construction. . . . . . . . . . . . . . . . 27
8.14 Entire Agreement. . . . . . . . . . . . . . 28
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