SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended March 31, 1999.
___ Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________________ to
_______________.
Commission File Number 1-12222
BEDFORD PROPERTY INVESTORS, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 68-0306514
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
270 Lafayette Circle, Lafayette, CA 94549
(Address of principal executive offices)
Registrant's telephone number, including area code (925) 283-8910
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months or for such shorter period that Registrant was required
to file such reports and (2) has been subject to such filing requirements for
the past 90 days. Yes x No___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding as of May 12, 1999
Common Stock, $0.02 par value 21,685,970
<PAGE>
BEDFORD PROPERTY INVESTORS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
Statement 1
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998 2
Consolidated Statements of Income for the three months ended
March 31, 1999 and 1998 3
Consolidated Statements of Stockholders' Equity for the year ended
December 31, 1998 and the three months ended March 31, 1999 4
Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION 13-16
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES
ABOUT MARKET RISK 16-17
PART II. OTHER INFORMATION
ITEMS 1 - 6 18-19
SIGNATURES 19
Exhibit 11 20
Exhibit 27 21
<PAGE>
BEDFORD PROPERTY INVESTORS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENT
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. The information furnished reflects all adjustments
which are, in the opinion of management, necessary for a fair presentation of
results of operations for the interim periods presented. Such adjustments are
of a normal recurring nature. These consolidated financial statements should
be read in conjunction with the notes to consolidated financial statements
appearing in the annual report to stockholders for the year ended December 31,
1998.
When used in the discussion in this Form 10-Q, the words "believes," "expects,"
"intends," "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
discussed, 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.
<PAGE>
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998 (Unaudited)
(in thousands, except share and per share amounts)
<TABLE>
<S> <C> <C>
March 31, 1999 December 31, 1998
Assets:
Real estate investments:
Industrial buildings $295,933 $312,911
Office buildings 251,882 258,479
Operating properties held for sale 29,280 -
Properties under development 29,671 24,686
Land held for development 3,930 3,905
610,696 599,981
Less accumulated depreciation 21,246 18,523
589,450 581,458
Cash 1,168 1,286
Other assets 23,759 15,580
$614,377 $598,324
Liabilities and Stockholders' Equity:
Bank loan payable $180,832 $147,443
Mortgage loans payable 79,790 80,116
Accounts payable and accrued expenses 7,584 7,574
Dividend and distributions payable 7,883 8,191
Other liabilities 4,160 6,042
Total liabilities 280,249 249,366
Minority interest in consolidated partnership 1,369 1,369
Stockholders' equity:
Common stock, par value $0.02 per share;
authorized 50,000,000 shares; issued and
outstanding 21,795,470 shares in 1999 and
22,666,856 shares in 1998 436 453
Additional paid-in capital 391,982 407,760
Accumulated dividends in
excess of net income (59,659) (60,624)
Total stockholders' equity 332,759 347,589
$614,377 $598,324
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (Unaudited)
(in thousands, except share and per share amounts)
<TABLE>
<S> <C> <C>
1999 1998
Property operations:
Rental income $21,359 $15,361
Rental expenses:
Operating expenses 3,580 2,127
Real estate taxes 1,908 1,299
Depreciation and amortization 2,972 2,055
Income from property operations 12,899 9,880
General and administrative expenses (822) (835)
Interest income 30 47
Interest expense (3,833) (1,606)
Income before gain on sale of real estate
investments and minority interest 8,274 7,486
Gain on sale of real estate investments 568 -
Minority interest (31) (29)
Net income $ 8,811 $ 7,457
Earnings per share - basic $ 0.39 $ 0.33
Weighted average number of shares-basic 22,496,811 22,583,867
Earnings per share - assuming dilution $ 0.39 $ 0.33
Weighted average number of
shares - assuming dilution 22,642,418 22,956,590
</TABLE>
See accompanying notes to consolidated financial statements.
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE THREE MONTHS ENDED MARCH 31, 1999 (Unaudited)
(in thousands, except per share amounts)
<TABLE>
<S>
<C> <C> <C> <C>
Accumulated Total
Additional dividends stock-
Common paid-in in excess of holders'
stock capital net income equity
Balance, December 31, 1997 $ 452 $408,209 $(62,235) $ 346,426
Issuance of common stock 1 1,366 - 1,367
Repurchase and retirement of common stock - (1,815) - (1,815)
Net income - - 31,496 31,496
Dividends to common stockholders
($1.32 per share) - - (29,885) (29,885)
Balance, December 31, 1998 $ 453 $407,760 $(60,624) $ 347,589
Issuance of common stock 3 475 - 478
Repurchase and retirement of common stock (20) (16,253) - (16,273)
Net income - - 8,811 8,811
Dividends to common stockholders
($0.36 per share) - - (7,846) (7,846)
Balance, March 31, 1999 $ 436 $391,982 $(59,659) $ 332,759
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (Unaudited)
(in thousands)
1999 1998
Operating Activities:
Net income $ 8,811 $ 7,457
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest 31 29
Depreciation and amortization 3,342 2,358
Gain on sale of real estate investments (568) -
Change in other assets (7,179) (1,626)
Change in accounts payable and
accrued expenses (192) 399
Change in other liabilities (1,882) (1,270)
Net cash provided by operating activities 2,363 7,347
Investing Activities:
Investments in real estate (11,713) (68,474)
Proceeds from sale of real estate investments 1,789 -
Net cash used by investing activities (9,924) (68,474)
Financing Activities:
Proceeds from bank loan payable 34,463 63,494
Repayments of bank loan payable (1,300) (16,989)
Proceeds from (costs of) mortgage loans payable (1,414) 21,110
Repayments of mortgage loans payable (326) (161)
Issuance of common stock 458 185
Redemption of partnership units - -
Payment of dividends and distributions (8,185) (6,803)
Repurchase and retirement of common stock (16,253) -
Net cash provided by financing activities 7,443 60,836
Net decrease in cash (118) (291)
Cash at beginning of period 1,286 1,361
Cash at end of period $ 1,168 $ 1,070
Supplemental disclosure of cash flow information:
Cash paid during the period for interest,
net of amounts capitalized of
$404 in 1999 and $343 in 1998 $ 3,460 $ 1,109
See accompanying notes to consolidated financial statements.
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and Basis of Presentation
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 Stock Exchange and the
Pacific Exchange.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the requirements of Form 10-Q and, therefore, do not include
all information and footnotes necessary for a presentation of financial
condition, results of operations and cash flows in conformity with generally
accepted accounting principles. The unaudited interim consolidated financial
statements reflect all adjustments which are, in the opinion of management,
necessary to a fair presentation of results for the interim periods presented
in compliance with the instructions to Form 10-Q. All such adjustments are of
a normal, recurring nature.
Per Share Data
Per share data are based on the weighted average number of common shares
outstanding during the year. Stock options issued under the Company's stock
option plans are included in the calculation of diluted per share data if, upon
assumed exercise, they would have a dilutive effect. The diluted earnings per
share calculation also assumes conversion of the limited partnership units of
Bedford Realty Partners, L.P., if such conversions would have dilutive effects,
as of the beginning of the year.
Recent Accounting Pronouncements
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5, Reporting on the Costs of Start-up Activities. Sop 98-5
is effective for fiscal years beginning after December 15, 1998. The adoption
of this statement did not have a material impact on the Company's financial
statements.
In June 1998, the FASB issued Financial Accounting Standard No. 133, Accounting
for Derivatives Instruments and Hedging Activities. SFAS 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. Management
believes that the adoption of this statement will not have a material impact
on the Company's financial statements.
Note 2. Real Estate Investments
As of March 31, 1999, the Company's real estate investments were diversified by
property type as follows (dollars in thousands):
Number of Percent
Properties Cost of Total
Industrial buildings 63 $295,933 48%
Office buildings 22 251,882 41%
Operating properties held for sale 6 29,280 5%
Properties under development 9 29,671 5%
Land held for development 6 3,930 1%
Total 106 $610,696 100%
<PAGE>
Note 2 - Real Estate Investments
The following table sets forth the Company's real estate investments as of March
31, 1999 (in thousands):
<TABLE>
<C> <C> <C> <C> <C>
Less
Development Accumulated
Land Building In-Progress Depreciation Total
INDUSTRIAL BUILDINGS
Northern California $ 44,238 $105,816 $ - $ 6,262 $143,792
Southern California 15,820 35,334 - 2,423 48,731
Denver, Colorado 1,911 3,283 - 274 4,920
Arizona 13,275 35,176 - 1,546 46,905
Greater Portland Area 2,652 8,604 - 866 10,390
Greater Kansas City Area 2,773 12,965 - 1,280 14,458
Dallas, Texas 2,981 11,105 - 211 13,875
Total Industrial 83,650 212,283 - 12,862 283,071
SUBURBAN OFFICE BUILDINGS
Northern California 6,023 17,728 - 753 22,998
Southern California 7,312 18,115 - 915 24,512
Greater Kansas City Area 3,330 5,451 - 361 8,420
Greater Seattle Area 15,116 78,914 - 2,127 91,903
Reno, Nevada 2,102 10,572 - 473 12,201
Austin, Texas 2,766 7,089 - 287 9,568
Arizona 9,149 17,252 - 655 25,746
Denver, Colorado 5,560 45,403 - 1,010 49,953
Total Suburban Office 51,358 200,524 - 6,581 245,301
PROPERTIES HELD FOR SALE
Northern California 4,154 8,282 - 525 11,911
Southern California 1,558 3,475 - 144 4,889
Greater Kansas City Area 1,144 3,722 - 103 4,763
Salt Lake City 359 6,586 - 1,031 5,914
Total Operating Properties
Held for Sale 7,215 22,065 - 1,803 27,477
PROPERTIES UNDER DEVELOPMENT
Northern California - - 1,602 - 1,602
Arizona - - 15,196 - 15,196
Greater Seattle Area - - 10,740 - 10,740
Colorado - - 2,133 - 2,133
Total Properties Under Development - - 29,671 - 29,671
LAND HELD FOR DEVELOPMENT
Northern California 2,667 - - - 2,667
Southern California 1,075 - - - 1,075
Dallas, Texas 188 - - - 188
Total Land Held for Development 3,930 - - - 3,930
Total $146,153 $434,872 $29,671 $21,246 $589,450
</TABLE>
Company personnel directly manage all but twelve of the Company's properties
from regional offices in Lafayette, CA; Tustin, CA; Phoenix, AZ; Lenexa, KS;
and Seattle, WA. For the twelve properties located in markets not served by one
of the Company's regional offices, the Company has subcontracted management to
local firms. All financial record-keeping is centralized at the Company's
corporate office in Lafayette, CA.
The Company has contractual construction commitments of $7.7 million at March
31, 1999 relating to six of its properties under development.
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 received limited
partnership units ("OP Units"). A limited partner can seek redemption of the
OP Units at any time. 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 the Company's 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. Through March 31, 1999, the Company has redeemed 21,607 OP units
for cash.
Note 4. Debt
Bank Loan Payable
In June 1998, the Company amended and restated its secured revolving credit
facility with Bank of America. Under this facility, which matures June 15,
2001, the Company can borrow up to $175 million on a secured basis. The
facility contains an unsecured sub-line of $50 million. Secured loans bear
interest at a floating rate equal to either the lender's published "reference
rate" or LIBOR plus a margin ranging from 1.10% to 1.35%. The interest rate on
the unsecured loans is either the lender's published "reference rate" or LIBOR
plus a margin of 1.50%. The credit facility contains various restrictive
covenants including, among other things, a covenant limiting quarterly dividends
to 95% of average Funds From Operations. As of March 31, 1999, the Company was
in compliance with the covenants and requirements of its revolving credit
facility, which had an outstanding balance of $180,832,000. The credit facility
is secured by mortgages on 47 properties (which properties collectively
accounted for approximately 47% of the Company's Annualized Base Rent and
approximately 42% of the Company's total assets as of March 31, 1999), together
with the rental proceeds from such properties.
In February 1999, the credit facility was restructured to include a $30 million
bridge facility which bears the same interest rate as the $175 million
facility. The bridge facility, which matures September 1, 1999, may be
extended for two additional periods of three months each. It is expected to
be retired with long-term financing.
<PAGE>
The daily weighted average amount owing to the bank was $157,929,000 and
$18,226,000 for the three months ended March 31, 1999 and 1998, respectively.
The weighted average interest rates in each of these periods was 6.25% and
7.62%, respectively. The effective interest rate at March 31, 1999 was 6.27%.
Mortgage Loans Payable
Mortgage loans payable at March 31, 1999 consist of the following (in
thousands):
Floating rate note due December 15, 1999,
current rate of 8.00% $ 1,790
7.5% note due January 1, 2002 24,198
7.02% note due March 15, 2003 24,619
8.9% note due July 31, 2006 8,635
6.91% note due July 31, 2006 20,548
$ 79,790
The mortgage loans are collaterized by 21 properties (which properties
collectively accounted for approximately 24% of the Company's Annualized
Base Rent and approximately 20% of the Company's total assets as of
March 31, 1999).
The following table presents scheduled principal payments on mortgage loans as
of March 31, 1999 (in thousands):
Twelve month period ending March 31, 2000 $ 3,129
Twelve month period ending March 31, 2001 1,442
Twelve month period ending March 31, 2002 24,402
Twelve month period ending March 31, 2003 23,946
Twelve month period ending March 31, 2004 696
Thereafter 26,175
$ 79,790
Note 5. Comprehensive Income
There are no adjustments necessary to net income as presented in the
accompanying consolidated statements of income to derive comprehensive income
in accordance with FASB Statement No. 130, Reporting Comprehensive Income.
Note 6. Segment Disclosure
The Company has five reportable segments organized by the region in which they
operate: Northern California (Northern California, Utah and Nevada), Southwest
(Arizona and greater Austin, Texas), Southern California, Northwest (greater
Portland, Oregon and greater Seattle, Washington), and Midwest (greater Kansas
City, Kansas/Missouri, greater Dallas, Texas and Colorado).
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based upon income from real estate from the combined properties in each segment.
<PAGE>
Note 6. Segment Disclosure (continued)
For the three months ended March 31, 1999 (in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Northern Southern Corporate
California Southwest California Northwest Midwest & Other Consolidated
Rental income $ 8,388 $ 3,423 $ 2,664 $ 3,423 $ 3,352 $ 109 $ 21,359
Operating expenses and real estate taxes 1,798 973 533 1,028 1,048 108 5,488
Depreciation and amortization 1,073 467 397 536 499 - 2,972
Income from property operations $ 5,517 $ 1,983 $ 1,734 $ 1,859 $ 1,805 $ 1 $ 12,899
Percent of income from property operations 43% 15% 14% 14% 14% 0% 100%
Interest income(1) 6 - - 1 - 23 30
Interest expense - - - - - (3,833) (3,833)
General and administrative expenses - - - - - (822) (822)
Minority interest - - - - - (31) (31)
Gain on sale of real estate investments 568 - - - - - 568
Net income $ 6,091 $ 1,983 $ 1,734 $ 1,860 $ 1,805 $(4,662) $ 8,811
Real estate investments $210,130 $111,203 $ 82,689 $116,025 $90,649 $ - $610,696
Additions to real estate investments $ 541 $ 1,771 $ 5,291 $ 2,775 $ 337 $ - $ 10,715
Total assets $213,192 $103,835 $ 87,770 $108,982 $87,883 $12,715 $614,377
</TABLE>
(1) The interest income in the Northern California and Northwest segments
represents interest earned from tenant notes receivable.
<PAGE>
Note 6. Segment Disclosure (continued)
For the three months ended March 31, 1998 (in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Northern Southern Corporate
California Southwest California Northwest Midwest & Other Consolidated
Rental income $ 6,981 $ 2,426 $ 2,434 $ 1,510 $ 2,010 $ - $ 15,361
Operating expenses and real estate taxes 1,569 559 502 125 534 137 3,426
Depreciation and amortization 854 333 337 252 279 - 2,055
Income from property operations $ 4,558 $ 1,534 $ 1,595 $ 1,133 $ 1,197 $ (137) $ 9,880
Percent of income from property operations 46% 16% 16% 11% 12% (1%) 100%
Interest income(1) 3 - - 2 - 42 47
Interest expense - - - - - (1,606) (1,606)
General and administrative expenses - - - - - (835) (835)
Minority interest - - - - - (29) (29)
Net income $ 4,561 $ 1,534 $ 1,595 $ 1,135 $ 1,197 $(2,565) $ 7,457
Real estate investments $193,544 $ 81,349 $ 73,310 $ 97,908 $ 53,783 $ - $499,894
Additions to real estate investments $ 8,137 $ 13,337 $ 2,261 $ 41,510 $ 2,578 $ - $ 67,823
Total assets $192,756 $ 78,837 $ 76,488 $ 96,696 $ 51,396 $ 4,384 $500,557
</TABLE>
(1) The interest income in the Northern California and Northwest segments
represents interest earned from tenant notes receivable.
Note 7. Fair Value of Financial Instruments
The carrying value of trade accounts payable and receivable approximate fair
value due to the short-term maturity of these instruments. Management has
determined that the carrying amount of debt approximates market value based on
the terms of existing debt compared to those available in the marketplace.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
The Company's operations consist of developing, owning and operating industrial
and suburban office properties located primarily in the Western United States.
Increases in revenues, expenses and net income in the three months ended March
31, 1999 when compared with the same period in 1998 were due primarily to
property additions during 1999 and 1998, offset in part by the sale of operating
properties as follows:
Number of Square
Operating Properties Feet
Acquisitions
Industrial 11 691,000
Office 4 569,000
15 1,260,000
Sales
Industrial 1 25,000
Three Months Ended March 31, 1999 Compared with Three Months Ended March 31,
1998
Income from Property Operations
Income from property operations (defined as rental income less rental expenses)
increased $3,019,000 or 31% in 1999 compared with 1998. This is due to an
increase in rental income of $5,998,000 partially offset by an increase in
rental expenses (which include operating expenses, real estate taxes and
depreciation and amortization) of $2,979,000.
The increase in rental income and expenses is primarily attributable to
properties acquired and, to a lesser extent, development activities during 1999
and 1998. The acquisition and development activity increased rental income and
rental expenses in 1999 by $5,203,000 and $2,764,000, respectively, as compared
to 1998. The remaining increase in rental income and expense is due to
increased occupancy in 1999 as compared to 1998, as well as an overall increase
in rental rates.
Expenses
Interest expense, which includes amortization of loan fees, increased $2,227,000
or 139% in 1999 compared with 1998. The increase is attributable to the
Company's higher level of borrowings to finance the acquisition and development
of properties during 1998 and 1999 and the repurchase of shares since December
1998, as well as higher financing costs incurred in connection with the credit
facility and mortgage loans. The amortization of loan fees was $301,000 and
$253,000 in the first quarter of 1999 and 1998, respectively. General and
administrative expenses remained relatively unchanged in 1999 compared with
1998.
Gain on sale
In March 1999, the Company sold 417 Eccles in South San Francisco, California,
for a net sales price of $1,789,000, which resulted in a gain of approximately
$568,000.
Liquidity and Capital Resources
In June 1998, the Company amended and restated its secured revolving credit
facility with Bank of America. Under this facility, which matures June 15,
2001, the Company can borrow up to $175 million on a secured basis. The
facility contains an unsecured sub-line of $50 million. Secured loans bear
interest at a floating rate equal to either the lender's published "reference
rate" or LIBOR plus a margin ranging from 1.10% to 1.35%. The interest rate on
the unsecured loans is either the lender's published "reference rate" or LIBOR
plus a margin of 1.50%. As of March 31, 1999, the Company was in compliance
with the covenants and requirements of its revolving credit facility, which had
an outstanding balance of $180,832,000.
In February 1999, the credit facility was restructured to include a $30 million
bridge facility which bears the same interest rate as the $175 million
facility. The bridge facility, which matures September 1, 1999, may be
extended for two additional periods of three months each. It is expected to
be retired with long-term financing.
The Company anticipates that the cash flow generated by its real estate
investments and funds available under the above credit facilities will be
sufficient to meet its short-term liquidity requirements.
During the three months ended March 31, 1999, the Company's operating activities
provided cash flow of $2,363,000. Investing activities utilized cash of
$11,713,000 for real estate acquisitions, offset by net proceeds from real
estate sales of $1,789,000. Financing activities provided net cash flow of
$7,443,000 consisting of the proceeds from bank borrowings and mortgage loans of
$33,049,000 and net proceeds from the exercise of stock options and issuance
of restricted stock of $458,000, offset by repayment of bank borrowings and
mortgage loans of $1,626,000, payment of dividends and distributions of
$8,185,000, and the repurchase of 1,022,625 shares of common stock for
$16,253,000.
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
certain 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 bank credit facility bear
interest at a floating rate. The Company recognizes that its results from
operations may be impacted negatively by future increases in interest rates and
any additional borrowings to finance additional property acquisitions.
While the Company has historically been successful in renewing and reletting
space, the Company is subject to the risk that certain leases expiring in 1999
and beyond may not be renewed or the terms of renewal may be less favorable to
the Company than current lease terms. The Company expects to incur costs in
making improvements or repairs to its portfolio of properties required by new
or renewing tenants and expects to incur expenses associated with brokerage
commissions payable in connection with the reletting of space.
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. These factors include the following:
Inflation
Most of the leases require the tenants to pay their share of operating expenses,
including common area maintenance, real estate taxes and insurance, thereby
reducing the Company's exposure to increases in costs and operating expenses
resulting from inflation. Inflation, however, could result in an increase in
the Company's borrowing and other operating expense.
<PAGE>
Dividends
Common stock dividends declared for the first quarter of 1999 were $0.36 per
share. Distributions declared for the first quarter of 1999 were $0.36 per OP
Unit. Consistent with the Company's policy, dividends and distributions were
paid in the quarter after the quarter in which they were declared.
Government Regulations
The Company's properties are subject to various federal, state and local
regulatory requirements such as local building codes and other similar
regulations. The Company believes its properties are currently in substantial
compliance with
all applicable regulatory requirements, although expenditures at its 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. There can be no assurance, however, that future discoveries or events
at the Company's properties, or changes to current environmental regulations,
will not result in such a material adverse impact.
Financial Performance
Management considers Funds From Operations (FFO) to be one measure of the
performance of an equity REIT. FFO during the three months ended March 31, 1999
and 1998 amounted to $11,246,000 and $9,541,000, respectively. FFO 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. FFO
is generally defined by the National Association of Real Estate Investment
Trusts as net income (loss) (computed in accordance with generally accepted
accounting principles), excluding gains (losses) from debt restructurings, sales
of property and non-recurring items, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. FFO was
computed by the Company in accordance with this definition. FFO does not
represent cash generated by operating activities in accordance with 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. Further, FFO as
disclosed by other REITs may not be comparable to the Company's presentation.
<PAGE>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
Funds From Operations (in thousands):
Net Income $ 8,811 $ 7,457
Add Back:
Depreciation and Amortization 2,972 2,055
Minority Interest 31 29
Less Gain on Sale (568) -
Funds From Operations $ 11,246 $ 9,541
Year 2000 Compliance
In 1997 the Company purchased and put in place new information system hardware
and software to accommodate the rapid growth of its real estate portfolio. The
Company believes the new information system hardware and software is Year 2000
compliant. In addition, the Company has evaluated Year 2000 compliance risk
relative to operations of its rental properties, and retained the services of
a team of consultants. These consultants have been conducting a survey of the
Company's outside relationships (e.g., tenants, vendors and creditors) to assess
their state of readiness in regards to Year 2000 compliance. The survey
indicates that a majority of these parties' information systems are or will be
Year 2000 compliant. In addition, the Company is performing a detailed
Information Technology review of its key outside relationships. As of March 31,
1999, the Company has spent $10,000 on surveys and systems reviews and expects
to spend approximately $30,000 during the second and third quarters of 1999.
The Company is in the process of developing a contingency plan in the event of
non-compliance. The Company believes that Year 2000 compliance will not have
a material impact on the Company's financial statements.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate changes primarily as a result of its
line of credit and long-term debt used to maintain liquidity and fund capital
expenditures and expansion of the Company's real estate investment portfolio and
operations. The Company's interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve its objectives the Company balances its
borrowings between fixed and variable rate debt. The Company does not enter
into derivative or interest rate transactions for speculative purposes.
The Company's interest rate risk is monitored using a variety of techniques.
The table below presents the principal amounts, weighted average interest rates,
fair values and other terms required by year of expected maturity to evaluate
the expected cash flows and sensitivity to interest rate changes (in thousands):
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
Fixed rate debt $ 1,339 $ 1,442 $ 24,402 $ 23,946 $ 696 $ 26,175 $ 78,000 $ 79,136
Average interest rate 7.37% 7.38% 7.49% 7.03% 7.58% 7.49% 7.35% 7.00%
Variable rate LIBOR debt - - $180,832 - - - $180,832 $180,832
Average interest rate - - 6.27% - - - 6.27% 6.27%
Variable rate prime debt $ 1,790 - - - - - $ 1,790 $ 1,790
Average interest rate 8.00% - - - - - 8.00% 8.00%
</TABLE>
As the table incorporates only those exposures that exist as of March 31, 1999,
it does not consider those exposures or positions which could arise after that
date. Moreover, because firm commitments are not presented in the table above,
the information presented therein has limited predictive value. As a result,
the Company's ultimate realized gain or loss with respect to interest rate
fluctuations will depend on the exposures that arise during the period, the
Company's hedging strategies at that time, and interest rates.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit No. Exhibit
3.1 Charter of the Company, as amended, is incorporated herein by
reference to Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997.
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.
10.17 Fourth Amended and Restated Credit Agreement (Secured Loan)
among Bedford Property Investors, Inc., The Banks Party
Hereto and Bank of America National Trust and Savings
Association, as Arranger and as Administrative Agent for the
Banks, and Union Bank of California, NA as Co-Agent for the
Banks, dated June 15, 1998, is incorporated by reference to
exhibit 10.17 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998.
10.18 Amended and Restated Unsecured Credit Agreement among Bedford
Property Investors, Inc., The Banks Party Hereto and Bank of
America National Trust and Savings Association, as Arranger
and as Administrative Agent for the Banks, and Union Bank of
California, N.A., as Co-Agent for the Banks, dated June 15,
1998, is incorporated by reference to exhibit 10.18 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.
10.19 Credit Agreement made as of February 26,1999, by and between
Bedford Property Investors, Incorporated and Bank of America
National Trust and Savings Association and the several
financial institutions (the "Banks") as may be party thereto
from time to time is incorporated herein by reference to
Exhibit 10.22 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
10.20 Revolving Note made as of March 5, 1999, by and between
Bedford Property Investors, Incorporated and Bank of America
National Trust and Saving Association is incorporated herein
by reference to Exhibit 10.23 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
10.21 Revolving Note made as of March 5, 1999, by and between
Bedford Property Investors, Incorporated and Union Bank of
California is incorporated herein by reference to Exhibit
10.24 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
11* Statement of Computation of Earnings Per Share.
27* Financial Data Schedules
* Filed herewith
B. Reports on Form 8-K
The Company filed on May 11, 1999, a report on Form 8-K dated May 11,
1999, reporting items 5 and 7.
The following financial statements were filed: (i) Historical Summary
of Gross Income and Direct Operating Expenses for Cabrillo Executive
Center, Parkpoint Business Center, Cimarron Business Park and Texaco
Building for the year ended December 31, 1997, and (ii) pro forma
income statement showing the effect resulting from all the Company's
acquisitions through December 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf of the
undersigned, hereunto duly authorized.
Dated: May 12, 1999
BEDFORD PROPERTY INVESTORS, INC.
(Registrant)
By: /s/ HANH KIHARA
Hanh Kihara
Senior Vice President and
Chief Financial Officer
By: /s/ KRISTA K. ROWLAND
Krista K. Rowland
Controller
<PAGE>
Exhibit 11
Bedford Property Investors, Inc.
Statement of Computation of Earnings per Share
(in thousands, except share and share amounts)
Three Months Ended March 31,
<TABLE>
<S> <C> <C>
1999 1998
Basic:
Net income $ 8,811 $ 7,457
Weighted average number of shares - basic 22,496,811 22,583,867
Earnings per share - basic $ 0.39 $ 0.33
Diluted:
Net income $ 8,811 $ 7,457
Add: Minority interest 31 29
Net income for diluted earnings per share 8,842 7,486
Weighted average number of shares
(from above) 22,496,811 22,583,867
Weighted average shares of dilutive stock
options using average period stock price
under the treasury stock method 58,719 277,674
Weighted average shares issuable upon the
conversion of operating
partnership units 86,888 95,049
Weighted average number of shares -
assuming dilution 22,642,418 22,956,590
Earnings per share - assuming dilution $ 0.39 $ 0.33
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> $1,168
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,674
<PP&E> 610,696
<DEPRECIATION> (21,246)
<TOTAL-ASSETS> 614,377
<CURRENT-LIABILITIES> 16,828
<BONDS> 260,622
<COMMON> 436
0
0
<OTHER-SE> 332,323
<TOTAL-LIABILITY-AND-EQUITY> 614,377
<SALES> 0
<TOTAL-REVENUES> 21,389
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (9,282)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,833)
<INCOME-PRETAX> 8,811
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,811
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,811
<EPS-PRIMARY> $ 0.39
<EPS-DILUTED> $ 0.39
</TABLE>
