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 June 30, 2000.
___ 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 August 1, 2000
Common Stock, $0.02 par value 18,640,826
BEDFORD PROPERTY INVESTORS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
Statement 1
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999 2
Consolidated Statements of Income for the three and six months ended
June 30, 2000 and 1999 3
Consolidated Statements of Stockholders' Equity for the year ended
December 31, 1999 and the six months ended June 30, 2000 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6-14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION 15-19
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES
ABOUT MARKET RISK 20
PART II. OTHER INFORMATION
ITEMS 1 - 6 21
SIGNATURES 23
Exhibit 27 24
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,
1999.
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.
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 (Unaudited) AND DECEMBER 31, 1999
(in thousands, except share and per share amounts)
<TABLE>
<S> <C> <C>
June 30, 2000 December 31, 1999
Assets:
Real estate investments:
Industrial buildings $287,245 $279,367
Office buildings 305,087 294,420
Operating properties held for sale 51,717 80,563
Properties under development 22,047 19,246
Land held for development 6,280 6,137
672,376 679,733
Less accumulated depreciation 33,263 28,695
639,113 651,038
Cash 2,557 1,584
Other assets 19,495 18,788
$661,165 $671,410
Liabilities and Stockholders' Equity:
Bank loan payable $136,468 $137,156
Mortgage loans payable 205,208 206,880
Accounts payable and accrued expenses 8,450 9,767
Dividend and distributions payable 7,862 8,270
Other liabilities 6,589 7,928
Total liabilities 364,577 370,001
Minority interest in consolidated partnership 1,229 1,229
Stockholders' equity:
Common stock, par value $0.02 per share;
authorized 50,000,000 shares; issued and
outstanding 18,640,626 shares in 2000 and
19,613,472 shares in 1999 373 392
Additional paid-in capital 333,325 353,220
Accumulated dividends in
excess of net income (38,339) (53,432)
Total stockholders' equity 295,359 300,180
$661,165 $671,410
</TABLE>
See accompanying notes to consolidated financial statements.
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited)
(in thousands, except share and per share amounts)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Six Months
2000 1999 2000 1999
Property operations:
Rental income $ 24,957 $ 22,346 $ 49,349 $ 43,705
Rental expenses:
Operating expenses 4,416 3,312 8,343 6,892
Real estate taxes 2,453 1,872 4,834 3,780
Depreciation and amortization 3,380 2,933 6,523 5,905
Income from property operations 14,708 14,229 29,649 27,128
General and administrative expenses (931) (1,141) (1,826) (1,963)
Interest income 73 51 107 81
Interest expense (6,300) (4,583) (12,350) (8,416)
Income before gain (loss) on sales of real estate
investments and minority interest 7,550 8,556 15,580 16,830
Gain (loss) on sales of real estate investments (6) 7,043 15,228 7,611
Minority interest (33) (34) (66) (65)
Income before extraordinary item 7,511 15,565 30,742 24,376
Loss on early extinguishment of debt - (298) - (298)
Net income $ 7,511 $ 15,267 $ 30,742 $ 24,078
Earnings per share - basic:
Income before extraordinary item $ 0.41 $ 0.71 $ 1.64 $ 1.10
Extraordinary item - loss on early
extinguishment of debt - (0.01) - (0.01)
Net income per share - basic $ 0.41 $ 0.70 $ 1.64 $ 1.09
Weighted average number of shares - basic 18,256,565 21,784,185 18,771,601 22,138,529
Earnings per share - diluted:
Income before extraordinary item $ 0.41 $ 0.71 $ 1.62 $ 1.09
Extraordinary item - loss on early
extinguishment of debt - (0.01) - (0.01)
Net income per share - diluted $ 0.41 $ 0.70 $ 1.62 $ 1.08
Weighted average number of shares - diluted 18,489,403 21,940,644 18,993,949 22,286,907
</TABLE>
See accompanying notes to consolidated financial statements.
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
THE SIX MONTHS ENDED JUNE 30, 2000 (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, 1998 $ 453 $407,760 $(60,624) $347,589
Issuance of common stock 6 1,978 - 1,984
Repurchase and retirement of common stock (67) (56,518) - (56,585)
Net income - - 39,855 39,855
Dividends to common stockholders
($1.56 per share) - - (32,663) (32,663)
Balance, December 31, 1999 $ 392 $353,220 $(53,432) $300,180
Issuance of common stock 5 966 - 971
Repurchase and retirement of common stock (24) (20,861) - (20,885)
Net income - - 30,742 30,742
Dividends to common stockholders
($0.84 per share) - - (15,649) (15,649)
Balance, June 30, 2000 $ 373 $333,325 $(38,339) $295,359
</TABLE>
See accompanying notes to consolidated financial statements.
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited)
(in thousands)
<TABLE>
<S> <C> <C>
2000 1999
Operating Activities:
Net income $ 30,742 $ 24,078
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest 66 65
Depreciation and amortization 7,440 6,823
Gain on sales of real estate investments, net (15,228) (7,611)
Change in other assets (3,668) (3,296)
Change in accounts payable and
accrued expenses (1,703) (676)
Change in other liabilities (1,339) (863)
Net cash provided by operating activities 16,310 18,520
Investing Activities:
Investments in real estate (14,535) (47,051)
Proceeds from sales of real estate investments, net 38,504 15,334
Net cash provided (used) by investing activities 23,969 (31,717)
Financing Activities:
Proceeds from bank loan payable, net of loan costs 33,269 62,511
Repayments of bank loan payable (34,228) (116,298)
Proceeds from mortgage loans payable, net of loan costs (638) 105,669
Repayments of mortgage loans payable (1,672) (5,758)
Issuance of common stock 971 1,087
Payment of dividends and distributions (16,123) (16,058)
Repurchase and retirement of common stock (20,885) (17,928)
Net cash (used) provided by financing activities (39,306) 13,225
Net increase in cash 973 28
Cash at beginning of period 1,584 1,286
Cash at end of period $ 2,557 $ 1,314
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of amounts capitalized of
$1,330 in 2000 and $912 in 1999 $ 11,542 $ 7,349
</TABLE>
See accompanying notes to consolidated financial statements.
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2000
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 for 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 period. Stock options issued under the Company's stock
option plans, non-vested restricted stock, and the limited partnership units of
Bedford Realty Partners, L.P. are included in the calculation of diluted per
share data if, upon exercise or vestiture, they would have a dilutive effect.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Financial
Accounting Standard No. 133, Accounting for Derivatives Instruments and Hedging
Activities. SFAS 133, as amended, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. Management believes that the
adoption of this statement will not have a material impact on the Company's
financial statements.
In December 1999, the SEC Staff issued Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements (SAB 101). SAB 101, as amended,
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements.
Management believes that SAB 101 will not have a material impact on the
Company's financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44, Accounting for
Certain Transactions involving Stock Compensation - an interpretation of APB
Opinion No. 25 (FIN 44). The provisions of FIN 44 are effective July 1, 2000.
Management believes that the adoption of FIN 44 will not have a material impact
on the Company's financial statements.
Note 2. Real Estate Investments
As of June 30, 2000, 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 58 $287,245 43%
Office buildings 26 305,087 45%
Operating properties held for sale 15 51,717 8%
Properties under development 9 22,047 3%
Land held for development 6 6,280 1%
Total 114 $672,376 100%
The following table sets forth the Company's real estate investments as of June
30, 2000 (in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C>
Less
Development Accumulated
Land Building In-Progress Depreciation Total
Industrial buildings
Northern California $ 44,238 $107,231 - $10,385 $141,084
Arizona 18,495 51,202 - 3,217 66,480
Southern California 18,309 42,573 - 3,737 57,145
Colorado 1,911 3,286 - 391 4,806
Total industrial buildings 82,953 204,292 - 17,730 269,515
Office buildings
Northern California 6,801 24,462 - 1,473 29,790
Arizona 11,954 27,691 - 1,316 38,329
Southern California 9,361 21,503 - 1,542 29,322
Colorado 5,560 45,769 - 2,283 49,046
Greater Seattle Area 23,653 115,527 - 5,245 133,935
Nevada 2,102 10,704 - 790 12,016
Total office buildings 59,431 245,656 - 12,649 292,438
Operating properties held for sale
Arizona - - - - -
Southern California - - - - -
Greater Kansas City Area 6,571 20,971 - 2,104 25,438
Texas 5,932 18,243 - 780 23,395
Total operating properties held for sale 12,503 39,214 - 2,884 48,833
Properties under development
Northern California 500 - 554 - 1,054
Arizona 2,274 - 4,595 - 6,869
Colorado 4,918 - 5,344 - 10,262
Greater Seattle Area 1,646 - 2,216 - 3,862
Total properties under development 9,338 - 12,709 - 22,047
Land held for development
Northern California 2,195 - - - 2,195
Southern California 705 - - - 705
Colorado 3,380 - - - 3,380
Total land held for development 6,280 - - - 6,280
Total $170,505 $489,162 $12,709 $33,263 $639,113
</TABLE>
Company personnel directly manage all but nine of the Company's properties from
regional offices in Lafayette, California; Tustin, California; Phoenix,
Arizona; Lenexa, Kansas; Denver, Colorado; and Seattle, Washington. For the
nine 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, California.
Income from property operations for properties held for sale as of June 30, 2000
was $2,916,000 and $2,219,000 for the six months ended June 30, 2000 and 1999,
respectively.
For the six months ended June 30, 2000 and 1999, the Company capitalized
interest costs relating to properties under development totaling $1,330,000 and
$912,000, respectively.
The Company has contractual construction commitments of approximately $11.9
million as of June 30, 2000 relating to seven of its properties under
development and three of its properties under rehabilitation.
Note 3. Debt
Bank Loan Payable
In June 1998, the Company amended and restated its secured revolving credit
facility led by Bank of America. Under this facility, which matures
June 1, 2001, the Company can borrow up to $175 million on a secured basis. The
facility contains an unsecured sub-line of $50 million. The 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% depending on the
Company's leverage level. The unsecured loans bear interest at either the
lender's published "reference rate" or LIBOR plus a margin of 1.50%. As of
June 30, 2000, the facility, which was all secured, had an outstanding balance
of $136,468,000, with an interest rate of LIBOR plus 1.35%. The credit facility
is secured by mortgages on 41 properties, which properties collectively
accounted for approximately 39% of the Company's annualized base rent and
approximately 37% of the Company's total real estate assets as of
June 30, 2000, 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. As of June 30, 2000, the Company was in compliance with the
covenants and requirements of its revolving credit facility.
The daily weighted average amount owed to the bank was $137,974,000 and
$104,813,000 for the six months ended June 30, 2000 and 1999, respectively. The
weighted average interest rates in each of these periods was 7.64% and 6.69%,
respectively. The effective interest rate at June 30, 2000 was 8.06%.
Mortgage Loans Payable
In May 1999 the Company obtained a total of $108 million of mortgage financing
from TIAA. The financing consists of a $43.45 million 10-year loan, a $37.2
million 8-year loan, and a $27.35 million 6-year loan, all with interest at a
fixed rate of 7.17%. In November 1999, the Company secured an additional $22.15
million mortgage loan from TIAA. The loan has a 7-year term with interest at a
fixed rate of 7.95%. In December 1999, the Company secured a $4.6 million
mortgage loan from Union Bank. The loan has a 5-year term with interest at a
variable rate of LIBOR plus 2.50%. Proceeds of the mortgage loans were used to
pay down the outstanding balance of the Company's $175 million line of credit.
Mortgage loans payable at June 30, 2000 consist of the following (in thousands):
Floating rate note due January 1, 2005, current rate of 8.68% $ 4,578
7.50% note due January 1, 2002 23,673
7.02% note due March 15, 2003 19,090
7.17% note due June 1, 2005 26,942
8.90% note due July 31, 2006 8,426
6.91% note due July 31, 2006 20,107
7.95% note due December 1, 2006 22,007
7.17% note due June 1, 2007 36,646
7.75% note due April 1, 2009 937
7.17% note due June 1, 2009 42,802
$205,208
The mortgage loans are collaterized by 41 properties at June 30, 2000, which
properties collectively accounted for approximately 50% of the Company's
annualized base rent and approximately 46% of the Company's total real estate
assets as of June 30, 2000, together with the rental proceeds from such
properties. The Company was in compliance with the covenants and requirements
of its various mortgage financings as of June 30, 2000.
The following table presents scheduled principal payments on mortgage loans as
of June 30, 2000 (in thousands):
Twelve month period ending June 30, 2001 $ 3,541
Twelve month period ending June 30, 2002 26,534
Twelve month period ending June 30, 2003 21,520
Twelve month period ending June 30, 2004 3,405
Twelve month period ending June 30, 2005 32,317
Thereafter 117,891
$205,208
Note 4. 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 5. Segment Disclosure
The Company has six reportable segments organized by the region in which they
operate: Northern California (Northern California and Nevada), Southwest
(Arizona and greater Austin, Texas), Southern California, Northwest (greater
Portland, Oregon and greater Seattle, Washington), Midwest (greater Kansas City,
Kansas/Missouri, and 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.
For the six months ended June 30, 2000 (in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Northern Southern Corporate
California Southwest California Northwest Midwest Colorado & Other Consolidated
Rental income $ 16,717 $ 9,541 $ 6,770 $ 9,468 $ 2,500 $ 4,353 - $ 49,349
Operating expenses and real
estate taxes 3,657 2,639 1,316 3,028 823 1,714 - 13,177
Depreciation and
amortization 2,360 1,158 953 1,560 (86) 578 - 6,523
Income from property
operations $ 10,700 $ 5,744 $ 4,501 $ 4,880 $ 1,763 $ 2,061 - $ 29,649
Percent of income from
property operations 36% 19% 15% 17% 6% 7% 0% 100%
General and administrative
expenses - - - - - - (1,826) (1,826)
Interest income(1) 14 1 - 1 - - 91 107
Interest expense - - - - - - (12,350) (12,350)
Income before gain on sales
of real estate investments
and minority interest 10,714 5,745 4,501 4,881 1,763 2,061 (14,085) 15,580
Gain (loss) on sales of real
estate investments 14,219 - (6) 1,015 - - - 15,228
Minority interest - - - - - - (66) (66)
Net income $ 24,933 $ 5,745 $ 4,495 $ 5,896 $ 1,763 $ 2,061 $ (14,151) $ 30,742
Real estate investments $198,787 $137,407 $ 92,450 $143,042 $ 30,522 $ 70,168 - $672,376
Additions (dispositions) of
real estate investments $ (6,471) $ 3,896 $ (2,008) $ (7,339) $ 229 $ 4,336 - $ (7,357)
Total assets $208,371 $124,861 $101,616 $126,642 $ 30,654 $ 64,265 $ 4,756 $661,165
</TABLE>
(1) The interest income in the Northern California, Southwest and Northwest
segments represents interest earned from tenant notes receivable.
For the six months ended June 30, 1999 (in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Northern Southern Corporate
California Southwest California Northwest Midwest Colorado & Other Consolidated
Rental income $ 16,698 $ 7,442 $ 5,812 $ 6,897 $ 2,578 $ 4,274 $ 4 $ 43,705
Operating expenses and real
estate taxes 3,528 1,873 1,124 1,837 666 1,445 199 10,672
Depreciation and
amortization 2,057 990 793 1,078 410 577 - 5,905
Income from property
operations $ 11,113 $ 4,579 $ 3,895 $ 3,982 $ 1,502 $ 2,252 $ (195) $ 27,128
Percent of income from
property operations 41% 17% 14% 15% 6% 8% -1% 100%
General and administrative
expenses - - - - - - (1,963) (1,963)
Interest income(1) 12 - - 2 - - 67 81
Interest expense - - - - - - (8,416) (8,416)
Income before gain on sale
of real estate investments
and minority interest 11,125 4,579 3,895 3,984 1,502 2,252 (10,507) 16,830
Gain on sale of real estate
investments 7,566 - 45 - - - - 7,611
Minority interest - - - - - - (65) (65)
Income before
extraordinary item 18,691 4,579 3,940 3,984 1,502 2,252 (10,572) 24,376
Loss on early
extinguishment of debt (298) - - - - - - (298)
Net income $ 18,393 $ 4,579 $ 3,940 $ 3,984 $ 1,502 $ 2,252 $(10,572) $ 24,078
Real estate investments $204,322 $123,900 $ 88,795 $128,954 $ 32,477 $ 60,442 - $638,890
Additions to real estate
investments $ (5,267) $ 14,468 $ 11,397 $ 15,704 $ 266 $ 2,341 - $ 38,909
Total assets $210,499 $115,021 $ 94,379 $117,931 $ 31,220 $ 59,612 $ 8,444 $637,106
</TABLE>
(1) The interest income in the Northern California and Northwest segments
represents interest earned from tenant notes receivable.
Note 6. Earnings per Share
Following is a reconciliation of earnings per share:
(in thousands, except share and per share amounts)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
Basic:
Income before extraordinary item $ 7,511 $ 15,565 $ 30,742 $ 24,376
Extraordinary item - loss on early
extinguishment of debt - (298) - (298)
Net income $ 7,511 $ 15,267 $ 30,742 $ 24,078
Weighted average number of shares - basic 18,256,565 21,784,185 18,771,601 22,138,529
Earnings per share:
Income before extraordinary item $ 0.41 $ 0.71 $ 1.64 $ 1.10
Extraordinary item - loss on early
extinguishment of debt - (0.01) - (0.01)
Net income for basic earnings per share $ 0.41 $ 0.70 $ 1.64 $ 1.09
Diluted:
Income before extraordinary item $ 7,511 $ 15,565 $ 30,742 $ 24,376
Add: Minority Interest 33 34 66 65
Extraordinary item - loss on early
extinguishment of debt - (298) - (298)
Net income for diluted earnings per share $ 7,544 $ 15,301 $ 30,808 $ 24,143
Weighted average number of shares (from above) 18,256,565 21,784,185 18,771,601 22,138,529
Weighted average shares of dilutive stock
options using average period stock price
under the treasury stock method 40,090 69,571 48,405 61,490
Weighted average shares issuable upon the
conversion of operating partnership units 77,992 86,888 77,992 86,888
Weighted average shares of non-vested restricted
stock using average period stock price under
the treasury stock method 114,756 - 95,951 -
Weighted average number of shares - diluted 18,489,403 21,940,644 18,993,949 22,286,907
Income before extraordinary item $ 0.41 $ 0.71 $ 1.62 $ 1.09
Extraordinary item - loss on early
extinguishment of debt - (0.01) - (0.01)
Net income for diluted earnings per share $ 0.41 $ 0.70 $ 1.62 $ 1.08
</TABLE>
Note 7. Subsequent Events
In July 2000 the Company secured a total of $30.89 million of mortgage
financing from Security Life of Denver Insurance Company. The loans
have a five year term with options to renew for three additional five
year terms. Interest on the mortgages are at a variable rate of LIBOR
plus 1.40%. Proceeds from the loans were used to pay down the
outstanding balance of the Company's $175 million line of credit.
The Company currently has seventeen properties and a 1.43 acre parcel
of land under contracts for sale. The properties consist of 986,308
rentable square feet and include seven industrial and two office
properties in Kansas, four industrial and one office property in
Texas, one rehabilitation project in Tempe, Arizona, one office
property in Bellevue, Washington, and one office property in Mountain
View, California. Sale contract prices total $103 million. The
Company intends to use sale proceeds to pay down the outstanding
balance of the Company's $175 million line of credit.
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 and expenses for the three and six months ended
June 30, 2000 when compared with the same period in 1999 were due
primarily to property additions during 1999, offset in part by the
sales of operating properties in 2000 and 1999 as follows:
<TABLE>
<S> <C> <C> <C> <C>
Activities from January 1, 1999 Activities from July 1, 1999
to June 30, 1999 to June 30, 2000
Number of Square Number of Square
Operating Properties Feet Operating Properties Feet
Acquisitions
Industrial 2 135,000 3 199,000
Office 3 166,000 1 115,000
5 301,000 4 314,000
Development
Industrial 4 203,000
Office 3 168,000
7 371,000
Sales
Industrial 1 25,000 6 748,000
Office 1 114,000 - -
2 139,000 6 748,000
</TABLE>
The increase in net income for the six months ended June 30, 2000 when
compared with the same period in 1999 was primarily due to gains on
sales of operating properties, discussed below.
Three Months Ended June 30, 2000 Compared with Three Months Ended June
30, 1999
Income from Property Operations
Income from property operations (defined as rental income less rental
expenses) increased $479,000 or 3% in 2000 compared with 1999. This
is due to an increase in rental income of $2,611,000 partially offset
by an increase in rental expenses (which include operating expenses,
real estate taxes and depreciation and amortization) of $2,132,000.
The increase in rental income and expenses is primarily attributable
to properties acquired in 1999 and, to a lesser extent, properties
developed during 1999 and 2000. These activities increased rental
income and rental expenses in 2000 by $2,921,000 and $1,361,000,
respectively, as compared to 1999. This was partially offset by the
sale of three industrial properties and one office property in 1999,
and the sale of four industrial properties in 2000, which resulted in
a reduction in rental income and rental expenses of $1,661,000 and
$344,000, respectively. The remaining increase in rental income is
due to an overall increase in rental rates. The remaining increase in
rental expenses is mainly due to increases in property tax
assessments.
Expenses
Interest expense, which includes amortization of loan fees, increased
$1,717,000 or 37% in 2000 compared with 1999. The increase is
attributable to the Company's higher level of borrowings and related
costs to finance the property acquisitions and development activities
during 1999 and 2000 and the repurchase of shares since November 1998.
The amortization of loan fees was $402,000 and $466,000 in the second
quarter of 2000 and 1999, respectively. General and administrative
expense decreased $210,000 or 18% in the second quarter of 2000
compared with 1999, primarily the result of decreased consultant
services costs.
Gain on sale
In June 1999, the Company sold Woodland Towers II in Salt Lake City,
Utah, for a net sales price of $13,122,000, which resulted in a gain
of approximately $6,998,000. This sale was completed as part of a
tax-deferred exchange, under Section 1031 of the Internal Revenue
Code, in which the Company acquired three properties. In June 1999,
the Company also sold Oak Ridge Land in Vista, California, for a net
sales price of $423,000, which resulted in a gain of approximately
$45,000. In June 2000, the Company sold 5502 Oberlin Drive in San
Diego, California, for a net sales price of $2,165,000, which resulted
in a loss of approximately $6,000.
Six Months Ended June 30, 2000 Compared with Six Months Ended June 30,
1999
Income from Property Operations
Income from property operations (defined as rental income less rental
expenses) increased $2,521,000 or 9% in 2000 compared with 1999. This
is due to an increase in rental income of $5,644,000 partially offset
by an increase in rental expenses (which include operating expenses,
real estate taxes and depreciation and amortization) of $3,123,000.
The increase in rental income and expenses is primarily attributable
to properties acquired in 1999 and, to a lesser extent, properties
developed during 1999 and 2000. These activities increased rental
income and rental expenses in 2000 by $5,844,000 and $2,540,000,
respectively, as compared to 1999. This was partially offset by the
sale of three industrial properties and one office property in 1999,
and the sale of four industrial properties in 2000, which resulted in
a reduction in rental income and rental expenses of $2,554,000 and
744,000, respectively. The remaining increase in rental income is due
to an overall increase in rental rates. The remaining increase in
rental expenses is mainly due to increases in property tax
assessments.
Expenses
Interest expense, which includes amortization of loan fees, increased
$3,934,000 or 47% in 2000 compared with 1999. The increase is
attributable to the Company's higher level of borrowings and related
costs to finance the property acquisitions and development activities
during 1999 and 2000 and the repurchase of shares since November 1998.
The amortization of loan fees was $778,000 and $767,000 in the first
six months of 2000 and 1999, respectively. General and administrative
expense decreased $137,000 or 7% in 2000 compared with 1999, primarily
the result of decreased consultant services costs.
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. In June 1999, the Company sold
Woodland Towers II in Salt Lake City, Utah, for a net sales price of
$13,122,000, which resulted in a gain of approximately $6,998,000.
This sale was completed as part of a tax-deferred exchange, under
Section 1031 of the Internal Revenue Code, in which the Company
acquired three properties. In June 1999, the Company also sold Oak
Ridge Land in Vista, California, for a net sales price of $423,000,
which resulted in a gain of approximately $45,000. In March 2000, the
Company sold 350 East Plumeria in San Jose, California, for a net
sales price of $24,582,000, which resulted in a gain of approximately
$14,219,000. In March 2000, the Company also sold Twin Oaks
Technology Center and Twin Oaks Business Center in Beaverton, Oregon,
for a net sales price of $11,757,000, which resulted in a gain of
approximately $1,015,000. In June 2000, the Company sold 5502 Oberlin
Drive in San Diego, California, for a net sales price of $2,165,000,
which resulted in a loss of approximately $6,000.
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 1, 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% depending on the Company's leverage level.
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
June 30, 2000, the facility, which was all secured, had an outstanding
balance of $136,468,000, and an effective interest rate of 8.06%.
The $108 million TIAA financings consist of a $43.45 million 10-year
loan, a $37.2 million 8-year loan, and a $27.35 million 6-year loan,
all with interest at a fixed rate of 7.17%. In November 1999, the
Company obtained an additional $22.15 million mortgage loan from TIAA.
The loan has a 7-year term with interest at a fixed rate of 7.95%. In
December 1999, the Company obtained a $4.6 million mortgage loan from
Union Bank. The loan has a 5-year term with interest at a variable
rate of LIBOR plus 2.50%. Proceeds from the mortgage loans were used
to pay down the outstanding balance of the Company's $175 million line
of credit.
The Company was in compliance with the covenants and requirements of
its various debt financings as of June 30, 2000. The Company
anticipates that the cash flow generated by its real estate
investments and funds available under the above credit facility will
be sufficient to meet its short-term liquidity requirements.
During the six months ended June 30, 2000, the Company's operating
activities provided cash flow of $16,310,000. Investing activities
utilized cash of $14,535,000 for real estate investments and
development, offset by proceeds from real estate sales of $38,504,000.
Financing activities utilized net cash flow of $39,306,000 consisting
of the net proceeds from bank borrowings and mortgage loans of
$32,631,000 and net proceeds from the issuance of common stock of
$971,000, offset by repayment of bank borrowings and mortgage loans of
$35,900,000, payment of dividends and distributions of $16,123,000,
and the repurchase of 1,209,805 shares of common stock for
$20,885,000.
Common stock dividends declared for the first and second quarters of
2000 were $0.42 per share. Distributions declared for the first and
second quarters of 2000 were $0.42 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.
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), and (iii) the sale of certain
real estate investments.
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
and the $4.6 million mortgage loan from Union Bank bear interest at
floating rates. The Company recognizes that its results from
operations may be negatively impacted by future increases in interest
rates and substantial additional borrowings to finance property
acquisitions, development projects and share repurchases.
While the Company has historically been successful in renewing and
reletting space, the Company is subject to the risk that certain
leases expiring in 2000 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 expenses.
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. Accordingly, the Company does
not currently 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 and six
months ended June 30, 2000 amounted to $10,930,000 and $22,103,000,
respectively. During the same periods in 1999, FFO amounted to
$11,489,000 and $22,735,000, 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 extraordinary items, such as gains (losses)
from debt restructurings, and sales of property, 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.
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Funds From Operations (in thousands):
Net income $ 7,511 $15,267 $30,742 $24,078
Add:
Depreciation and amortization 3,380 2,933 6,523 5,905
Minority interest 33 34 66 65
Extraordinary item - 298 - 298
(Gain) loss on sales 6 (7,043) (15,228) (7,611)
Funds From Operations $10,930 $11,489 $22,103 $22,735
</TABLE>
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 (dollars in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Twelve Month Period Ending June 30,
Fair
2001 2002 2003 2004 2005 Thereafter Total Value
Variable rate LIBOR debt $ 55 $136,528 $ 66 $ 72 $ 4,325 - $141,046 $141,046
Average interest rate 8.78% 7.52% 8.78% 8.78% 8.78% - 7.56% 7.56%
Fixed rate debt $ 3,485 $ 26,474 $21,455 $3,334 $27,992 $117,890 $200,630 $194,858
Average interest rate 7.34% 7.48% 7.07% 7.37% 7.20% 7.37% 7.33% 8.06%
</TABLE>
As the table incorporates only those exposures that exist as of June
30, 2000, 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.
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
The Company held its annual stockholders' meeting on May 18, 2000 to
consider the following proposals:
1. To elect five directors by the holders of the
Common Stock for the ensuing year.
2. To ratify the appointment by the Board of
Directors of the Company's independent public
accountants for the year ending December 31,
2000.
All proposals were approved. Following are the results of the voting
for proposals 1 and 2:
For Against Abstain
1. To elect five directors to serve until the
next annual meeting of stockholders 15,115,066 - 200,281
2. To ratify the appointment by the Board of
Directors of the Company's independent
public accountants 15,259,565 38,460 17,322
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.
10.29* Loan Agreement dated as of July 27, 2000, between
Bedford Property Investors, Inc. as Borrower and
Security Life of Denver Insurance Company as Lender is
incorporated herein by reference to Exhibit 10.29 to
the Company's Form 10-Q for the quarter ended June 30,
2000.
10.30* Loan Agreement dated as of July 27, 2000, between
Bedford Property Investors, Inc. as Borrower and
Security Life of Denver Insurance Company as Lender is
incorporated herein by reference to Exhibit 10.30 to
the Company's Form 10-Q for the quarter ended June 30,
2000.
27* Financial Data Schedule
* Filed herewith
B. Reports on Form 8-K
None
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: August 4, 2000
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
Vice President Controller
