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, 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 April 28, 2000
Common Stock, $0.02 par value 18,620,450
BEDFORD PROPERTY INVESTORS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
Statement 1
Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 2
Consolidated Statements of Income for the three months ended
March 31, 2000 and 1999 3
Consolidated Statements of Stockholders' Equity for the year ended
December 31, 1999 and the three months ended March 31, 2000 4
Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6-13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION 14-17
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES
ABOUT MARKET RISK 18
PART II. OTHER INFORMATION
ITEMS 1 - 6 19
SIGNATURES 20
Exhibit 27 21
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 MARCH 31, 2000 AND DECEMBER 31, 1999 (Unaudited)
(in thousands, except share and per share amounts)
March 31, 2000 December 31, 1999
Assets:
Real estate investments:
Industrial buildings $276,986 $279,367
Office buildings 298,227 294,420
Operating properties held for sale 67,148 80,563
Properties under development 18,421 19,246
Land held for development 6,135 6,137
666,917 679,733
Less accumulated depreciation 30,224 28,695
636,693 651,038
Cash 1,330 1,584
Other assets 17,617 18,788
$655,640 $671,410
Liabilities and Stockholders' Equity:
Bank loan payable $130,656 $137,156
Mortgage loans payable 206,054 206,880
Accounts payable and accrued expenses 8,410 9,767
Dividend and distributions payable 7,853 8,270
Other liabilities 6,323 7,928
Total liabilities 359,296 370,001
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 18,620,056
shares in 2000 and 19,613,472 shares
in 1999 372 392
Additional paid-in capital 332,765 353,220
Accumulated dividends in
excess of net income (38,022) (53,432)
Total stockholders' equity 295,115 300,180
$655,640 $671,410
See accompanying notes to consolidated financial statements.
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (Unaudited)
(in thousands, except share and per share amounts)
2000 1999
Property operations:
Rental income $ 24,392 $ 21,359
Rental expenses:
Operating expenses 3,927 3,580
Real estate taxes 2,381 1,908
Depreciation and amortization 3,143 2,972
Income from property operations 14,941 12,899
General and administrative expenses (895) (822)
Interest income 34 30
Interest expense (6,050) (3,833)
Income before gain on sales of real estate
investments and minority interest 8,030 8,274
Gain on sales of real estate investments 15,234 568
Minority interest (33) (31)
Net income $ 23,231 $ 8,811
Earnings per share - basic $ 1.20 $ 0.39
Weighted average number of shares - basic 19,286,636 22,496,811
Earnings per share - diluted $ 1.19 $ 0.39
Weighted average number of shares - diluted 19,498,352 22,642,418
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 THREE MONTHS ENDED MARCH 31, 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 4 367 - 371
Repurchase and retirement of common stock (24) (20,822) - (20,846)
Net income - - 23,231 23,231
Dividends to common stockholders
($0.42 per share) - - (7,821) (7,821)
Balance, March 31, 2000 $ 372 $332,765 $(38,022) $295,115
</TABLE>
See accompanying notes to consolidated financial statements.
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (Unaudited)
(in thousands)
<TABLE>
<S> <C> <C>
2000 1999
Operating Activities:
Net income $ 23,231 $ 8,811
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest 33 31
Depreciation and amortization 3,590 3,342
Gain on sales of real estate investments (15,234) (568)
Change in other assets (1,877) (7,179)
Change in accounts payable and
accrued expenses (1,503) (192)
Change in other liabilities (1,605) (1,882)
Net cash provided by operating activities 6,635 2,363
Investing Activities:
Investments in real estate (7,128) (11,713)
Proceeds from sales of real estate investments 36,339 1,789
Net cash (used) provided by investing activities 29,211 (9,924)
Financing Activities:
Proceeds from bank loan payable 25,715 34,463
Repayments of bank loan payable (32,228) (1,300)
Proceeds from mortgage loans payable (15) (1,414)
Repayments of mortgage loans payable (826) (326)
Issuance of common stock 371 458
Payment of dividends and distributions (8,271) (8,185)
Repurchase and retirement of common stock (20,846) (16,253)
Net cash used (provided) by financing activities (36,100) 7,443
Net decrease in cash (254) (118)
Cash at beginning of period 1,584 1,286
Cash at end of period $ 1,330 $ 1,168
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of
amounts capitalized of $810 in 2000 and $404
in 1999 $ 5,669 $ 3,460
</TABLE>
See accompanying notes to consolidated financial statements.
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 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 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 Financial Accounting Standards Board 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 March 31, 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 56 $276,986 41%
Office buildings 25 298,227 45%
Operating properties held for sale 18 67,148 10%
Properties under development 7 18,421 3%
Land held for development 5 6,135 1%
Total 111 $666,917 100%
The following table sets forth the Company's real estate investments as
of March 31, 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 $106,859 $ - $ 9,607 $141,490
Arizona 16,717 46,004 - 2,568 60,153
Southern California 17,663 40,308 - 3,295 54,676
Colorado 1,911 3,286 - 368 4,829
Total industrial buildings 80,529 196,457 - 15,838 261,148
Office buildings
Northern California 6,801 24,370 - 1,282 29,889
Arizona 10,622 24,387 - 988 34,021
Southern California 9,361 21,456 - 1,402 29,415
Colorado 5,560 45,687 - 2,027 49,220
Greater Seattle Area 23,652 113,543 - 4,454 132,741
Nevada 2,102 10,686 - 728 12,060
Total office buildings 58,098 240,129 - 10,881 287,346
Operating properties held for sale
Arizona 3,110 7,348 - 363 10,095
Southern California 1,558 3,475 - 145 4,888
Greater Kansas City Area 6,571 20,933 - 2,184 25,320
Texas 5,932 18,221 - 813 23,340
Total operating properties held for sale 17,171 49,977 - 3,505 63,643
Properties under development
Northern California - - 868 - 868
Arizona - - 6,316 - 6,316
Colorado - - 7,530 - 7,530
Greater Seattle Area - - 3,707 - 3,707
Total properties under development - - 18,421 - 18,421
Land held for development
Northern California 2,131 - - - 2,131
Southern California 703 - - - 703
Colorado 3,301 - - - 3,301
Total land held for development 6,135 - - - 6,135
Total $161,933 $486,563 $18,421 $30,224 $636,693
</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 March 31,
2000 was $2,475,000 and $1,944,000 for the three months ending March 31, 2000
and 1999, respectively.
For the three months ending March 31, 2000 and 1999, the Company capitalized
interest costs relating to properties under development totaling $810,000 and
$404,000, respectively.
The Company has contractual construction commitments of approximately $14.8
million at March 31, 2000 relating to seven of its properties under development
and two 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 15,
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%. At March
31, 2000, the facility, which was all secured, had an outstanding balance of
$130,656,000, with an interest rate of LIBOR plus 1.35%. Approximately 58% ($75
million) of the loan was fixed at a six-month LIBOR rate which expires in June
2000. 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 38% of the Company's total real estate
assets as of March 31, 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 March 31, 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 $141,671,000 and
$157,929,000 for the three months ended March 31, 2000 and 1999, respectively.
The weighted average interest rates in each of these periods was 7.47% and
6.25%, respectively. The effective interest rate at March 31, 2000 was 7.71%.
Mortgage Loans Payable
In May 1999 the Company obtained a total of $108 million of new first 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.
<PAGE>
Mortgage loans payable at March 31, 2000 consist of the following (in
thousands):
Floating rate note due January 1, 2005, current rate of 8.68% $ 4,591
7.50% note due January 1, 2002 23,782
7.02% note due March 15, 2003 19,174
7.17% note due June 1, 2005 27,047
8.90% note due July 31, 2006 8,470
6.91% note due July 31, 2006 20,199
7.95% note due December 1, 2006 22,079
7.17% note due June 1, 2007 36,788
7.75% note due April 1, 2009 955
7.17% note due June 1, 2009 42,969
$206,054
The mortgage loans are collaterized by 41 properties at March 31, 2000, which
properties collectively accounted for approximately 49% of the Company's
annualized base rent and approximately 46% of the Company's total real estate
assets as of March 31, 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 March 31, 2000.
The following table presents scheduled principal payments on mortgage loans as
of March 31, 2000 (in thousands):
Twelve month period ending March 31, 2001 $ 3,385
Twelve month period ending March 31, 2002 26,469
Twelve month period ending March 31, 2003 21,609
Twelve month period ending March 31, 2004 3,328
Twelve month period ending March 31, 2005 7,878
Thereafter 143,385
$206,054
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 three months ended March 31, 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 $ 8,536 $ 4,460 $ 3,410 $ 4,597 $ 1,218 $ 2,179 $ (8) $ 24,392
Operating expenses and real
estate taxes 1,800 1,160 646 1,273 382 912 135 6,308
Depreciation and
amortization 1,165 527 442 719 - 290 - 3,143
Income from property
operations $ 5,571 $ 2,773 $ 2,322 $ 2,605 $ 836 $ 977 $ (143) $ 14,941
Percent of income from
property operations 37% 19% 16% 17% 5% 7% (1)% 100%
General and administrative
expenses - - - - - - (895) (895)
Interest income (1) 5 - - 1 - - 28 34
Interest expense - - - - - - (6,050) (6,050)
Income before gain on sales
of real estate investments
and minority interest 5,576 2,773 2,322 2,606 836 977 (7,060) 8,030
Gain on sales of real
estate investments 14,219 - - 1,015 - - - 15,234
Minority interest - - - - - - (33) (33)
Net income $ 19,795 $ 2,773 $ 2,322 $ 3,621 $ 836 $ 977 $(7,093) $ 23,231
Real estate investments $198,055 $135,677 $ 94,524 $140,902 $ 30,484 $ 67,275 $ - $666,917
Additions (dispositions) of
real estate investments $ (7,203) $ 2,166 $ 66 $ (9,479) $ 191 $ 1,443 $ - $(12,816)
Total assets $204,530 $123,943 $101,833 $126,671 $ 30,192 $ 63,775 $ 4,696 $655,640
</TABLE>
(1) The interest income in the Northern California and Northwest segments
represents interest earned from tenant notes receivable.
For the three months ended March 31, 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 $ 8,388 $ 3,423 $ 2,664 $ 3,423 $ 1,225 $ 2,127 $ 109 $ 21,359
Operating expenses and real
estate taxes 1,798 973 533 1,028 326 722 108 5,488
Depreciation and
amortization 1,073 467 397 536 208 291 - 2,972
Income from property
operations $ 5,517 $ 1,983 $ 1,734 $ 1,859 $ 691 $ 1,114 $ 1 $ 12,899
Percent of income from
property operations 43% 15% 14% 14% 5% 9% 0% 100%
General and administrative
expenses - - - - - - (822) (822)
Interest income(1) 6 - - 1 - - 23 30
Interest expense - - - - - - (3,833) (3,833)
Income before gain on sale
of real estate investments
and minority interest 5,523 1,983 1,734 1,860 691 1,114 (4,631) 8,274
Gain on sale of real estate
investments 568 - - - - - - 568
Minority interest - - - - - - (31) (31)
Net income $ 6,091 $ 1,983 $ 1,734 $ 1,860 $ 691 $ 1,114 $ (4,662) $ 8,811
Real estate investments $210,130 $111,203 $ 82,689 $116,025 $ 32,359 $ 58,290 $ - $610,696
Additions to real estate
investments $ 541 $ 1,771 $ 5,291 $ 2,775 $ 148 $ 189 $ - $ 10,715
Total assets $213,192 $103,835 $ 87,770 $108,982 $ 30,783 $ 57,100 $ 12,715 $614,377
</TABLE>
(1) The interest income in the Northern California and Northwest segments
represents interest earned from tenant notes receivable.
Note 6. Fair Value of Financial Instruments
The carrying values of trade accounts payable and receivable approximate fair
value due to the short-term maturity of these instruments. Management has
determined that the market value of the $201,463,000 fixed rate debt is
approximately $195,618,000 based on the terms of existing debt compared to those
available in the marketplace. The carrying value of variable rate debt
approximates fair value, as the interest rates and other terms are comparable
to current market terms.
Note 7. Earnings per Share
Following is a reconciliation of earnings per share:
(in thousands, except share and per share amounts)
Three Months Ended March 31,
2000 1999
Basic:
Net income $ 23,231 $ 8,811
Weighted average number of shares - basic 19,286,636 22,496,811
Net income for basic earnings per share $ 1.20 $ 0.39
Diluted:
Net income $ 23,231 $ 8,811
Add: Minority interest 33 31
Net income for diluted earnings per share $ 23,264 $ 8,842
Weighted average number of shares
(from above) 19,286,636 22,496,811
Weighted average shares of dilutive stock
options using average period stock price
under the treasury stock method 60,256 58,719
Weighted average shares issuable upon the
conversion of operating partnership units 77,992 86,888
Weighted average shares of non-vested
restricted stock using average period
stock price under the treasury stock
method 73,468 -
Weighted average number of shares - diluted 19,498,352 22,642,418
Net income for diluted earnings per share $ 1.19 $ 0.39
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 months ended March 31, 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 April 1, 1999
to March 31, 1999 to March 31, 2000
Number of Square Number of Square
Operating Properties Feet Operating Properties Feet
Acquisitions
Industrial - - 5 334,000
Office 1 43,000 3 237,000
1 43,000 8 571,000
Development
Industrial - - 4 268,000
Office - - 2 94,000
- - 6 362,000
Sales
Industrial 1 25,000 5 728,000
Office - - 1 114,000
1 25,000 6 842,000
</TABLE>
The increase in net income for the three months ended March 31, 2000 when
compared with the same period in 1999 was due to gains on the sales of
operating properties, discussed below.
Three Months Ended March 31, 2000 Compared with Three Months Ended March 31,
1999
Income from Property Operations
Income from property operations (defined as rental income less rental
expenses) increased $2,042,000 or 16% in 2000 compared with 1999. This is
due to an increase in rental income of $3,033,000 partially offset by an
increase in rental expenses (which include operating expenses, real estate
taxes and depreciation and amortization) of $991,000.
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 $2,922,000 and $1,179,000, 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 three industrial properties
in 2000, which resulted in a reduction in rental income and rental expenses
of $893,000 and 393,000, 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
$2,217,000 or 58% 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
$376,000 and $301,000 in the first quarter of 2000 and 1999, respectively.
General and administrative expense increased $73,000 or 9% in the first
quarter of 2000 compared with 1999, primarily the result of increased
personnel 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 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.
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% 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 March 31, 2000, the facility, which was all secured, had an outstanding
balance of $130,656,000, and an effective interest rate of 7.71%.
Approximately 58% ($75 million) of the loan was fixed at a six-month LIBOR
rate which expires in June 2000.
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 March 31, 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 three months ended March 31, 2000, the Company's operating
activities provided cash flow of $6,635,000. Investing activities utilized
cash of $7,128,000 for real estate investments and development, offset by
proceeds from real estate sales of $36,339,000. Financing activities
utilized net cash flow of $36,100,000 consisting of the net proceeds from
bank borrowings and mortgage loans of $25,700,000 and net proceeds from the
issuance of common stock of $371,000, offset by repayment of bank borrowings
and mortgage loans of $33,054,000, payment of dividends and distributions of
$8,271,000, and the repurchase of 1,201,443 shares of common stock for
$20,846,000.
Common stock dividends declared for the first quarter of 2000 were $0.42 per
share. Distributions declared for the first quarter 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 months ended March 31,
2000 amounted to $11,173,000. During the same period in 1999, FFO amounted
to $11,246,000. 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, 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.
Three Months Ended
March 31,
2000 1999
Funds From Operations (in thousands):
Net income $ 23,231 $ 8,811
Add:
Depreciation and amortization 3,143 2,972
Minority interest 33 31
Less gain on sales (15,234) (568)
Funds From Operations $ 11,173 $ 11,246
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):
Twelve Month Period Ending March 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fair
2001 2002 2003 2004 2005 Thereafter Total Value
Variable rate LIBOR debt $ 50 $130,710 $ 59 $ 63 $4,365 $ - $135,247 $135,247
Average interest rate 8.68% 7.52% 8.68% 8.68% 8.68% - 7.56% 7.56%
Fixed rate debt $3,334 $ 26,415 $21,551 $ 3,264 $3,514 $143,385 $201,463 $195,618
Average interest rate 7.34% 7.48% 7.07% 7.36% 7.36% 7.34% 7.33% 8.04%
</TABLE>
As the table incorporates only those exposures that exist as of March 31,
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
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.
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: April 28, 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> $ 1,330
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,669
<PP&E> 666,917
<DEPRECIATION> (30,224)
<TOTAL-ASSETS> 655,640
<CURRENT-LIABILITIES> 19,107
<BONDS> 336,710
<COMMON> 372
0
0
<OTHER-SE> 294,743
<TOTAL-LIABILITY-AND-EQUITY> 655,640
<SALES> 0
<TOTAL-REVENUES> 24,426
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (10,346)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,050)
<INCOME-PRETAX> 23,231
<INCOME-TAX> 0
<INCOME-CONTINUING> 23,231
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $ 23,231
<EPS-BASIC> $ 1.20
<EPS-DILUTED> $ 1.19
</TABLE>
