-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pvwao4jJ7UeMzn3hf9vabAlcdMx+XtrHRnpUEwnPUmNvwLNpsx+4q+tMNDfFR3YZ OQ28XCkVhEA46/8kVxmrnA== 0000910079-99-000017.txt : 19991115 0000910079-99-000017.hdr.sgml : 19991115 ACCESSION NUMBER: 0000910079-99-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEDFORD PROPERTY INVESTORS INC/MD CENTRAL INDEX KEY: 0000910079 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 680306514 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12222 FILM NUMBER: 99749322 BUSINESS ADDRESS: STREET 1: 270 LAFAYETTE CIRCLE STREET 2: P. O. BOX 1058 CITY: LAFAYETTE STATE: CA ZIP: 94549 BUSINESS PHONE: 510-283-89 10-Q 1 3Q99 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 September 30, 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 November 12, 1999 Common Stock, $0.02 par value 20,443,746 BEDFORD PROPERTY INVESTORS, INC. INDEX PART I. FINANCIAL INFORMATION Page ITEM 1. FINANCIAL STATEMENTS Statement 1 Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998 2 Consolidated Statements of Income for the three and nine months ended September 30, 1999 and 1998 3 Consolidated Statements of Stockholders' Equity for the year ended December 31, 1998 and the nine months ended September 30, 1999 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 6-13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 14-19 ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK 19 PART II. OTHER INFORMATION ITEMS 1 - 6 20 SIGNATURES 21 Exhibit 27 22 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. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1999 (Unaudited) AND DECEMBER 31, 1998 (in thousands, except share and per share amounts) September 30, 1999 December 31, 1998 Assets: Real estate investments: Industrial buildings $315,324 $312,911 Office buildings 305,634 258,479 Operating properties held for sale 22,424 - Properties under development 19,951 24,686 Land held for development 4,028 3,905 667,361 599,981 Less accumulated depreciation 25,744 18,523 641,617 581,458 Cash 1,339 1,286 Other assets 19,672 15,580 $662,628 $598,324 Liabilities and Stockholders' Equity: Bank loan payable $136,519 $147,443 Mortgage loans payable 180,862 80,116 Accounts payable and accrued expenses 9,583 7,574 Dividend and distributions payable 8,095 8,191 Other liabilities 6,974 6,042 Total liabilities 342,033 249,366 Minority interest in consolidated partnership 1,229 1,369 Stockholders' equity: Common stock, par value $0.02 per share; authorized 50,000,000 shares; issued and outstanding 20,678,446 shares in 1999 and 22,666,856 shares in 1998 414 453 Additional paid-in capital 371,108 407,760 Accumulated dividends in excess of net income (52,156) (60,624) Total stockholders' equity 319,366 347,589 $662,628 $598,324 See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (Unaudited) (in thousands, except share and per share amounts) Three Months Nine Months 1999 1998 1999 1998 Property operations: Rental income $22,475 $20,156 $66,180 $52,635 Rental expenses: Operating expenses 3,396 3,322 10,288 7,925 Real estate taxes 1,849 1,704 5,629 4,393 Depreciation and amortization 3,149 2,939 9,054 7,307 Income from property operations 14,081 12,191 41,209 33,010 General and administrative expenses (669) (655) (2,632) (2,369) Interest income 40 85 121 178 Interest expense (4,796) (3,664) (13,212) (7,480) Income before gain on sale of real estate investments and minority interest 8,656 7,957 25,486 23,339 Gain on sale of real estate investments 190 - 7,801 - Minority interest (31) (29) (96) (86) Income before extraordinary item 8,815 7,928 33,191 23,253 Extraordinary item - loss on early extinguishment of debt - - (298) - Net income $ 8,815 $ 7,928 $32,893 $23,253 Earnings per share - basic: Income before extraordinary item $ 0.41 $ 0.35 $ 1.51 $ 1.03 Extraordinary item-loss on early extinguishment of debt - - (0.01) - Net income $ 0.41 $ 0.35 $ 1.50 $ 1.03 Weighted average number of shares-basic 21,591,869 22,649,403 21,954,307 22,616,558 Earnings per share - assuming dilution: Income before extraordinary item $ 0.41 $ 0.35 $ 1.50 $ 1.02 Extraordinary item-loss on early extinguishment of debt - - (0.01) - Net income $ 0.41 $ 0.35 $ 1.49 $ 1.02 Weighted average number of shares - assuming dilution 21,744,843 22,926,125 22,103,719 22,934,296
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 NINE MONTHS ENDED SEPTEMBER 30, 1999 (Unaudited) (in thousands, except per share amounts) 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 6 1,363 - 1,369 Repurchase and retirement of common stock (45) (38,015) - (38,060) Net income - - 32,893 32,893 Dividends to common stockholders ($1.14 per share) - - (24,425) (24,425) Balance, September 30, 1999 $ 414 $371,108 $(52,156) $319,366
See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (Unaudited) (in thousands) 1999 1998 Operating Activities: Net income $ 32,893 $ 23,253 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest 96 86 Depreciation and amortization 10,389 8,220 Gain on sale of real estate investments (7,801) - Change in other assets (4,462) (6,035) Change in accounts payable and accrued expenses 1,559 2,780 Change in other liabilities 1,036 (137) Net cash provided by operating activities 33,710 28,167 Investing Activities: Investments in real estate (79,380) (155,687) Proceeds from sale of real estate investments 19,346 - Net cash used by investing activities (60,034) (155,687) Financing Activities: Proceeds from bank loan payable 107,044 147,508 Repayments of bank loan payable (118,343) (19,189) Proceeds from mortgage loans payable 107,386 21,109 Repayments of mortgage loans payable (8,262) (786) Issuance of common stock 1,389 415 Redemption of partnership units (160) (128) Payment of dividends and distributions (24,617) (21,110) Repurchase and retirement of common stock (38,060) - Net cash provided by financing activities 26,377 127,819 Net increase in cash 53 299 Cash at beginning of period 1,286 1,361 Cash at end of period $ 1,339 $ 1,660 Supplemental disclosure of cash flow information: Cash paid during the period for interest, net of amounts capitalized of $1,551 in 1999 and $1,746 in 1998 $ 11,628 $ 5,917
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 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 also 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 conversion would have a dilutive effect, 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, 2000. 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 September 30, 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 68 $315,324 47% Office buildings 27 305,634 46% Operating properties held for sale 5 22,424 3% Properties under development 7 19,951 3% Land held for development 4 4,028 1% Total 111 $667,361 100% Note 2 - Real Estate Investments The following table sets forth the Company's real estate investments as of September 30, 1999 (in thousands): Less Development Accumulated Land Building In-Progress Depreciation Total INDUSTRIAL BUILDINGS Northern California $ 44,238 $106,382 $ - $ 7,721 $142,899 Arizona 16,181 41,306 - 2,189 55,298 Southern California 17,663 40,381 - 2,906 55,138 Greater Kansas City Area 3,242 15,244 - 1,574 16,912 Texas 2,981 11,127 - 343 13,765 Greater Portland Area 2,652 8,732 - 1,039 10,345 Denver, Colorado 1,911 3,284 - 321 4,874 Total Industrial 88,868 226,456 - 16,093 299,231 SUBURBAN OFFICE BUILDINGS Northern California 6,023 17,826 - 970 22,879 Arizona 10,703 23,636 - 757 33,582 Southern California 9,362 21,450 - 1,171 29,641 Greater Kansas City Area 3,330 5,451 - 426 8,355 Texas 2,766 7,093 - 366 9,493 Denver, Colorado 5,560 45,565 - 1,519 49,606 Greater Seattle Area 23,652 110,423 - 3,079 130,996 Reno, Nevada 2,102 10,692 - 605 12,189 Total Suburban Office 63,498 242,136 - 8,893 296,741 PROPERTIES HELD FOR SALE Northern California 3,683 4,844 - 373 8,154 Arizona 1,332 2,666 - 138 3,860 Southern California 1,558 3,475 - 144 4,889 Greater Kansas City Area 1,144 3,722 - 103 4,763 Total Operating Properties Held for Sale 7,717 14,707 - 758 21,666 PROPERTIES UNDER DEVELOPMENT Northern California - - 4,307 - 4,307 Arizona - - 8,476 - 8,476 Colorado - - 3,646 - 3,646 Greater Seattle Area - - 3,522 - 3,522 Total Properties Under Development - - 19,951 - 19,951 LAND HELD FOR DEVELOPMENT Northern California 2,136 - - - 2,136 Southern California 702 - - - 702 Texas 188 - - - 188 Colorado 1,002 - - - 1,002 Total Land Held for Development 4,028 - - - 4,028 Total $164,111 $483,299 $19,951 $25,744 $641,617
Company personnel directly manage all but eleven of the Company's properties from regional offices in Lafayette, CA; Tustin, CA; Phoenix, AZ; Lenexa, KS; and Seattle, WA. For the eleven 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 approximately $2.3 million at September 30, 1999 relating to seven of its properties under development. Note 3. 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% 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%. 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 September 30, 1999, the Company was in compliance with the covenants and requirements of its revolving credit facility, which had an outstanding balance of $136,519,000. The credit facility is secured by mortgages on 44 properties (which properties collectively accounted for approximately 45% of the Company's Annualized Base Rent and approximately 39% of the Company's total assets as of September 30, 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 bore the same interest rate as the $175 million facility. In May 1999, the Company obtained a total of $108 million of new first mortgage financing from Teachers Insurance and Annuity Association of America (TIAA). The proceeds from the mortgage loans were used to pay off and retire the $30 million bridge facility and pay down the outstanding balance on its $175 million line of credit. The daily weighted average amount owing to the bank was $105,569,000 and $77,818,000 for the nine months ended September 30, 1999 and 1998, respectively. The weighted average interest rates in each of these periods was 6.34% and 7.02%, respectively. The effective interest rate at September 30, 1999 was 6.61%. 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 $37.20 million 8-year loan, and a $27.35 million 6-year loan. The mortgage financing is secured by 16 properties (which properties collectively accounted for approximately 24% of the Company's Annualized Base Rent and approximately 21% of the Company's total assets as of September 30, 1999), together with the rental proceeds from such properties. These mortgage loans bear interest at a fixed rate of 7.17%. The Company is in the process of obtaining another $22 million of new first mortgage financing from TIAA. The loan is expected to close in November 1999. Mortgage loans payable at September 30, 1999 consist of the following (in thousands): 7.5% note due January 1, 2002 $ 23,994 7.02% note due March 15, 2003 19,339 7.17% note due June 1, 2005 27,251 8.9% note due July 31, 2006 8,555 6.91% note due July 31, 2006 20,376 7.17% note due June 1, 2007 37,065 7.75% note due April 1, 2009 990 7.17% note due June 1, 2009 43,292 $180,862 The mortgage loans are collaterized by 35 properties (which properties collectively accounted for approximately 46% of the Company's Annualized Base Rent and approximately 39% of the Company's total assets as of September 30, 1999). The following table presents scheduled principal payments on mortgage loans as of September 30, 1999 (in thousands): Twelve month period ending September 30, 2000 $ 3,013 Twelve month period ending September 30, 2001 3,278 Twelve month period ending September 30, 2002 26,081 Twelve month period ending September 30, 2003 21,053 Twelve month period ending September 30, 2004 3,005 Thereafter 124,432 $180,862 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 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. Note 5. Segment Disclosure (continued) For the nine months ended September 30, 1999 (in thousands) Northern Southern Corporate California Southwest California Northwest Midwest & Other Consolidated Rental income $ 24,693 $ 11,361 $ 8,981 $ 10,760 $ 10,381 $ 4 $ 66,180 Operating expenses and real estate taxes 5,258 2,823 1,710 2,683 3,143 300 15,917 Depreciation and amortization 3,063 1,588 1,230 1,686 1,487 - 9,054 Income from property operations $ 16,372 $ 6,950 $ 6,041 $ 6,391 $ 5,751 $ (296) $ 41,209 Percent of income from property operations 40% 17% 15% 15% 14% (1%) 100% General and administrative expenses - - - - - (2,632) (2,632) Interest income(1) 18 - - 3 - 100 121 Interest expense - - - - - (13,212) (13,212) Income before minority interest and gain on sale 16,390 6,950 6,041 6,394 5,751 (16,040) 25,486 Gain on sale of real estate investments 7,756 - 45 - - - 7,801 Minority interest - - - - - (96) (96) Income before extraordinary item 24,146 6,950 6,086 6,394 5,751 (16,136) 33,191 Loss on early extinguishment of debt (298) - - - - - (298) Net income $ 23,848 $ 6,950 $ 6,086 $ 6,394 $ 5,751 $(16,136) $ 32,893 Real estate investments $202,233 $125,475 $ 94,590 $148,983 $96,080 - $667,361 Additions (dispositions) of real estate investments $ (7,356) $ 16,043 $ 17,192 $ 35,733 $ 5,768 - $ 67,380 Total assets $212,641 $115,871 $100,432 $133,734 $94,193 $ 5,757 $662,628
(1) The interest income in the Northern California and Northwest segments represents interest earned from tenant notes receivable. Note 5. Segment Disclosure (continued) For the nine months ended September 30,1998 (in thousands) Northern Southern Corporate California Southwest California Northwest Midwest & Other Consolidated Rental income(1) $ 22,536 $ 8,572 $ 7,530 $ 6,049 $ 7,971 $ (23) $ 52,635 Operating expenses and real estate taxes 4,972 2,206 1,563 909 2,212 456 12,318 Depreciation and amortization 2,886 1,167 1,081 1,048 1,125 - 7,307 Income from property operations 14,678 5,199 4,886 4,092 4,634 (479) 33,010 Percent of income from property operations 44% 16% 15% 12% 14% (1%) 100% General and administrative expenses - - - - - (2,369) (2,369) Interest income(2) 10 - - 15 - 153 178 Interest expense - - - - - (7,480) (7,480) Income before minority interest and gain on sale 14,688 5,199 4,886 4,107 4,634 (10,175) 23,339 Minority interest - - - - - (86) (86) Net income $ 14,688 $ 5,199 $ 4,886 $ 4,107 $ 4,634 $(10,261) $ 23,253 Real estate investments $207,828 $101,453 $77,083 $111,222 $89,658 - $587,244 Additions to real estate investments $ 22,421 $ 33,441 $ 6,034 $ 54,824 $38,453 - $155,173 Total assets $208,523 $ 97,860 $80,970 $108,271 $86,779 $ 5,453 $587,856
(1) ($23) in Corporate rental income represents rental refund and prior year expense reimbursement for Academy Place (sold 10/97). (2) 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 $180,862,000 fixed rate debt is approximately $175,371,000 based on the terms of existing debt compared to those available in the marketplace. Variable rate debt bears interest at current market rates, thus the carrying value of this debt approximates fair value. Note 7. Earnings per Share Following is a reconciliation of earnings per share: (in thousands, except share and per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 1999 1998 1999 1998 Basic: Income before extraordinary item $ 8,815 $ 7,928 $ 33,191 $ 23,253 Extraordinary item-loss on early extinguishment of debt - - (298) - Net income $ 8,815 $ 7,928 $ 32,893 $ 23,253 Weighted average number of shares - basic 21,591,869 22,649,403 21,954,307 22,616,558 Income before extraordinary item $ 0.41 $ 0.35 $ 1.51 $ 1.03 Extraordinary item-loss on early extinguishment of debt - - (0.01) - Net income $ 0.41 $ 0.35 $ 1.50 $ 1.03 Diluted: Income before extraordinary item $ 8,815 $ 7,928 $ 33,191 $ 23,253 Add: Minority interest 31 29 96 86 Extraordinary item-loss on early extinguishment of debt - - (298) - Net income for diluted earnings per share $ 8,846 $ 7,957 $ 32,989 $ 23,339 Weighted average number of shares (from above) 21,591,869 22,649,403 21,954,307 22,616,558 Weighted average shares of dilutive stock options using average period stock price under the treasury stock method 74,984 189,834 65,523 227,186 Weighted average shares issuable upon the conversion of operating partnership units 77,990 86,888 83,889 90,552 Weighted average number of shares - assuming dilution 21,744,843 22,926,125 22,103,719 22,934,296 Income before extraordinary item $ 0.41 $ 0.35 $ 1.50 $ 1.02 Extraordinary item-loss on early extinguishment of debt - - (0.01) - Net income for diluted earnings per share $ 0.41 $ 0.35 $ 1.49 $ 1.02
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 and nine months ended September 30, 1999 when compared with the same periods in 1998 were due primarily to property additions during 1999 and 1998, offset in part by the sale of operating properties as follows: Activities from January 1, 1998 Activities from October 1, 1998 to September 30, 1998 to September 30, 1999 Number of Square Number of Square Operating Properties Feet Operating Properties Feet Acquisitions Industrial 13 817,000 7 412,000 Office 6 650,000 2 180,000 19 1,467,000 9 592,000 Sales Industrial - - 2 276,000 Office - - 1 114,000 - - 3 390,000
Three Months Ended September 30, 1999 Compared with Three Months Ended September 30, 1998 Income from Property Operations Income from property operations (defined as rental income less rental expenses) increased $1,890,000 or 16% in 1999 compared with 1998. This is due to an increase in rental income of $2,319,000 partially offset by an increase in rental expenses (which include operating expenses, real estate taxes and depreciation and amortization) of $429,000. The increase in rental income and expenses is primarily attributable to properties acquired and, to a lesser extent, properties developed during 1999 and 1998. These activities increased rental income and rental expenses in 1999 by $2,128,000 and $879,000, respectively, as compared to 1998. This was partially offset by the sale of two industrial properties and one office property in 1999 which resulted in a reduction in rental income and rental expenses of $620,000 and $250,000, 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, depreciation expense, management fees, landscaping costs and other property operating expenses. Expenses Interest expense, which includes amortization of loan fees, increased $1,132,000 or 31% in 1999 compared with 1998. The increase is attributable to the Company's higher level of borrowings and related costs to finance the property additions during 1998 and 1999 and the repurchase of shares since December 1998. The amortization of loan fees was $346,000 and $238,000 in the third quarter of 1999 and 1998, respectively. General and administrative expenses remained relatively unchanged in the third quarter of 1999 compared with 1998. Gain on sale In August 1999, the Company sold 331 Doherty Avenue in Modesto, California for a net sales price of $4,012,000, which resulted in a gain of approximately $218,000. The sale of 331 Doherty Avenue was completed as part of a tax-deferred exchange, under Section 1031 of the Internal Revenue Code, in which the Company has identified a property for future acquisition. Nine Months Ended September 30, 1999 Compared with Nine Months Ended September 30, 1998 Income from Property Operations Income from property operations increased $8,199,000 or 25% in 1999 compared with 1998. This is due to an increase in rental income of $13,545,000 partially offset by an increase in rental expenses of $5,346,000. The increase in rental income and expenses is primarily attributable to properties acquired and, to a lesser extent, properties developed during 1999 and 1998. These activities increased rental income and rental expenses in 1999 by $11,716,000 and $5,808,000, respectively, as compared to 1998. This was partially offset by the sale of two industrial properties and one office property in 1999 which resulted in a reduction in rental income and rental expenses of $780,000 and $422,000, respectively. 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 $5,732,000 or 77% in 1999 compared with 1998. The increase is attributable to the Company's higher level of borrowings and related costs to finance the property additions during 1998 and 1999 and the repurchase of shares since December 1998. The amortization of loan fees was $1,113,000 and $750,000 in the nine months ended September 30 of 1999 and 1998, respectively. General and administrative expenses increased $263,000 or 11% in 1999 compared with 1998. The increase is attributable to the Company's use of an outside investor relations firm in 1999. 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 $540,000. In June 1999, the Company sold Woodlands Tower 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. 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 August 1999, the Company sold 331 Doherty Avenue in Modesto, California for a net sales price of $4,012,000, which resulted in a gain of approximately $218,000. The sales of Woodlands Tower II and 331 Doherty Avenue were completed as part of a tax- deferred exchange, under Section 1031 of the Internal Revenue Code, in which the Company acquired three properties and has identified a fourth property for future acquisition. 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 September 30, 1999, the Company was in compliance with the covenants and requirements of its revolving credit facility, which had an outstanding balance of $136,519,000, outstanding letters of credit of $2,189,000, and remaining availability of $36,292,000. In February 1999, the credit facility was restructured to include a $30 million bridge facility which bore the same interest rate as the $175 million facility. In May 1999, the Company obtained a total of $108 million of new first mortgage financing from Teachers Insurance and Annuity Association of America (TIAA). The proceeds from the mortgage loans were used to pay off and retire the $30 million bridge facility and pay down the outstanding balance on the $175 million line of credit. The financing of the TIAA Mortgage consists of a $43.45 million 10-year loan, a $37.20 million 8-year loan, and a $27.35 million 6-year loan. The mortgage financing is secured by 16 properties, together with the rental proceeds from such properties. These mortgage loans bear interest at a fixed rate of 7.17%. The Company is in the process of obtaining another $22 million of new first mortgage financing from TIAA. The loan is expected to close in November 1999. 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 nine months ended September 30, 1999, the Company's operating activities provided cash flow of $33,710,000. Investing activities utilized cash of $79,380,000 for real estate acquisitions, offset by proceeds from real estate sales of $19,346,000. Financing activities provided net cash flow of $26,377,000 consisting of the net proceeds from bank borrowings and mortgage loans of $214,430,000 and net proceeds from the exercise of stock options, issuance of restricted stock and vesting of restricted stock of $1,389,000, offset by repayment of bank borrowings and mortgage loans of $126,605,000, payment of dividends and distributions of $24,617,000, redemption of partnership units of $160,000, and the repurchase of 2,265,725 shares of common stock for $38,060,000. 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. Dividends Common stock dividends declared for the third quarter of 1999 were $0.39 per share. Distributions declared for the third quarter of 1999 were $0.39 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 and nine months ended September 30, 1999 amounted to $11,805,000 and $34,540,000, respectively. During the same periods in 1998, FFO amounted to $10,896,000 and $30,646,000, 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. Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 Funds From Operations (in thousands): Net Income $ 8,815 $ 7,928 $ 32,893 $ 23,253 Add Back: Depreciation and Amortization 3,149 2,939 9,054 7,307 Minority Interest 31 29 96 86 Extraordinary Item - - 298 - Less Gain on Sale (190) - (7,801) - Funds From Operations $ 11,805 $ 10,896 $ 34,540 $ 30,646
Year 2000 Compliance The year 2000 problem relates to the ability of computer systems and programs to recognize and process dates after the year 1999. Most computer and embedded systems, which use two digits to specify a year, if not modified prior to the year 2000, will be unable to distinguish between the year 1900 and the year 2000. The failure to distinguish between such dates could have detrimental effects on business critical systems and could cause disruptions in building services, such as security systems, HVAC/building automation, and energy management systems. In the first quarter of 1998, the Company formed a Year 2000 project team which includes the Chief Operating Officer (COO), legal counsel, information systems (IS) consultants, and property managers. The COO and IS consultants conduct monthly meetings to review and monitor progress relating to the Year 2000 project. The Year 2000 project is divided into two distinct parts: (1) information systems and (2) embedded systems. The information systems portion of the Year 2000 project pertains to the Company's internal computer systems, hardware and software and entailed the following actions: (1) compiling an inventory of all hardware and software used in the Company's information processing systems, including personal computers, servers, routers, hubs, switches, phone and voice equipment, operating systems, e-mail systems, accounting software, fixed asset software, office automation software, internet and other service providers, wide area and local area network carriers, and web host, (2) obtaining product certifications from vendors and manufacturers, stating that their products are Y2K compliant, (3) obtaining Y2K upgrades for software from web sites and identifying non-Y2K compliant personal computers, (4) legal review and recommendations by legal counsel, (5) determining alternative solutions, financial and personnel resources necessary, and costs to remediate any information systems or components thereof, which are not Y2K compliant, and (6) completing all system upgrades to achieve Y2K compliance. The embedded systems portion of the Year 2000 project is related to building services, such as HVAC/building automation, electrical, lighting, emergency power, fire and safety, elevator, parking access, security, and energy management. This portion of the Year 2000 project entailed the following: (1) compiling an inventory of all physical systems on each property where the Company provides any of the aforementioned services, (2) obtaining product certifications from vendors and manufacturers, stating that their products are Y2K compliant, (3) identifying testing procedures and cost of implementation of solutions, (4) performing selective system tests on a sample of the Company's portfolio based on the type of the property, tenant makeup, location, and size, (5) reviewing the results of these tests and identifying alternative solutions, resources, and costs to remediate any embedded system or component thereof, which were not Y2K compliant, (6) developing a review and certification process for newly acquired properties, (7) legal review and recommendations by the legal counsel, and (8) completing all embedded system upgrades to achieve Y2K compliance. The Company has planned a "Y2K Weekend Watch" for which personnel will be on duty to insure a staff presence for each building in the Company's real estate portfolio during the weekend of December 31, 1999. In addition, IS consultants will be on duty to monitor the Company's information systems. As of September 30, 1999, the Company has expensed approximately $39,000 on surveys and systems reviews and expects to expense an additional $42,000 during the fourth quarter of 1999. The Company believes that Year 2000 compliance will not have a material impact on the Company's financial statements. There can be no assurance, however, that a failure of either our information systems or our embedded systems to be Y2K compliant will not result in such a material adverse impact. 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): Twelve Month Period Ending September 30, Fair 2000 2001 2002 2003 2004 Thereafter Total Value Variable rate LIBOR debt - 136,519 - - - - 136,519 136,519 Average interest rate - 6.61% - - - - 6.61% 6.61% Fixed rate debt 3,013 3,278 26,081 21,053 3,005 124,432 180,862 175,371 Average interest rate 7.28% 7.28% 7.47% 7.06% 7.29% 7.24% 7.25% 7.95%
As the table incorporates only those exposures that exist as of September 30, 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. 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: November 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 Vice President Controller EX-27 2 ART. 5 FDS FOR 3RD QUARTER 10-Q
5 9-MOS DEC-31-1999 SEP-30-1999 $ 1,339 0 0 0 0 4,554 667,361 (25,744) 662,628 21,368 317,381 414 0 0 318,952 662,628 0 66,301 0 0 27,603 0 13,212 33,191 0 33,191 0 298 0 32,893 $ 1.50 $ 1.49
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