Back to GetFilings.com

Table of Contents

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 quarterly period ended June 30, 2002.
[ ]		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 incorporation or organization)		(I.R.S. Employer Identification No.)
270 Lafayette Circle, Lafayette, CA		94549
(Address of principal executive offices)		(Zip Code)

(925) 283-8910
(Registrant’s telephone number, including area code)

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 13, 2002
Common Stock, $0.02 par value		16,752,376

Table of Contents

BEDFORD PROPERTY INVESTORS, INC.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STATEMENT

We have prepared the following unaudited interim financial statements in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission. In our opinion, the interim financial statements presented reflect all adjustments, consisting only of normally recurring adjustments, which are necessary for a fair presentation of our financial condition and results of operations. These 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, 2001.

When used in this Form 10-Q, the words “believes,” “expects,” “intends,” “anticipates” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to certain risks and uncertainties and actual results could differ materially from those expressed, expected or implied by the forward-looking statements. The risks and uncertainties that could cause our actual results to differ from management’s estimates and expectations are contained in our filings with the Securities and Exchange Commission, including our 2001 Annual Report on Form 10-K, and as 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 since they only reflect information available as of the date of this filing. We do not undertake to update forward-looking information contained herein or elsewhere to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking information.

1

Table of Contents

BEDFORD PROPERTY INVESTORS, INC.
BALANCE SHEETS
AS OF JUNE 30, 2002 AND DECEMBER 31, 2001
(Unaudited)
(in thousands, except share and per share amounts)

				June 30, 2002				December 31, 2001
								(Restated, see Note 2)
Assets:
Real estate investments:
	Industrial buildings			$	293,399			$	303,169
	Office buildings				334,452				326,459
	Operating properties held for sale				—				11,036
	Properties under development				1,049				—
	Land held for development				12,599				13,398
					641,499				654,062
	Less accumulated depreciation				55,351				48,984
Total real estate investments					586,148				605,078
Cash and cash equivalents					6,090				5,512
Other assets					20,423				20,215
				$	612,661			$	630,805
Liabilities and Stockholders’ Equity:
Bank loan payable				$	66,622			$	80,925
Mortgage loans payable					239,554				242,066
Accounts payable and accrued expenses					6,949				11,653
Dividend and distributions payable					8,036				7,962
Other liabilities					9,726				11,184
	Total liabilities				330,887				353,790
Minority interest in consolidated partnership					—				1,135
Stockholders’ equity:
	Common stock, par value $0.02 per share; authorized 50,000,000 shares; issued and outstanding 16,741,697 shares in 2002 and 16,515,200 shares in 2001				335				330
Additional paid-in capital					295,923				292,731
Accumulated dividends in excess of net income					(14,484	)			(16,871	)
Accumulated other comprehensive loss					—				(310	)
		Total stockholders’ equity			281,774				275,880
				$	612,661			$	630,805

See accompanying notes to financial statements.

2

Table of Contents

BEDFORD PROPERTY INVESTORS, INC.
STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)
(in thousands, except share and per share amounts)

					Three Months								Six Months
					2002				2001				2002				2001
									(Restated, see Note 2)								(Restated, see Note 2)
Property operations:
	Rental income				$	24,824			$	24,451			$	49,098			$	48,246
	Rental expenses:
			Operating expenses			4,269				4,190				8,312				7,912
			Real estate taxes			2,288				2,226				4,402				4,452
			Depreciation and amortization			4,162				3,833				8,229				7,566
Income from property operations						14,105				14,202				28,155				28,316
General and administrative expenses						(1,052	)			(3,114	)			(2,031	)			(4,052	)
Interest income						49				47				85				103
Interest expense						(4,933	)			(5,477	)			(9,940	)			(11,194	)
Income from continuing operations before minority interest						8,169				5,658				16,269				13,173
Minority interest						—				(35	)			—				(70	)
Income from continuing operations						8,169				5,623				16,269				13,103
Discontinued operations:
	Income from operating properties sold, net					90				199				365				426
	Gain on sale of operating properties					1,798				—				1,798				—
Income from discontinued operations						1,888				199				2,163				426
Net income					$	10,057			$	5,822			$	18,432			$	13,529
Earnings per share — basic:
		Income from continuing operations			$	0.50			$	0.33			$	1.00			$	0.76
		Income from discontinued operations				0.12				0.01				0.14				0.03
Net income per share — basic					$	0.62			$	0.34			$	1.14			$	0.79
Weighted average number of shares — basic						16,249,105				16,877,182				16,223,388				17,139,474
Earnings per share — diluted:
		Income from continuing operations			$	0.49			$	0.33			$	0.98			$	0.75
		Income from discontinued operations				0.11				0.01				0.13				0.03
Net income per share — diluted					$	0.60			$	0.34			$	1.11			$	0.78
Weighted average number of shares — diluted						16,637,353				17,220,131				16,605,650				17,474,559

See accompanying notes to financial statements.

3

Table of Contents

BEDFORD PROPERTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(Unaudited)
(in thousands, except per share amounts)

										Accumulated				Accumulated				Total
						Additional				dividends				other				stock-
		Common				paid-in				in excess of				comprehensive				holders
		stock				capital				net income				loss				equity
Balance, December 31, 2001 (Restated, see Note 2)		$	330			$	292,731			$	(16,871	)		$	(310	)		$	275,880
Issuance of common stock			5				2,751				—				—				2,756
Repurchase and retirement of common stock			—				(599	)			—				—				(599	)
Amortization of deferred compensation			—				1,040				—				—				1,040
Dividends to common stockholders ($0.96 per share)			—				—				(16,045	)			—				(16,045	)
Subtotal			335				295,923				(32,916	)			(310	)			263,032
Net income			—				—				18,432				—				18,432
Other comprehensive income			—				—				—				310				310
Comprehensive income			—				—				18,432				310				18,742
Balance, June 30, 2002		$	335			$	295,923			$	(14,484	)		$	—			$	281,774

See accompanying notes to financial statements.

4

Table of Contents

BEDFORD PROPERTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)
( in thousands)

				2002				2001
								(Restated, see Note 2)
Operating Activities:
	Net income			$	18,432			$	13,529
	Adjustments to reconcile net income to net cash provided by operating activities:
		Minority interest			—				70
		Depreciation and amortization			8,990				8,880
		Gain on sale of operating properties			(1,798	)			—
		Stock compensation amortization			1,040				849
		Uncollectible accounts expense			257				213
		Change in other assets			(2,109	)			336
		Change in accounts payable and accrued expenses			(3,955	)			(4,812	)
		Change in other liabilities			(1,148	)			(1,654	)
Net cash provided by operating activities					19,709				17,411
Investing Activities:
	Investments in real estate				(5,742	)			(12,087	)
	Proceeds from sales of real estate investments, net				19,081				—
Net cash provided (used) by investing activities					13,339				(12,087	)
Financing Activities:
	Proceeds from bank loan payable, net of loan costs				16,270				27,252
	Repayments of bank loan payable				(30,732	)			(1,924	)
	Refund of loan costs				2				42
	Repayments of mortgage loans payable				(2,511	)			(1,907	)
	Issuance of common stock				1,273				602
	Repurchase and retirement of common stock				(599	)			(15,988	)
	Redemption of Operating Partnership Units				(202	)			—
	Payment of dividends and distributions				(15,971	)			(16,056	)
Net cash used by financing activities					(32,470	)			(7,979	)
Net increase (decrease) in cash and cash equivalents					578				(2,655	)
Cash and cash equivalents at beginning of period					5,512				3,160
Cash and cash equivalents at end of period				$	6,090			$	505
Supplemental disclosure of cash flow information:
Cash paid during the year for interest, net of amounts capitalized of $526 in 2002 and $629 in 2001				$	9,710			$	10,656
Non-cash investing and financing transactions:
Redemption of Operating Partnership Units paid in common stock				$	(1,483	)		$	—
Investment in real estate assets				$	550			$	—
Minority interest in consolidated partnership				$	933			$	—

5

Table of Contents

BEDFORD PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2002

Note 1 — Organization and Summary of Significant Accounting Policies and Practices

The Company

Bedford Property Investors, Inc. is a real estate investment trust (“REIT”) formed in 1993 as a Maryland corporation. We are a self-administered and self-managed equity REIT engaged in the business of owning, managing, acquiring and developing industrial and suburban office properties concentrated in the western United States. Our common stock trades under the symbol “BED” on both the New York Stock Exchange and the Pacific Exchange.

Basis of Presentation

We have prepared the accompanying unaudited interim financial statements in accordance with the requirements of Form 10-Q as set forth by the Securities and Exchange Commission. Therefore, they do not include all information and footnotes necessary for a presentation of financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. In our opinion, the interim financial statements presented reflect all adjustments, consisting only of normally recurring adjustments, which are necessary for a fair presentation of our financial condition and results of operations.

Real Estate Investments Held for Sale

We record real estate investments that are considered held for sale at the lower of carrying amount or fair value less costs to sell and such properties are no longer depreciated. We adopted Financial Accounting Standards Board’s Statement of Financial Accounting Standard (“FAS”) 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” on January 1, 2002. FAS 144 supersedes FAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” The primary objectives of FAS 144 are to develop one accounting model based on the framework established in FAS 121 for long-lived assets to be disposed of by sale, and to address significant implementation issues regarding impairment of long-lived assets held for use. In accordance with FAS 144, we classify real estate assets as held for sale in the period in which all of the following criteria are met: (a) management, having the authority to approve the action, commits to a plan to sell the asset; (b) the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; (c) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated; (d) the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year; (e) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Our adoption of FAS 144 resulted in: (i) the presentation of the net operating results of properties sold during the three and six months ended June 30, 2002, less allocated interest expense, as income from discontinued operations for all periods presented and (ii) the presentation of the gain on sale of operating properties sold, net of sale costs, as income from discontinued operations for the three and six months ended June 30, 2002. We allocated interest expense based on the percentage of the cost basis of properties sold to the total cost basis of real estate assets as of June 30, 2002, and pro-rated the allocated interest for the number of days prior to sale. Implementation of FAS 144 only impacted income statement classification but had no effect on results of operations.

Per Share Data

Per share data are based on the weighted average number of common shares outstanding during the year. We include stock options issued under our stock option plans, non-vested restricted stock, and the Operating Partnership (“OP”) Units of Bedford Realty Partners, L.P. (prior to their redemption on January 15, 2002) in the calculation of diluted per share data if, upon exercise or vestiture, they would have a dilutive effect.

6

Table of Contents

Cash and Cash Equivalents

We consider all demand deposits, money market accounts and temporary cash investments to be cash equivalents. We maintain our cash and cash equivalents at financial institutions. The combined account balances at each institution periodically exceed the Federal Depository Insurance Corporation (“FDIC”) insurance coverage, and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. However, we believe that the risk is not significant as we do not anticipate their non-performance.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (“FASB”) issued FAS 143, “Accounting for Asset Retirement Obligations.” Under FAS 143, the fair value of a liability for an asset retirement obligation must be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. FAS 143 is effective for fiscal years beginning after June 15, 2002. We do not believe that FAS 143 will have a material impact on our financial position, cash flows, or results of operations.

In April 2002, the FASB issued FAS 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FAS Statement No. 13, and Technical Correction.” FAS 145 eliminates extraordinary accounting treatment for reporting a loss on debt extinguishments, and amends other existing authoritative pronouncements to make various technical corrections, clarifies meanings, or describes their applicability under changed conditions. The provisions of FAS 145 are effective for us with the beginning of fiscal year 2003; however, early application of FAS 145 is encouraged. Debt extinguishments reported as extraordinary items prior to scheduled or early adoption of FAS 145 would be reclassified in most cases following adoption. We do not anticipate a significant impact on our financial position, cash flows, or results of operations from adopting FAS 145.

In June 2002, the FASB issued FAS 146, “Accounting for Costs Associated with Exit or Disposal Activities.” FAS 146 requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability has been incurred. Adoption of FAS 146 is required for our fiscal year beginning January 1, 2003. We do not believe that the adoption of FAS 146 will have a significant impact on our financial position, cash flows, or results of operations.

Reclassifications

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation, with no effect on our financial position, cash flows, or results of operations.

Note 2 — Restatement

Effective July 2002, we corrected our accounting treatment for fees incurred under our contractual relationship with Bedford Acquisitions, Inc. (“BAI”) (see Note 8), commencing in the fourth quarter of 1997 and continuing through the quarter ended June 30, 2002. This new treatment was based on our independent auditors’ advice that they would no longer support the prior method of accounting for BAI. The Company has been advised by its independent auditors that the correction of the accounting treatment for fees paid to BAI has not arisen from any change in the operations of BAI or the Company or the discovery of any new facts relating to these operations. Effective October 1, 1997, fees charged by BAI should have been deemed internal costs that are to be expensed to the extent that such fees do not represent payments to BAI for direct and incremental development costs or for independent third party costs incurred by BAI on our behalf. We have restated our financial statements for all quarters commencing with the fourth quarter of 1997 through the first quarter of 2002 to correct the accounting for these services. The previously reported amounts and the restated amounts for the periods included in this quarterly report are as follows:

7

Table of Contents

              (Dollars in thousand, except per share amounts)

			March 31, 2002				December 31, 2001
Real estate investments (net of accumulated depreciation)
	As Reported		$	605,773			$	607,654
	Restated			603,288				605,078
Other Assets:
	As Reported			22,599				22,728
	Restated			20,319				20,215
Total Assets:
	As Reported			633,446				635,894
	Restated			628,681				630,805
Stockholders’ equity:
	As Reported			283,471				280,969
	Restated			278,706				275,880

				Three months ended				Three months ended				Three months ended				Six months ended
				March 31, 2002(1)				March 31, 2001(1)				June 30, 2001(2)				June 30, 2001
Depreciation and amortization expenses:
	As Reported				4,112				3,779				3,845				7,591
	Restated				4,101				3,766				3,833				7,566
General and administrative expenses:
	As Reported				1,059				1,018				1,005				2,023
	Restated				979				938				3,114				4,052
Interest expense:
	As Reported				5,293				5,791				5,617				11,349
	Restated				5,060				5,776				5,477				11,194
Net income:
	As Reported				8,051				7,599				7,779				15,378
	Restated				8,375				7,707				5,822				13,529
Net income per share:
	As Reported:
		Basic		$	0.50			$	0.44			$	0.46			$	0.90
		Diluted		$	0.48			$	0.43			$	0.45			$	0.88
	Restated:
		Basic		$	0.52			$	0.44			$	0.34			$	0.79
		Diluted		$	0.50			$	0.44			$	0.34			$	0.78

The 2001 financial statements included herein and the accompanying footnotes reflect these restated amounts.

8

Table of Contents

Note 3 — Real Estate Investments

As of June 30, 2002, our real estate investments were diversified by property type as follows (dollars in thousands):

		Number of								Percent
Properties						Cost				of Total
Industrial buildings			55			$	293,399				46	%
Office buildings			30				334,452				52	%
Properties under development			1				1,049				*
Land held for development			10				12,599				2	%
Total			96			$	641,499				100	%

9

Table of Contents

The following table sets forth our real estate investments at June 30, 2002 (in thousands):

Our personnel directly manage all but one of our properties from regional offices in Lafayette, California; Tustin, California; Phoenix, Arizona; Denver, Colorado; and Seattle, Washington. We have retained an outside manager to assist in some of the management functions for U.S. Bank Centre in Reno, Nevada. All financial record-keeping is centralized at our corporate office in Lafayette, California.

Income from property operations for operating properties sold as of June 30, 2002 was $90,000 and $199,000 for the three months ended June 30, 2002 and 2001, respectively. Income from operating properties sold includes allocated interest expense of $44,000 and $168,000 for the three months ended June 30, 2002 and 2001, respectively.

Income from property operations for operating properties sold as of June 30, 2002 was $365,000 and $426,000 for the six months ended June 30, 2002 and 2001, respectively. Income from operating properties sold includes allocated interest expense of $197,000 and $338,000 for the six months ended June 30, 2002 and 2001, respectively.

10

Table of Contents

Note 4. Debt

Bank Loan Payable

In May 2001, we renewed our revolving credit facility with a bank group led by Bank of America. The facility, which matures on June 1, 2004, consists of a $150 million secured line with an accordion feature that gives us the option to expand the facility to $175 million, if needed. Interest on the facility is at a floating rate equal to either the lender’s prime rate or LIBOR plus a margin ranging from 1.30% to 1.55%, depending on our leverage level as defined in the credit agreement. As of June 30, 2002, the facility had an outstanding balance of $66,622,000 and was secured by our interests in 28 properties, which collectively accounted for approximately 32% of our annualized base rent and approximately 33% of our total real estate assets.

The credit facility contains various restrictive covenants including, among other things, a covenant limiting quarterly dividends to 95% of our average Funds From Operations (“FFO”). We were in compliance with the covenants and requirements of our revolving credit facility during the quarter ended June 30, 2002.

The daily weighted average amount we owed to the bank was $78,460,000 and $91,603,000 for the six months ended June 30, 2002 and 2001, respectively. The weighted average annual interest rates under our bank line of credit in each of these periods were 4.84% and 6.73%, respectively. The effective interest rate at June 30, 2002 was 4.14%.

Mortgage Loans Payable

Mortgage loans payable at June 30, 2002 consist of the following (in thousands):