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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

/X/

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 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 our charter)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the 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 the 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]  

Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Act).  Yes  X   No      .

The aggregate market value of the voting and non-voting common stock held by non-affiliates of registrant as of June 28, 2002 was approximately $404,687,000.  The number of shares of registrant’s common stock, par value $0.02 per share, outstanding as of February 28, 2003 was 16,529,323.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement mailed to stockholders in connection with the registrant’s annual meeting of stockholders, scheduled on May 15, 2003, are incorporated by reference in items 10 through 13 of Part III of this report.  Except as expressly incorporated by reference, the registrant’s Proxy Statement shall not be deemed to be part of this report.

Forward-Looking Statements

When used in this Form 10-K, 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 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 and as set forth in the section below entitled “Potential Factors Affecting Future Operating Results.”   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.

PART I

Item 1.  Business

BEDFORD PROPERTY INVESTORS, INC.

Bedford Property Investors, Inc. is the successor of ICM Property Investors, Incorporated (“ICM”), a real estate investment trust (“REIT”) incorporated in Delaware in 1984.  In July 1993, ICM was reorganized in the state of Maryland under the name of Bedford Property Investors, Inc.  Equipped with a new board of directors and a new management team, we became a self-administered and self-managed equity REIT, engaged in the business of owning, managing, acquiring and developing industrial and suburban office properties proximate to metropolitan areas in the western United States.  As of December 31, 2002, we owned and operated 86 properties totaling approximately 7.2 million rentable square feet.  Of these 86 properties (the “Properties”), 56 are industrial (the “Industrial Properties”) and 30 are s uburban office (the “Suburban Office Properties”).  As of December 31, 2002, the Properties were leased to 435 tenants with average occupancy of approximately 94%.  The Properties are located in Northern California, Southern California, Arizona, Washington, Colorado and Nevada.

In addition to the Properties, we own one industrial service center flex development project, which was shell-completed at year-end 2002.

We seek to grow our asset base through the acquisition of industrial and suburban office properties and portfolios of such properties as well as through the development of new industrial and suburban office properties.  Our strategy is to operate in suburban markets that are experiencing, or are expected to experience, superior economic growth and are subject to limitations on the development of similar properties.  We believe that employment growth is a reliable indicator of future demand for both industrial and suburban office space.  In addition, we believe that certain supply-side constraints, such as limited availability of undeveloped land in a market, increase that market’s potential for higher than average rental growth over time.  We continue to target selected markets in which the Properties are located as well as other m arkets in which we have expertise.

BUSINESS OBJECTIVE AND GROWTH PLAN

Our business objective is to increase stockholders’ long-term total return through increases in the dividend and the appreciation in value of our common stock, par value $0.02 per share (the “Common Stock”).  To achieve this objective, we seek to:

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increase cash flow by internal growth of rents from our existing Properties;

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acquire quality industrial and suburban office properties and/or portfolios of such properties;

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develop new industrial and suburban office properties; and

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repurchase our Common Stock.

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Internal Growth

We seek to increase cash flow from existing Properties through:

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the lease-up of vacant space;

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the reduction of costs associated with tenant turnover by retaining existing tenants;

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the negotiation of increases in rental rates and of contractual periodic rent increases when market conditions permit; and

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the strict containment of operating expenses and capital expenditures.

During 2002, leases for 955,575 square feet of space expired with a weighted average base rental rate of $11.54 per square foot.  As of December 31, 2002, approximately 88% of this space has been re-leased, and the weighted average base rental rate of the new leases is $10.72 per square foot, a decrease of 7.1%.  This decline was driven by several transactions in which we reduced rents in return for extended lease terms.  These were primarily in Silicon Valley, and if they are extracted from the data, the weighted average rental rate increased by 0.8%.  Past performance is not necessarily indicative of results that will be obtained in the future, and no assurance can be given in that regard.

Acquisitions

We seek to acquire industrial and suburban office properties and/or portfolios of such properties.  We believe that we are able to effectively identify and capitalize on acquisition opportunities through:

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the experience of our management team;

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our existing $150 million credit facility, which contains a $25 million accordion feature that allows the facility to be expanded to $175 million;

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our relationships with private and institutional real estate owners;

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our strong relationships with real estate brokers; and

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our integrated asset management program.  

Each acquisition opportunity is reviewed to evaluate whether it meets the following criteria:  

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potential for higher occupancy levels and/or rents as well as for lower turnover and/or operating expenses;

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ability to generate returns in excess of our weighted average cost of capital, taking into account the estimated costs associated with tenant turnover (i.e., tenant improvements, leasing commissions and the loss of income due to vacancy); and

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availability for purchase at a price at or below estimated replacement cost.  

However, we have in the past and may in the future acquire properties which do not meet one or more of these criteria.  This may be particularly true with the acquisition of a portfolio of properties, which may include individual properties that do not meet one or more of the foregoing criteria.

Following completion of an initial review of a property, we may make a purchase offer, subject to satisfactory completion of our due diligence process.  The due diligence process enables us to refine our original estimate of a property’s potential performance and typically includes a complete review and analysis of the property’s physical structure, systems, environmental status and projected financial performance.  The due diligence also includes an evaluation of the local market including competitive properties and relevant economic and demographic information.  Mr. Peter Bedford, our Chairman of the Board and Chief Executive Officer, and at least one other senior officer visit each proposed acquisition property before the purchase is closed.  

Prior to July 1, 2002, our activities relating to the acquisition of new properties, disposition of existing properties, new loans and development were conducted on an exclusive basis by Bedford Acquisitions, Inc. (“BAI”), a California corporation wholly-owned by Mr. Bedford.  For these services, BAI earned a success fee in an amount equal to 1½% of the gross amount of the aggregate price of the property for acquisitions and dispositions, up to 1½% of any loans arranged by BAI, plus up to 7% of development project costs.  The total amount of such fees payable to BAI by us was limited to the lesser of:  (i) the aggregate amount of such fees earned or (ii) the aggregate

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amount of approved expenses not to exceed actual costs incurred by BAI through the time of such acquisition, disposition, loan or development.  On August 14, 2002, we announced that effective July 1, 2002 we were terminating our agreement with BAI and hiring its former employees.

Development

We seek to develop properties in strong markets where:

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demand for space has caused or is expected to cause occupancy rates to remain high;

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barriers to entry such as scarcity of land or entitlement challenges exist; and

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the project complements our existing portfolio.  

Our management team has experience in all phases of the development process, including market analysis, site selection, zoning, design, pre-development leasing, construction management and permanent financing.  Since 2000, we have been especially focused on the development of office flex and service center flex product.  These are multi-tenant buildings designed to meet the needs of a wide range of uses.  The flex product anticipates the changing needs of high-growth tenants and accommodates their need for flexible facility configurations.  We evaluate the competitive environment, demand and rent trends, and development pipelines before embarking on or acquiring each new project.  We are currently in the process of developing properties in Southern California and have projects planned for the Pacific Northwest and Northern Californ ia.  These projects will proceed once the appropriate market supply and demand conditions occur.  In the interim, our development team is focusing on marketing to maximize revenue from our existing portfolio.  Our management team has significant development experience in each of these markets.  Prior to July 1, 2002, development activities were conducted by BAI on our behalf as described above.

Share Repurchase

In July 1998, our Board of Directors approved a share repurchase program of 3 million shares which was increased first to 4.5 million shares in September 1999, then to 8 million shares in September 2000 and later to 10 million shares in January 2002.  Since November 1998, we have repurchased and retired approximately 7.5 million shares at an average price of $18.25 per share.  This represents 33% of the shares outstanding at November 30, 1998 when we began implementing our share repurchase program.

From November 1998 when our stock traded at a discount to our estimated net asset value (estimated based on current cap rate and earning estimates), we bought back our shares under the share repurchase program.  In addition, during 2001 and 2002, as the dividend rates on our average stock prices yielded approximately 2% higher than our average borrowing costs, we continued to repurchase our Common Stock.

CORPORATE STRATEGIES

In pursuing our business objectives and growth plans, we intend to:

Pursue a Market Driven Strategy

Our strategy is to continue to operate in suburban markets which over time have experienced above average economic growth, and which are, ideally, subject to supply-side constraints.  The metropolitan areas in which we operate have multiple suburban “cores,” and we believe that the potential for growth in these metropolitan areas is generally greatest in and around these suburban cores.  It is our experience that such suburban cores emerge as jobs move to the suburbs and typically offer a well-trained and well-educated work force, high quality of life and, in many cases, a diversified economic base.  We focus on owning, managing, acquiring and developing properties in these suburban cores.  Additionally, we seek out real estate markets that are subject to supply-side constraints such as limited availability of undeveloped land and/or geographic, topographic, regulatory and/or infrastructure restrictions.  Such restrictions limit the supply of new commercial space, which, when combined with a growing employment and population base, enhances the long-term return potential for an investment in real estate assets.

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Focus our Efforts in the Western United States

We are currently targeting selected suburban markets in the western United States.  These markets have not been immune to the economic slowdown that began in the second half of 2000.  Job growth in many of the markets in which we operate has slowed significantly and has stopped altogether in others.  Markets that tended to be the strongest participants in the telecommunication/technology boom of the late 1990s have been the hardest hit by slowing job-formation.  As a consequence, demand for commercial space has declined as well.  However, we believe that the combination of the quality of our assets, the long-term attractiveness of our sub-markets, and our experience in these markets will provide an opportunity for good returns to our shareholders in the future.

In 2002, we continued the process of selling assets which had either reached their point of inflection relative to continued growth opportunities, were located in secondary markets, or were of a quality inconsistent with the balance of the portfolio.  Included in these sales were properties located in Scottsdale, Arizona and Vista, Monterey and San Diego, California.

Acquire and Develop “Service Center Flex and Suburban Office” Properties

Among our targeted property types are service center flex industrial properties as well as suburban office flex  buildings.  These buildings provide for a wider range of function than that offered by traditional office or industrial properties and are an efficient facility choice for businesses that have frequently changing space needs.  These properties are divisible into units ranging from approximately 1,500 square feet to approximately 20,000 square feet in order to accommodate multiple tenants of various sizes and needs.  The buildings, which generally range in size from 16,000 to 80,000 square feet, have a clear height of 12 to 18 feet and are built using concrete tilt construction with store fronts incorporated in the front elevation and service doors or continued storefront in the back elevation.  We believe that these prop erties require more management expertise than other types of industrial properties and that we have developed such expertise.  

Continue Neighborhooding

Neighborhooding describes expansion in areas where we own existing properties.  This strategy capitalizes on our management’s expertise and knowledge of the local market, economy, and tenant needs for expansion.  It results in efficiency in property management and therefore enables us to acquire or develop properties at greater yields.  We utilized this concept in developing projects and acquiring properties in Fremont, Napa, Ontario, Petaluma, and San Diego, California; Phoenix, Arizona; Denver, Colorado; and Federal Way, Washington.

Sell Selected Assets

We fund a portion of our acquisition and development activities and the share repurchase program through the sale of selected assets.  Such assets include buildings that, in our opinion, have maximized their value or have become obsolete due to their physical attributes, are located in secondary markets, or are not of a quality consistent with the rest of our properties.  

Utilize In-House Asset and Property Management

We believe that the long-term value of our Properties is enhanced through in-house asset management.  As of December 31, 2002, we directly managed 85 of our 86 properties.  We conduct our in-house asset and property management activities from the following regional office locations:  Northern California Region – Lafayette, CA; Arizona Region – Phoenix, AZ; Southern California Region – Tustin, CA; Northwest Region – Seattle, WA; Colorado Region – Denver, CO.  A single asset, a suburban office property located in Reno, Nevada, is managed by a local firm.

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Our asset management team develops and monitors a comprehensive asset management plan for each Property in an effort to ensure our efficient operation.  Our Chief Operating Officer works directly with our regional management group and internal finance and accounting staff to develop and monitor detailed budgets and financial reports for each Property.  He works with each regional manager to identify and implement opportunities to improve cash flow from each Property and to maximize each Property’s long-term investment value.  Our property management staff is generally responsible for leasing activities, ordinary maintenance and repairs, keeping financial records on income and expenses, rent collection, payment of operating expenses and property operations.  Our property management philosophy is based on the belief that the long-ter m value of the Properties is enhanced by attention to detail and hands-on service provided by professional in-house property management.  We believe that a successful leasing program starts by servicing existing tenants first.  Costs associated with tenant turnover (i.e., tenant improvements, leasing commissions and the loss of income due to vacancy) can be significant.  We believe addressing and attending to existing tenants’ needs can increase the retention of existing tenants and simultaneously make our properties more attractive to new tenants.

Cooperate with Local Real Estate Brokers

We seek to develop strong relationships with local real estate brokers who can provide access to tenants as well as general market intelligence and research.  We believe that these relationships have enhanced our ability to attract and retain tenants, as well as to gain insights into potential acquisition and development opportunities.

TRANSACTIONS AND SIGNIFICANT EVENTS DURING 2002

Acquisitions

During 2002, we acquired 544,426 square feet of commercial real estate assets and a 5.2 acre parcel of land for a total contract price of $87,258,000:

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A 214,218 square foot R&D complex in Phoenix, Arizona was purchased for $24,305,000 or approximately $114 per square foot.  The property, a two-building project, is expected to generate a first year cash yield in excess of 9%.

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A 112,384 square foot service center flex complex was purchased in South San Francisco, California for $22,000,000 or approximately $196 per square foot.  The property, a three-building complex, was fully leased at the time of acquisition and is expected to generate a first year cash yield in excess of 9.5%.

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A 217,824 square foot R&D complex in San Jose, California was purchased for $40,000,000 or approximately $184 per square foot.  The property, a complex of five single-story buildings, is fully leased to a single tenant and is expected to generate first year cash yield in excess of 9.7%.

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A 5.2 acre parcel of land in Portland, Oregon, the site for the future construction of a service center flex, was purchased for $953,000.

Development

In view of the weak economy, we undertook only one new construction start in June 2002 in Ontario, California, Phase II of Jurupa Business Center, a 41,390 square foot service center flex building.  Phase I of this project, a 41,726 service center flex building, was 94% leased at year-end 2002.

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Sale of Selected Assets

During 2002, we completed the sale of 364,356 square feet of operating properties for a total contract price of $32,730,000, net proceeds of approximately $31,500,000, and realized a gain on sale of $3,575,000:

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A 33,144 square foot R&D building in San Diego, California was sold for a contract price of $3,725,000, producing a gain of $263,000.

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A 134,121 square foot R&D complex in Vista, California was sold for a contract price of $8,370,000, producing a gain of $60,000.

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A 94,800 square foot service center flex complex in Scottsdale, Arizona was sold for a contract price of $7,835,000, producing a gain of $1,475,000.

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A 102,291 square foot office, R&D, service center flex complex in Monterey, California was sold for a contract price of $12,800,000, producing a gain of $1,777,000.

Use of Information Technology

Our management has made a significant commitment to employ information technology in all of the day-to-day operations of the firm.  A number of steps have been taken during the past five years to digitize internal practices and eliminate redundancies.  These steps include the creation of a management information system designed to facilitate real-time dissemination of operating results to field offices.  This system provides the framework for timely operations reviews with each Regional Manager, the focus of which are market opportunities and the action steps necessary to take advantage of them.  In addition, all basic business functions have been digitized to simplify practices, reduce paper-flow, and enhance productivity.  IT initiatives currently underway include real-time graphic display of the economic impact of vacant spaces, web-based marketing capabilities that will showcase all current availabilities with appropriate details, and a new program for updating portfolio valuation, incorporating new leasing information as it becomes available.

Our Markets

The Properties are located in select markets proximate to metropolitan areas in Northern and Southern California, Washington, Arizona, Nevada and Colorado.  During the economic recovery of the second half of the 1990s, these markets were characterized by strong demand for commercial property without significant increases in supply.  During 2002, the weakening trends that began in late 2000 and early 2001, in which demand collapsed and vacancies increased, continued unabated in most of these markets.  Slowing job growth and a commensurate decline in demand for commercial real estate have been reflected in increasing vacancies, including both direct and sub-lease space, as well as declining, and in many cases, negative net absorption.  Deal-making activity has slowed significantly, and the terms under which deals are made are considerably less favorable to landlords.

Even in the face of these circumstances, however, we believe that conditions in our markets are more favorable than those that existed in the slowdown of the early nineties.  Relatively lower debt, coupled with significantly less speculative construction of new product, has combined to render most markets somewhat more resistant to the excesses experienced in the earlier contraction.  However, continued weak job growth, particularly in markets that formerly experienced the strongest growth, such as San Jose, California; Denver, Colorado; and Seattle, Washington, will continue to challenge us and our competitors during 2003.

We continue to believe that these markets, notwithstanding their current weakness, are excellent long-term locations in which to operate and develop commercial property of the type in which we specialize.  Excellent quality of life, outstanding educational institutions, a well-educated employment base, and natural and environmentally derived barriers of entry, all of which have been associated with good real estate returns in the past, characterize most of these locations.

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Operating Performance

For the year ended December 31, 2002, we reported net income before gain on sales of real estate investments of $32,428,000, on rental revenues of $101,902,000, compared with net income before gain on sales of real estate investments of $28,974,000, on rental revenues of $99,949,000 for the year ended December 31, 2001.  Rental revenue of $2,162,000 and $4,107,000 was classified as income from operating properties sold, net for the years ended December 31, 2002 and 2001, respectively.  Gain on sales of real estate investments for the year ended December 31, 2002 was $3,575,000 compared with gain on sales of real estate investments of $5,976,000 for the year ended December 31, 2001.  Our Funds From Operations (“FFO”; see definition under “Selected Financial Data”) for the year ended December 31, 2002 was $50,083,000 as com pared to $45,250,000 for the year ended December 31, 2001.  

Increase in Dividends on Common Stock

In September 2002, we announced a 4% increase in our quarterly Common Stock dividend from $0.48 to $0.50 per share, or $2.00 on an annualized basis.  The higher dividend rate commenced with our dividend for the third quarter of 2002.  The dividends declared for the four quarters in 2002 totaled $1.96, a 5% increase compared with the dividends declared for the four quarters in 2001.

Credit Facility

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 to expand the facility to $175 million, if needed.  Interest on the facility is at a floating rate equal to either the lender’s published “reference rate” or LIBOR plus a margin ranging from 1.30% to 1.55%, depending on our leverage level.  At December 31, 2002, the facility had an outstanding balance of $84,681,000, with an interest rate of LIBOR plus 1.55% (an effective rate of 3.96%).  We were in compliance with the covenants and requirements of our revolving credit facility throughout 2002.

In September 2002, we obtained an additional $40 million unsecured bridge facility with a six-month term.  The unsecured loan has two options to extend for three months each beyond the initial maturity date and an interest rate of LIBOR plus 1.55%.  On February 10, 2003, we exercised the option to extend the loan for an additional three months beyond its initial maturity date.  The all-in rate of this loan was 3.28% for six months.

Mortgage Loans

In October 2002, we obtained $22,600,000 of new first mortgage financing from Nationwide Life Insurance Company.  The financing consists of a nine-year loan at a fixed interest rate of 4.61% for the first three years which will be reset at the end of years three and six at the prevailing market rate.  At the time of each rate reset, we have the option to pay off the loan without penalty.

DIVIDENDS

We have made regular quarterly distributions to the holders of our Common Stock every quarter since the second quarter of 1993 and have increased the dividend sixteen times since then from $0.10 per share in the second quarter of 1993 to $0.50 per share in the fourth quarter of 2002.  

TENANTS

Based on rentable square feet, as of December 31, 2002, the Suburban Office Properties and Industrial Properties were approximately 94% occupied by a total of 435 tenants, of which 122 were Suburban Office Property tenants and 313 were Industrial Property tenants.  Our tenants include local, regional, national and international companies engaged in a wide variety of businesses.

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FINANCING

We expect cash flow from operations to be sufficient to pay operating expenses, real estate taxes, general and administrative expenses, and interest on indebtedness and to make distributions to stockholders required to maintain our REIT qualification.

We expect to fund the cost of acquisitions, capital expenditures, costs associated with lease renewals and reletting of space, repayment of indebtedness, share repurchases, and development of properties from:

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cash flow from operations,

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borrowings under the credit facility and, if available, other indebtedness (which may include indebtedness assumed in acquisitions), and

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the sale of certain real estate investments.

INSURANCE

We carry commercial general liability coverage with primary limits of $1 million per occurrence and $2 million in the aggregate, as well as $40 million of umbrella/excess liability coverage.  This coverage protects us against liability claims as well as the cost of legal defense. We carry property “All Risks” insurance of $200 million on a replacement value basis covering both the cost of direct physical damage and the loss of rental income.  This coverage is subject to certain exclusions, including mold.  We carry insurance for terrorism losses as defined under the Terrorism Risk Insurance Act of 2002 (the “Act”) under our all risk policies, as well as for “non-certified” events in excess of $10 million up to the $200 million limit. Separate flood and earthquake insurance is provided with an annual aggregate li mit of $10 million, subject to a deductible of 5% of total insurable value per building and respective rent loss with respect to the earthquake coverage.  Additional excess earthquake coverage with an aggregate limit of $20 million is provided for property located in California, as well as excess earthquake coverage with an aggregate limit of $10 million for property located in Washington.  We also carry director and officer liability insurance with an aggregate limit of $10 million and a fidelity bond in the amount of $1 million.  This coverage protects our directors and officers against liability claims as well as the cost of legal defense.

COMPETITION, REGULATION, AND OTHER FACTORS

Our success depends upon, among other factors, general economic conditions and trends, including real estate trends, interest rates, government regulations and legislation, income tax laws and zoning laws.  We typically compete in our markets with other REITs, institutional owners, and private operators of commercial property.  

Our real estate investments are located in markets in which we face significant competition for the rental revenues we generate.  Many of our investments, particularly the office buildings, are located in markets in which there is a significant supply of available space, resulting in intense competition for tenants and low rents.  For example, we own property in the east side market in Seattle.  This market has been negatively affected by job loss in that region and there is considerable inventory available.  In addition, we own property in Phoenix, Arizona and in Denver, Colorado.  In both of these cities, weak demand has resulted in excess direct and sublease inventory, providing tenants with more choices, and somewhat weakening our negotiating strength.

We believe that our competitive strengths will enable us to operate successfully in the face of these risks. These competitive strengths include excellent brand acceptance, an experienced management team, a long history of operations in all of our current markets, a diversified tenant base, and limited exposure to a significant single-tenant default.

GOVERNMENT REGULATIONS

Our properties are subject to various federal, state and local regulatory requirements such as local building codes and other similar regulations.  We believe our properties are currently in substantial compliance with all applicable

regulatory requirements, although expenditures at our 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.

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Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate 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.

We believe that we are in compliance in all material respects with all federal, state and local laws regarding hazardous or toxic substances, and we have not been notified by any governmental authority of any non-compliance or other claim in connection with any of our present or former properties.  Accordingly, we do not currently anticipate that compliance with federal, state and local environmental protection regulations will have any material adverse impact on our financial position, results of operations or liquidity.  There can be no assurance, however, that future discoveries or events at our properties, or changes to current environmental regulations, will not result in such a material adverse impact.

OTHER INFORMATION

We currently employ 43 full-time employees, including eleven employees hired from BAI effective July 1, 2002.  

We will make our filings with the Securities and Exchange Commission (“SEC”), including this annual report, available on our website free of charge, as soon as reasonably practicable after such filings are furnished to the SEC.  The address of our website is www.bedfordproperty.com.  Other than the information expressly set forth in this annual report, the information contained, or referred to, on our website is not incorporated into this annual report.

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Item 2.  Properties

REAL ESTATE SUMMARY

As of December 31, 2002, our real estate investments were diversified by geographic region and by product type as follows (dollars in thousands):

* Less than 1%

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PERCENTAGE LEASED, 10% TENANTS, AND AVERAGE BASE RENT

The following table sets forth the occupancy rates for each of the last five years, the number of tenants occupying 10% or more of the property square footage at the end of the year, the average base rent per square foot at the end of each year, and the principal business of the tenants occupying 10% or more of each property at December 31, 2002.  The average base rent per square foot as of the end of the year for some of the properties includes zero rent for tenants who are in a free rent period as of December 31, 2002.

Percentage Occupied (%), Number of Tenants Occupying 10% or more of Square Footage (#),

and Average Base Rent for Property by Year ($/Sq Ft)

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Percentage Occupied (%), Number of Tenants Occupying 10% or more of Square Footage (#),

and Average Base Rent for Property by Year ($/Sq Ft)

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Percentage Occupied (%), Number of Tenants Occupying 10% or more of Square Footage (#),

and Average Base Rent for Property by Year ($/Sq Ft)

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Percentage Occupied (%), Number of Tenants Occupying 10% or more of Square Footage (#),

and Average Base Rent for Property by Year ($/Sq Ft)

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Percentage Occupied (%), Number of Tenants Occupying 10% or more of Square Footage (#),

and Average Base Rent for Property by Year ($/Sq Ft)

* Both tenants are in a free rent period at December 31, 2002.  Rent will begin in February 2003 for both tenants at a total average base rent per square foot of $9.95.

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Percentage Occupied (%), Number of Tenants Occupying 10% or more of Square Footage (#),

and Average Base Rent for Property by Year ($/Sq Ft)

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Percentage Occupied (%), Number of Tenants Occupying 10% or more of Square Footage (#),

and Average Base Rent for Property by Year ($/Sq Ft)

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Percentage Occupied (%), Number of Tenants Occupying 10% or more of Square Footage (#),

and Average Base Rent for Property by Year ($/Sq Ft)

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Percentage Occupied (%), Number of Tenants Occupying 10% or more of Square Footage (#),

and Average Base Rent for Property by Year ($/Sq Ft)

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Percentage Occupied (%), Number of Tenants Occupying 10% or more of Square Footage (#),

and Average Base Rent for Property by Year ($/Sq Ft)

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LEASE EXPIRATIONS - REAL ESTATE PORTFOLIO

The following table presents lease expirations for each of the ten years beginning January 1, 2003 and thereafter.  The table presents:   (i) the number of leases that expire each year, (ii) the square feet covered by such expiring leases, (iii) the 2002 annualized base rent of the expiring leases, and (iv) the percentage of total 2002 annualized base rent for expiring leases.

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PRINCIPAL PROVISIONS OF LEASES

The following table sets forth the principal provisions of leases which represent more than 10% of the gross leasable area (“GLA”) of each of our properties and the property tax rate for each property for 2002.

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* Both tenants are in a free rent period at December 31, 2002.  Rent will begin in February 2003 for both tenants at a total average base rent per square foot of $9.95.

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