ITEM 1. BUSINESS
Bedford Property Investors, Inc. (the "Company") was formerly known as ICM Property Investors Incorporated ("ICM"), a Delaware corporation, organized in November 1984. On July 1, 1993, ICM Property Investors Incorporated reincorporated from the state of Delaware to the state of Maryland under a new name, Bedford Property Investors, Inc. The Company is operated so as to qualify as a real estate investment trust ("REIT") under the applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify, the Company must meet certain tests which, among other things, require that its assets consist primarily of real estate, its income be derived primarily from real estate, and at least 95% of its taxable income be distributed to its shareholders. Because the Company qualifies as a REIT, it is not generally subject to Federal income taxes.
Business Plan
The Company's business plan emphasizes asset and acquisition portfolio. The original business plan of ICM had been to invest in office buildings, via direct ownership or joint venture mortgage loan investment, dispersed throughout the United States. In 1993, the Board of Directors approved a new business plan under which the Company would move its investment focus to the western United States, make wholly-owned equity investments in suburban office and industrial properties, develop these property types and, subject to the Company's ability to raise additional capital and other factors, grow the asset base of the Company. As a result of this change in the Company's business plan, in 1993 the Company identified four non-strategic assets for disposition. During 1993, two of the four office building investments were sold (University Tower and Point West Place). In January 1994, the Company sold the third asset, its office building investment in Texas (Texas Bank North), and continues to offer for sale the office building investment located in Mississippi (IBM Building). During 1993, the Company purchased two suburban office buildings, Woodlands II in Utah and 1000 Town Center Drive in California. In January 1994, the Company purchased the Mariner Court office building, also in California.
Real Estate Investments
The Company's real estate portfolio consists of equity investments in completed, income- producing properties such as office buildings and industrial buildings located primarily in the western United States. As of December 31, 1993, the Company directly owned nine properties including four suburban office buildings and five industrial buildings located in five states. Two of these properties were classified as offered for sale, one of which has subsequently been sold.
As of December 31, 1993, the Company's property portfolio had an overall occupancy level of 88%. The majority of the portfolio vacancy related to the 1000 Town Center Drive building acquired on December 30, 1993. The 1000 Town Center Drive building was 41% occupied as of December 31, 1993. Excluding the 1000 Town Center Drive building, the Company's property portfolio had an overall occupancy level of 98%. The favorable overall occupancy is the result of management's continuing focus on reducing the risk of vacant space and the costs associated with re-leasing by concentrating efforts on servicing those tenants with expiring leases, and wherever possible, extending their lease expiration dates. In addition, lease expirations for the next several years have been staggered so that the lease renewal risk is not significantly greater in any one year.
Significant 1993 Events
Sale of Edison Square Joint Venture: On May 31, 1993, the Company sold its partnership interest in the three Edison, New Jersey properties in exchange for a note receivable of $300,000 with an interest rate of 8%, payable quarterly in July, October, January and April until May 31, 1998, at which time the note matures. The sale of the Company's interest in the unconsolidated joint venture partnerships resulted in a gain of $2,686,000.
Name Change and Reincorporation: On June 9, 1993, at the Company's Annual Meeting, the stockholders approved the Company's proposals to change the Company's name from ICM Property Investors Incorporated to Bedford Property Investors, Inc. (now traded on the New York Stock Exchange under the symbol "BED") And to reincorporate from Delaware to Maryland.
Increase in Number of Authorized Shares: On June 9, 1993, at the Company's Annual Meeting, the stockholders approved the Company's proposals to increase the number of authorized shares of Common Stock from 10,000,000 shares to 30,000,000 million shares and to increase the number of authorized shares of Preferred Stock from 1,000,000 shares to 10,000,000 shares.
Sale of University Tower, Irvine, California: On July 31, 1992, the Company entered into a contract to sell its investment in University Tower. The sale contract subsequently expired, but a lease was signed with the potential buyer for approximately 20% of the space, and as part of the lease, the lessee obtained a short-term option to purchase the building. On May 25, 1993, the option was exercised and, on August 18, 1993, the sale of University Tower was completed. The cash sale price, including the reimbursement of tenant relocation costs of $300,000, was $15,200,000, or $96 per square foot, and produced a gain of $407,000. Sale proceeds were used to pay off the Company's bank loan of $6,000,000 which was secured by the property, and to fund the Company's acquisition of Woodlands II.
Purchase of Woodlands II, Salt Lake City, Utah: On August 25, 1993, the Company acquired the Woodlands II complex in Salt Lake City, Utah, for $6,750,000, or $59 per square foot. The property consists of a 106,084 square foot six-story Class "A" office building, a single story 8,268 square foot retail building and a 3.6 acre parcel available for future development. The complex was 96% occupied at the time of purchase.
Sale of Point West Place, Framingham, Massachusetts: On October 1, 1993, the property was sold for a cash price of $7,180,000, or $66 per square foot, resulting in a gain of $497,000. A portion of the sale proceeds from Point West Place was used to retire $5,113,000 of mortgage debts secured by the five industrial properties.
$20,000,000 Acquisition Line of Credit Secured: On December 29, 1993, the Company secured a $20,000,000 acquisition revolving line of credit from Bank of America. The credit facility has a term of three years and features a competitive interest rate and fee structure. At December 31, 1993, the outstanding balance was $3,621,000.
Purchase of 1000 Town Center Drive, Oxnard, California: On December 30, 1993, the Company completed the acquisition of 1000 Town Center Drive, a 109,611 square foot six-story Class "A" suburban office building located in Oxnard, California for $5,100,000, or $47 per square foot. The seller received $3,600,000, or $33 per square foot, in cash, at closing with the balance of $1,500,000, or $14 per square foot, payable in December 1994. The $3,600,000 cash payment was financed using the Company's new $20 million revolving line of credit from Bank of America. The line of credit was subsequently paid off in January 1994 with the remaining sale proceeds from Point West Place. The building was 41% occupied at the time of purchase. It was acquired from NCEC Realty Incorporated, a wholly owned subsidiary of Citicorp which foreclosed on the property over two years ago.
Subsequent Events
Purchase of Mariner Court, Torrance, California: On January 5, 1994, the Company completed the acquisition of Mariner Court, a 105,673 square foot three-story suburban office building located in Torrance, California for $7,500,000 or $71 per square foot. The building was 91% occupied at the time of purchase. The Company borrowed $7,438,000 against the $20 million revolving line of credit with Bank of America to acquire the property.
Sale of Texas Bank North, San Antonio, Texas: In July, 1993, the Company entered into a contract to sell the Texas Bank North building for a cash sale price of $8,500,000, or $56 per square foot. The sale was completed on January 14, 1994. The balance borrowed on the line of credit for the purchase of Mariner Court was paid off in January 1994 with the sale proceeds from the building.
Investment Analysis
Prospective real estate investments are carefully analyzed by the Company pursuant to several underwriting criteria, including expected initial cash returns on investment, competition and other market factors, and prospects for growth in income and market value. In determining the returns on investment, the Company takes into consideration any initial capital expenditures for leasing, deferred maintenance, and estimated costs associated with tenant turnover. In addition, the Company has formerly established a reserve policy in an attempt to normalize the cash flow from the Company's real estate investments. The reserve policy is a cash management technique designed to anticipate future expenditures associated with capital improvements and tenant turnover. These expenditures are converted to a monthly sinking fund payment that is subtracted from the net operating income of the real estate investment to determine net operating cash flow for cash management purposes.
Dividends
The Company made regular quarterly dividend distributions in the second, third and fourth quarters of 1993 of $0.05, $0.06 and $0.07 respectively per share following a nine quarter suspension. All dividend distributions made in 1993 were classified as a return of capital since no earnings and profits were reported for 1993. The disposition in 1993 of two of the Company's investments resulted in the Company incurring an ordinary loss for income tax purposes, in addition to capital losses. The ordinary loss carryforward is expected to exceed the Company's taxable income for several years. As a REIT, the Company is not required to make distributions when it incurs an ordinary federal income tax loss or applies unused ordinary tax loss carryforwards. Decisions on future distributions will be made on the basis of the Company's capital needs, cash flows, taxable income and other relevant factors.
Tenants
The Company's real estate investments are leased to tenants for terms ranging from month-to-month tenancies to 10 year leases. The Company leases space directly to 72 tenants, including 58 office tenants and 14 industrial tenants.
Self-Management
In the past, all of the Company's properties were managed by independent property management companies whose primary responsibilities included leasing, maintenance, and rent collection activities. Effective February 1, 1993, the Company began internally managing all of its industrial properties. The office properties are still contract managed. Effective July 1, 1993, the Company centralized recordkeeping for all properties, with the exception of Texas Bank North, at corporate headquarters. In-house property management and record keeping, which have not increased the number of employees, have resulted in savings of approximately $43,000 in 1993.
Self-Administration
On July 31, 1992, the Company terminated an Investment Management Agreement with an independent investment manager. The Board of Directors determined that as of August 1, 1992, the Company would be self-administered. By being self- administered the Company assumes direct responsibility for the administration of its day-to-day business affairs, including responsibility for retaining personnel, obtaining office space and arranging of other administrative functions.
Financing
The Company expects to sell one office building, offer additional equity securities and/or borrow under lines of credit to finance additional real estate acquisitions during 1994. Short-term borrowings are expected to be repaid with future offerings of shares of beneficial interest or long-term financing.
As of December 31, 1993, the Company had $3,621,000 of debt outstanding against a revolving acquisition line of credit with Bank of America bearing interest at the rate of 6.75% (rate floats with prime). The balance on the line of credit was subsequently repaid in January, 1994.
For additional information, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", and Note 9 to the Consolidated Financial Statements.
Insurance
The Company carries commercial general liability coverage on its properties with limits of $11,000,000 per occurrence and $12,000,000 in the aggregate. This coverage protects the Company against liability claims as well as the cost of defense. The Company carries property insurance on a replacement value basis covering both the cost of direct physical damage and the loss of rental income. Separate flood and earthquake insurance is provided with an annual aggregate limit of $10,000,000 for each peril. The Company also carries director and officer liability insurance with an aggregate limit of $10,000,000. This coverage protects the Company's directors and officers against liability claims as well as the cost of defense.
Competition, Regulation, and Other Factors
The success of the Company depends, among other factors, upon general economic conditions and trends, including real estate trends, interest rates, government regulations and legislation, income tax laws and zoning laws.
The Company's real estate investments are located in markets in which they face significant competition for the rental revenues they generate. Many of the Company's investments, particularly the office buildings, are located in markets which have a significant supply of available space, resulting in intense competition for tenants and low rents.
Government Regulations
A number of jurisdictions have laws and regulations relating to the ownership of real estate, such as local building codes and similar regulations. From time to time, capital expenditures at properties owned by the Company may be required to comply with changes in these laws. No material expenditures are contemplated at this time in order to comply with any laws or regulations.
Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of hazardous or toxic substances released on, under or in its property. The costs of such removal or remediation could be substantial. The Company's properties have been professionally inspected as a result of ongoing review, acquisition due diligence and financing requirements. Management believes that through these professional environmental inspections and testing for asbestos and other hazardous materials, the Company can minimize its exposure to potential liability associated with such environmental hazards. To the best of its knowledge, the Company is in compliance with all applicable environmental rules and regulations. Management is not aware of any material violation of applicable environmental requirements with respect to any of its real estate investments. To date, compliance with federal, state and local environmental protection regulations has not had a material effect upon the capital expenditures, earnings or competitive position of the Company. Other Information The Company's current business constitutes a single business segment. The Company is not dependent upon a single tenant or a limited number of tenants. The Company's operations are not impacted by seasonal changes. The Company's business is not subject to government contracts. The Company does not have any expenditures for research and development. The Company has no foreign operations or export sales. ITEM 2.
ITEM 2. PROPERTIES The Company's real estate portfolio (net of accumulated depreciation) consists of the following: LOTUS FORMAT TABLE TO BE INCLUDED ON
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As of December 31, 1993, the Company's real estate investments (net of accumulated depreciation) were diversified by geographic region as follows:
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For additional information on the Company's real estate portfolio, see Note 2 to the Consolidated Financial Statements.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings other than routine litigation incidental to its business.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the fourth quarter of 1993.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of Bedford Property Investors, Inc. is listed for trading on the New York Stock Exchange and the Pacific Stock Exchange under the symbol "BED". Prior to July 1, 1993, the Company's stock was traded on the same exchanges under the symbol "ICM". As of February 28, 1994, the Company had 475 stockholders of record. A significant number of these stockholders are also nominees holding stock in street name for individuals. The following tables show the high and low share prices as traded on the New York Stock Exchange for each quarter for the past two years. LOTUS FORMAT TABLE TO BE INCLUDED ON
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ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Following is a table (which should be read in conjunction with the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto contained herein) of selected financial data of the Company for the last five fiscal years:
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1Includes rental income, interest income, equity in joint venture partnership operations and gains on sales of real estate investments and partnership interest in joint ventures. See "Consolidated Statements of Operations". 2Includes rental expenses consisting of: operating expenses, real estate taxes, depreciation and amortization, interest, general and administrative expenses, provision for possible loss on real estate investments and extraordinary item-extinguishment of debt.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto. Results of Operations - 1993 Compared to 1992 Income Rental income decreased by $1,849,000 from the prior year, primarily due to the Company ceasing to record the operations of Columbia Business Center as of March 31, 1992, the sales of University Tower and Point West Place in 1993, and the absence in 1993 of three additional months of rental income recorded for Texas Bank North Building in 1992, offset in part by the purchase of Woodlands II in August 1993. Correspondingly, rental expenses decreased by $2,012,000 from the prior year. As a result, 1993 income from property operations increased $163,000 over 1992.
Interest income increased by $131,000, a result of investing the remaining cash proceeds from the sales of University Tower and Point West Place after acquiring Woodlands II and paying off bank and mortgage loans.
Equity in joint venture partnership operations produced a loss of $153,000 for 1993, compared with a loss of $702,000 in 1992. The $549,000 reduction in the loss is attributable primarily to the sale of the joint venture partnership during the year. Only three months of joint venture partnership operations were recorded in 1993.
Expenses Interest expense decreased by $420,000 from the prior year primarily attributable to the Company ceasing to record the operations of Columbia Business Center as of March 31, 1992 and paying off the $6,000,000 bank loan on August 18, 1993 and the $5,113,000 in mortgage loans on November 1, 1993.
General and administrative expenses decreased by $1,320,000, the result of self administration and implemented cost reductions.
In 1992, the Company recorded a provision for possible loss on real estate investments relating to University Tower, Columbia Business Center, Point West Place and Texas Bank North Building aggregating $18,921,000.
Gains on Sales and Extraordinary Item On May 1, 1993, the Company sold its interest in the Edison Square joint venture partnerships for a note receivable of $300,000 which produced a gain of $2,686,000. In August 1993, the Company sold its investment in University Tower for $15,200,000, which produced a gain of $407,000. In October 1993, the Company sold its investment in Point West Place for $7,180,000, which produced a gain of $493,000.
In 1992, the Company recorded an extraordinary item of $3,818,000 which represented the gain on extinguishment of debt as a result of the disposition of its investment in Columbia Business Center.
Dividends Dividends declared for 1993 totaled $0.18 per share. They were paid approximately 30 days following the end of each quarter.
Results of Operations - 1992 Compared to 1991
Income For 1992, the Company's operating results were mixed when compared to 1991. Rental income and rental expenses increased slightly over 1991 as a result of recording a full year of operations for University Tower (three months were recorded in 1991) and recording an additional three months of operations (fifteen months in total) for Texas Bank North, offset in part by recording only three months of operations for Columbia Business Center in 1992. Income from property operations declined slightly reflecting lower effective rents, offset in part by higher occupancies during the year.
The decrease in interest income in 1992 reflects the absence of the interest income received in 1991 from the Company's mortgage loan to the partnership that owned University Tower during the first nine months of 1991.
Equity in joint venture partnership operations produced a loss of $702,000 for 1992, compared with a loss of $1,108,000 for 1991. The $406,000 decline in the loss is attributable primarily to the absence in 1992 of the Company's equity in the operating losses of University Tower, which was consolidated as of September 30, 1991, and the reduction in the operating losses of Jefferson Plaza as a result of the Company ceasing to record its share of the partnership's operations as of March 31, 1992.
Expenses Of the $1,241,000 decrease in interest expense, $1,176,000 was attributable to the Company ceasing to record the operations of Columbia Business Center as of March 31, 1992.
The $651,000 increase in general and administrative expenses was attributable primarily to severance expense of two executive officers, a provision for state taxes for the years 1985 through 1989 and an increase in director and officer liability coverage, offset by lower professional and shareholder reporting costs.
In 1992, the Company recorded a provision for possible loss on real estate investments relating to University Tower, Columbia Business Center, Point West Place and Texas Bank North Building aggregating $18,921,000. In 1991, the Company wrote down its investment in the IBM Building by $2,113,000.
Extraordinary Item In 1992, the Company recorded an extraordinary item of $3,818,000 which represented the gain on extinguishment of debt as a result of the disposition of its investment in Columbia Business Center.
Dividends No dividends were declared and paid in 1992.
Financial Condition
During fiscal year 1993, total assets of the Company decreased by $4,502,000 primarily as a result of a decrease in real estate investments of $9,591,000 and an increase in cash of $4,755,000. The decrease in real estate investments is due to the sale of University Tower and Point West Place (book value of $14,476,000 and $6,468,000, respectively) offset in part by $13,052,000 invested in Woodlands II, 1000 Town Center Drive and tenant improvements to existing real estate investments. The increase in cash consists of the remaining proceeds from the sales of University Tower and Point West Place after acquiring Woodlands II and 1000 Town Center Drive and paying off bank and mortgage loans.
Total liabilities for the same period decreased by $6,573,000, of which $9,513,000 was attributable to the pay-off of the bank and mortgage loans, offset by the Company's borrowing of $3,621,000 on its revolving credit facility and recording a liability of $1,500,000 for the purchase of 1000 Town Center Drive. In addition, the Company accrued a dividend of $418,000 for the fourth quarter, payable on January 31, 1994 to shareholders of record on January 14, 1994.
Liquidity and Capital Resources
During the year ended December 31, 1993, the Company's operating activities and the sale of University Tower and Point West Place provided cash flow in the amount of $22,857,000. The Company funded $11,552,000 of real estate investments, paid off $9,513,000 of bank and mortgage loans and distributed dividends of $658,000. The Company secured a $20 million revolving credit facility with Bank of America, which was used in part to finance the acquisition of 1000 Town Center Drive (Note 9 to the Consolidated Financial Statements). At December 31, 1993, the Company was in compliance with covenants and requirements of its revolving credit facility with Bank of America.
The Company anticipates that the cash flow generated by its real estate investments will be sufficient to meet its short-term liquidity requirements.
The capital resources for long-term liquidity requirements, including the repayment of the revolving credit facility, may be provided by some or all of the following: (a) the cash flow generated by the Company's real estate investments, (b) other bank borrowings, (c) the financing of real estate investments, (d) the sale of real estate investments and (e) sale of new equity. 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. ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements and Schedules Covered by Reports of Independent Public Accountants Report of Independent Public Accountants ............ 12 Consolidated Balance Sheets as of December 31, and 1992.......................................... . .... 13 For Years Ended December 31, 1993, 1992 and - -Consolidated Statements of Operations.................................... . ........... 14 - -Consolidated Statements of Changes in Stockholders' Equity................................. 15 - Consolidated Statements of Cash Flows......................................... . ........... 16 - Notes to Consolidated Financial Statements.................................... . .......... 17-22 Financial Statement Schedules: Schedule XI - Real Estate and Accumulated Depreciation . . 23-24
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
The information required by Items 10 through 13 of Part III is incorporated by reference from the Registrant's Proxy Statement, under the captions "Election of Directors", "Principal Stockholders", "Certain Transactions", and "Compensation of Directors and Executive Officers", which Proxy Statement will be mailed to stockholders in connection with the Registrant's annual meeting of stockholders which is scheduled to be held on May 18, 1994.
PART IV ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements Report of independent public accountants.
The following consolidated financial statements of the Company and its subsidiaries are included in Item 8 of this report:
Consolidated Balance Sheets as of December 31, 1993 and 1992.
Consolidated Statements of Operations for the years ended December 31, 1993, 1992 and 1991.
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1993, 1992 and 1991.
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedules
Schedule XI - Real Estate and Accumulated Depreciation
All other schedules have been omitted as they are not applicable, or not required or because the information is given in the Consolidated Financial Statements or related Notes to Consolidated Financial Statements.
(a) 3. Exhibits
Exhibit No.List of Exhibits2.1Agreement and Plan of Merger dated July 1, 1993 between ICM Property Investors Incorporated, a Delaware corporation, and Bedford Property Investors, Inc., a Maryland corporation, is incorporated herein by reference to the Company's registration statement on Form 8-B/A filed March 6, 1994.3.1Articles of Incorporation of Bedford Property Investors, Inc. is incorporated herein by reference to the Company's registration statement on Form 8-B/A filed March 6, 1994.3.2Bylaws of Bedford Property Investors, Inc. are incorporated herein by reference to the Company's registration statement on Form 8-B/A filed March 6, 1994.4.1The Rights Agreement between ICM Property Investors Incorporated and the Chase Manhattan Bank, N.A., dated July 18, 1989, is incorporated herein by reference to Exhibit A, filed with the Company's Form 8-K dated July 19, 1989.4.2Amendment No. 1 to the Rights Agreement, dated March 20, 1990, between ICM Property Investors Incorporated and The Chase Manhattan Bank, N.A., is incorporated herein by reference to Exhibit B, filed with the Company's Form 8-K dated April 6, 1990.4.3The Registration Rights Agreement dated as of December 5, 1990, between ICM Property Investors Incorporated and Peter B. Bedford, is incorporated herein by reference to Exhibit D, filed with the Company's Form 8- K dated December 13, 1990.
10.1 (b)Termination Agreement, dated as of July 31, 1992, between Registrant and Kingswood Realty Advisors, Inc. is incorporated herein by reference to the Company's Form 10-K dated March 26, 1993.10.2The Company's Automatic Dividend Reinvestment and Share Purchase Plan, as adopted by the Company, is incorporated herein by reference to Exhibit 4.1 filed with Amendment No. 2 to the Registration Statement No. 2-94354, of ICM Property Investors Incorporated dated January 25, 1985.10.3Contract of Sale dated July 31, 1992 by and among ICMPI (Irvine) Inc. as Seller and In-N-Out Burger, Inc. and Rich Snyder, Revocable InterVivos Trust U/D/T 10/11/89, jointly and severally as Purchaser, for University Tower, is incorporated herein by reference to the Company's Form 10-Q filed for the quarter ended September 30, 1993.10.4Real Estate Purchase and Sale Agreement dated as of June 4, 1993 by and between Bay Street Number Two, Ltd., as Seller and ICM Property Investors Incorporated, as Purchaser, for Woodlands Tower II and Woodlands Commercial Center, Plan II and Related Properties, filed with the Company's Form 10-Q filed for the quarter ended September 30, 1993.10.5*1989 ICM Property Investors Incorporated Share Equivalent Plan (as Amended and Restated as of January 1, 1991), as adopted by the Company, incorporated herein by reference to Exhibit 10.6 to the Company's quarterly report on Form 10-Q filed for the quarter ended September 30, 1993.10.6*Bedford Property Investors, Inc. Employee Stock Option Plan, effective September 16, 1985, amended as of June 9, 1993, as adopted by the Company on September 27, 1993 and amended and restated as of February 7, 1994 incorporated herein by reference to the Company's registration statement on Form 8-B/A filed March 6, 1994.10.7*Bedford Property Investors, Inc. Directors' Stock Option Plan effective May 20, 1992, as adopted by the Company on September 27, 1993 and amended and restated as of February 7, 1994 incorporated herein by reference to the Company's registration statement on Form 8-B/A filed March 6, 1994.10.8Agreement to Purchase Real Property, dated July 23, 1993, by and between Bedford Property Investors, Inc., as Seller, and MGI Properties, as Purchaser, for Point West Place.10.9Sale-Purchase Agreement dated December 14, 1993, by and between NCEC Realty,
Inc., as Seller and Bedford Property
Investors, Inc., as Purchaser, for 1000 Town
Center Drive, is incorporated herein by
reference to the Company's Form 8-K filed
January 13, 1994.10.10Purchase and Sale
Agreement, dated December 20, 1993, by and
between Mariner Court Associates, as Seller,
and Bedford Property Investors, Inc., as
Purchaser for Mariner Court, is incorporated
herein by reference to the Company's Form 8-K
filed January 13, 1994.10.11Agreement to
Purchase Real Property, dated June 11, 1993,
by and between Country Hollow Associates, as
Seller, and A.S., Inc., as Purchaser, for
Texas Bank North Building, is incorporated
herein by reference to the Company's Form 8-K
filed January 27, 1994.21Subsidiaries of
Registrant.24.1Consent of KPMG Peat
Marwick.*Compensatory plans required to be
filed as an exhibit pursuant to item 14(c) of
Form 10-K. (b) Reports on Form 8-KFor
the quarter ended September 30, 1993, the
Company filed a report on Form 8-K dated
August 18, 1993, announcing the sale of the
University Tower office building and the
acquisition of the Woodlands II office
building. During the quarter ended
December 31, 1993, the Company filed a report
on Form 8-K/A, which amended items reported on
Form 8-K dated August 18, 1993. Also, the
Company filed a report on Form 8-K dated
October 1, 1993, announcing the sale of Point
West Place.
BEDFORD PROPERTY INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
The Company On July 1, 1993, the Company (formerly known as ICM Property Investors Incorporated) reincorporated from the state of Delaware to the state of Maryland under a new name, Bedford Property Investors, Inc. As of July 1st, the Company's Common Stock traded under the symbol "BED" on both the New York and Pacific Stock Exchanges. Concurrent with the reincorporation, the number of authorized shares of Preferred Stock was increased from 1,000,000 shares to 10,000,000 shares and the number of authorized shares of Common Stock was increased from 10,000,000 to 30,000,000 shares. Also, the par value of both the Preferred and Common Stock was reduced from $1.00 to $0.01 per share and Treasury Stock was eliminated. For comparative purposes, stockholders' equity for the years ended December 31, 1992 and 1991 has been reclassified to reflect the above changes.
Principles of Consolidation The consolidated financial statements include the accounts of Bedford Property Investors, Inc., its wholly-owned subsidiaries and its consolidated joint venture partnerships. As of June 30, 1992, the Company no longer had investments in joint venture partnerships which were consolidated. As of May 31, 1993, the Company no longer had investments in unconsolidated joint venture partnerships.
All significant inter-entity balances have been eliminated in consolidation.
Federal Income Taxes The Company has qualified as a real estate investment trust under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended ("the Code"). A real estate investment trust is generally not subject to federal income tax on that portion of its real estate investment trust taxable income ("Taxable Income") which is distributed to its stockholders, provided that at least 95% of Taxable Income is distributed. No provision for federal income taxes has been made in the consolidated financial statements, as the Company believes it is in compliance with the Code.
Taxable income differs from net income for financial reporting purposes primarily because of the different methods of accounting for joint venture partnerships and the difference in timing of the recognition of losses. As of December 31, 1993, for federal income tax purposes, the Company had an ordinary loss carryforward of approximately $31,227,000 and a capital loss carryforward of approximately $13,675,000.
Real Estate Investments When the Company concludes that the recovery of the carrying value of a real estate investment is permanently impaired, it reduces such carrying value to the amount deemed recoverable. Investments which have been classified as offered for sale are written down to estimated net realizable value if net realizable value is less than the carrying amount of the investment.
Depreciation and Amortization Buildings and improvements are carried at cost less accumulated depreciation. Buildings are depreciated on a straight-line basis over 45 years. Upon the acquisition of an investment by the Company, acquisition related costs are added to the carrying cost of that investment. These costs are being depreciated over the useful lives of the buildings. Leasing commissions and improvements to tenants' space are amortized over the terms of the respective leases. Expenditures for repairs and maintenance, which do not add to the value or prolong the useful life of a property, are expensed as incurred.
Income Recognition Rental income from operating leases is recognized in income on a straight-line basis over the period of the related lease agreement.
The Company records its proportionate share of joint venture operations on the basis of its obligation to fund or its right to receive cash flows in accordance with the partnership agreements, rather than on the Company's legal ownership percentage of the partnerships.
Per Share Data Per share data are based on the weighted average number of shares outstanding during the year. Weighted average shares for computing per share data were 5,975,900 for 1993, 1992 and 1991. Outstanding warrants and stock options during the above periods have not been included in the calculation of shares outstanding because the effect of their assumed conversion would be immaterial.
Reclassifications Certain reclassifications have been made to the 1992 and 1991 financial statements to conform to the 1993 presentation.
Note 2 - Real Estate Investments
The following table sets forth the Company's real estate investments as of December 31, 1993 (in thousands):
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University TowerOn July 31, 1992, the Company entered into a contract to sell its investment in University Tower for $15,350,000 in cash. In anticipation of the proposed sale, the Company provided a $3,200,000 provision for possible loss related to this investment. The contract of sale, which was scheduled to expire on November 13, 1992, was extended and expired on December 31, 1992. Subsequent to the expiration of the contract, the Company signed a tenant lease with the potential buyer for approximately 20% of the building's space and, as part of the lease, the lessee obtained a short-term option to purchase the building. On May 25, 1993, the option was exercised and the sale of University Tower was completed on August 18, 1993. The cash sale price, including the reimbursement of tenant relocation costs of $300,000, was $15,200,000 and produced a gain of $407,000.
Point West Place During the fourth quarter of 1992, the Company decided to offer Point West Place for sale. In anticipation of such sale, the Company wrote down its investment in this property by $9,290,000 in 1992. On October 1, 1993, the property was sold for a cash price of $7,180,000, resulting in a gain of $493,000. A portion of the sale proceeds from Point West Place was used to retire $5,113,000 of mortgage debt secured by the five industrial properties.
IBM Building The Company continues to offer the IBM Building for sale.
Texas Bank North Building As of May 1, 1992, the Company's partner in the partnership that owns the Texas Bank North Building assigned its interest in the partnership to the Company. During the fourth quarter of 1992, the Company decided to offer the Texas Bank North Building for sale. In anticipation of such sale, the Company wrote down its investment in this property by $3,631,000. In December, 1993, the Company entered into a contract to sell the Texas Bank North Building for a cash sale price of $8,500,000. The sale was completed on January 14, 1994 and resulted in a gain of $1,193,000.
Woodlands II The property, a suburban six-story office building located in Salt Lake City, Utah, was purchased for $6,750,000 on August 25, 1993. The Company also recorded acquisition costs of $101,000 paid to Peter B. Bedford, Chairman of the Board and Chief Executive Officer of the Company (see Note 5).
1000 Town Center Drive The property, a suburban six-story office building located in Oxnard, California, was purchased on December 30, 1993. The purchase price of $5,100,000 consisted of $3,600,000 in cash and $1,500,000 to be paid in December 1994. The Company also recorded acquisition costs of $77,000 paid to Peter B. Bedford, Chairman of the Board and Chief Executive Officer of the Company (see Note 5). The $3,600,000 cash payment was financed using the Company's new $20,000,000 revolving credit facility with Bank of America. The credit facility was subsequently paid off in January, 1994.
Columbia Business Center In accordance with a Settlement Agreement dated June 3, 1992 between the Company and the first mortgagee, ownership of Columbia Business Center was transferred to the first mortgagee. As of June 30, 1992, the Company wrote off its investment in this property, resulting in the recognition of a net gain of $1,018,000 (comprised of an extraordinary gain of $3,818,000 attributable to the extinguishment of the first mortgage on the property and a $2,800,000 loss related to the write-off of the property's buildings and improvements). The property was managed by a company owned by Peter B. Bedford, then a Board member and significant stockholder in the Company.
Industrial Buildings On December 5, 1990, the Company purchased five industrial properties from Peter B. Bedford. The aggregate purchase price of the properties to the Company was $9,050,000, plus closing and acquisition costs. The purchase price consisted of $3,938,000 in the form of 500,000 newly-issued shares of the Company's Common Stock and $5,113,000 in the form of interestonly first mortgage loans, scheduled to mature on December 4, 1995, bearing interest at rates of either 9% or 9.5%. Under a Registration Rights Agreement dated as of December 5, 1990 between the Company and Mr. Bedford, upon written request of Mr. Bedford after March 6, 1991, the Company will use its best efforts to effect the registration of the 500,000 shares of Common Stock. The Company and the seller entered into separate property management agreements under which an affiliate of the seller managed each of the properties on a dayto-day basis. Effective February 1, 1993, the Company began internally managing all of its industrial properties. The Company paid off the mortgage loans, including principal and accrued interest, on November 1, 1993.
On-site maintenance of the suburban office buildings is managed by independent property managers. With the exception of Texas Bank North, the Company centralized financial recordkeeping of all its properties effective July 1, 1993.
Note 3 - Unconsolidated Joint Venture Partnerships
Edison Square Distributions to the Company exceeded its combined mortgage loan and equity investments in these joint venture partnerships and such amounts had been recorded as liabilities in the Company's financial statements. On May 31, 1993, the Company sold its partnership interests in the three Edison Square properties in exchange for a note receivable of $300,000 with an interest rate of 8% payable quarterly in July, October, January and April until May 31, 1998 at which time the note matures. The sale of the Company's interest in the three unconsolidated joint venture partnerships resulted in a gain of $2,686,000.
Jefferson Plaza In May 1992, the Company paid $400,000 to settle a dispute with the partners in the partnership that owns Jefferson Plaza and transferred its interest in the property for a nominal sum, in exchange for general releases by the Company's partners. As of December 21, 1992, the investment in Jefferson Plaza was written off, resulting in a gain of $37,000.
The combined balance sheets of the Company's unconsolidated joint venture partnerships in Edison Square reflected assets, liabilities and partners' deficit of $23,786,000, $31,599,000 and $7,813,000, respectively. The following table reflects the combined results of the operations of the Company's unconsolidated joint venture partnerships for each of the three years ended December 31, 1993, 1992 and 1991 (in thousands).
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1 Includes the operations of Edison Square for the three months ended March 31, 1993. 2Includes the operations of Edison Square for the fifteen months ended December 31, 1992. 3Includes the operations of Edison Square for the year ended September 30, 1991, Jefferson Plaza for the year ended October 31, 1991 and University Tower for the eleven-month period ended September 30, 1991.
Note 4 - Leases
Minimum future rental receipts under occupancy leases outstanding at December 31, 1993 were as follows (in thousands):
1994 $6,640 1995 4,890 1996 4,053 1997 2,443 1998 1,341 Thereafter 2,106
The total minimum future rental payments shown above do not include tenants' obligations for reimbursement of operating expenses or taxes as provided by the terms of certain leases.
Note 5 - Related Party Transactions
Certain of the Company's properties were managed by Bedford Properties Holdings, Ltd., Inc., a wholly-owned company of Peter B. Bedford, Chairman of the Board and Chief Executive Officer of the Company. Fees of $2,000, $40,000 and $83,000 were earned during 1993, 1992 and 1991 respectively by Bedford Properties Holdings, Ltd., Inc. Effective February 1993, Bedford Properties Holdings, Ltd., Inc. ceased to render management services due to the Company's implementation of selfmanagement of the industrial buildings.
In January 1993, the Company entered into an office lease with a company in which Peter B. Bedford is a 90% shareholder. The rental obligation for the two year term is $136,000 for 3,236 square feet. As of December 31, 1993, another company wholly-owned by Peter B. Bedford was leasing 2,400 square feet of space in one of the Company's industrial buildlings on a month-to-month basis at a rental rate of $1,248 per month, which the Company feels is market rent. The furniture and equipment currently being used by the staff of the Company is the property of Bedford Properties Holdings, Ltd., Inc. and will be transferred to the Company at a price based on an outside appraisal.
In 1993, BPI Acquisitions was formed as a separate division of the Company to engage in the solicitation of equity capital, financing and the acquisition of properties. The salaries and costs associated with the division are funded by Mr. Bedford. To the extent capital is raised, financing is obtained or properties are acquired, the Company pays a fee to Mr. Bedford at a rate of one and one half (11/2) percent of such transactions up to the amount advanced. Such fees are capitalized as capital raising, financing or acquisition costs. The fundings by Mr. Bedford and any subsequent fees are subject to ongoing review and approval by the Company's independent directors. During 1993, the Company paid Mr. Bedford $478,000 in connection with the acquisition of two properties and the placement of a new revolving line of credit for property acquisitions. As of December 31, 1993, Mr. Bedford had funded $63,000 of costs related to BPI Acquisitions net of fees.
Note 6 - Stock Option Plans
The Employee Stock Option Plan provides for NonQualified Stock Options, Incentive Stock Options and Stock Appreciation Rights. On June 9, 1993, the Employee Stock Option Plan was amended whereby the aggregate number of shares which may be issued under the Plan was increased from 300,000 to 1,800,000. The amendment made consultants engaged in acquisition, financing and fund raising activities for the Company eligible under the Plan in addition to officers and key employees.
The option price may not be less than 85% of the fair market value of the common stock at the time the option is granted, with the exception of incentive stock options, wherein the option price may not be less than 100% of the fair market value of the stock at the time the option is granted. On June 9, 1993, 39,000 stock options were granted to officers of the Company at an exercise price of $4.25 per share, which was the closing price at that date. These options vest at a rate of 25% per year of service.
On May 20, 1992, the Board of Directors adopted the 1992 Directors' Stock Option Plan, which was subsequently amended by the Board and ratified by the shareholders on June 9, 1993. On May 20, 1992, each director was granted, subject to shareholder approval of the plan, options to purchase 50,000 shares of the Company's common stock at $2.875 per share, the closing price on that date. These options became exercisable on June 9, 1993. On June 9, 1993, each director was granted options to purchase an additional 10,000 shares at $4.25 per share, the closing price on that date. These options became exercisable on December 9, 1993. Pursuant to the reincorporation to the State of Maryland, the Board of Directors ratified the Employee and Directors' Plan on September 27, 1993, and on February 7, 1994 amended the Plan to reflect the Company's name change.
Note 7 - Share Equivalent Incentive Plan
The 1989 Share Equivalent Incentive Plan (the "Plan") provides for up to 300,000 "performance units" to be awarded to key employees of the Company over the eleven-year period ending December 31, 1999. Key employees selected to participate in the Plan will be paid a cash "performance award" measured by the appreciation, if any, in value of the Company's Common Stock over a three-year "performance cycle". In addition, a participating employee will be paid, at the end of the performance cycle, an amount equal to the cash distributions paid or credited by the Company during the three-year period on the number of shares of common stock equivalent to the number of units awarded. At December 31, 1993, there were no performance units outstanding.
Note 8 - Stockholder Rights Plan
On July 18, 1989, the Company's Board of Directors adopted a Stockholder Rights Plan and declared a dividend distribution of one right for each share of the Company's Common Stock outstanding on July 31, 1989. The Rights entitle the holders to purchase, under certain conditions, one-hundredth of a newly- issued share of Series A voting Preferred Stock at an exercise price of $30.00. The Rights may also, under certain conditions, entitle the holders to receive Common Stock or other consideration having a value equal to two times the exercise price of each Right. The Rights are redeemable by the Company at a price of $0.01 per Right. If not so redeemed, the Rights expire on July 18, 1999. Note 9 - Bank Loan Payable The Company's bank credit facility which matured on January 31, 1993 was not repaid and was extended through June 15, 1993. On April 26, 1993, a new credit facility with Bank of America, which consisted of a $6,000,000 threeyear term loan secured by a deed of trust on University Tower, was approved. On July 14, 1993, the new facility was funded and the previous bank credit facility was paid off. The new loan was paid off on August 18, 1993.
In December 1993, the Company concluded an agreement with Bank of America for a $20 million revolving line of credit for real estate acquisitions. This facility, which matures on January 1, 1997, carries an interest rate option of either prime plus 0.75% or an offshore interest rate, similar to LIBOR, plus 3.00% and is secured by deeds of trust on the Woodlands II and IBM buildings. The outstanding amount on the facility of $3,621,000 at December 31, 1993 was used to finance the purchase of 1000 Town Center Drive. Borrowings under the facility were subsequently repaid in January 1994.
The daily weighted average amount owing to the bank was $3,253,000 and $4,137,000 in 1993 and 1992 respectively. The weighted average interest rate in these periods was 6.7% and 5.7% respectively.
Note 10 - Quarterly Financial Data-Unaudited The following is a summary of quarterly results of operations for 1993 and 1992:
In thousands of dollars, except per share
data)
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Company's investment in the Texas Bank North
Building and Point West Place.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BEDFORD PROPERTY INVESTORS, INC.
By: /s/Peter B. Bedford Peter B. Bedford Chairman of the Board and Chief Executive Officer
Dated: March 25, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ Peter B. Bedford March 25, 1994 Peter B. Bedford, Chairman of the Board and Chief Executive Officer
By: /s/Claude M. Ballard March 25, Claude M. Ballard, Director
By: /s/ Anthony Downs March 25, Anthony Downs, Director
By: /s/ Anthony M. Frank March 25, Anthony M. Frank, Director
By: /s/ Martin I. Zankel, Esq. March 25, Martin I. Zankel, Esq., Director
By:/s/ Jay Spangenberg March 25, Jay Spangenberg Chief Financial Officer
By:\s\Hanh Kihara ________March 25, 1994 Hanh Kihara Controller